Accounting Finance Questions

1228 Words Mar 8th, 2011 5 Pages
Question 1
Listing on a stock exchange might be highly desirable for a company, but there are a number of requirements, conditions and costs associated with becoming a publicly listed corporation. a) Discuss the ASX profit test and asset test requirements. b) Analyse the advantages and costs that are incurred when a company becomes a publicly listed corporation.

a) To meet the profit test requirements of admission, an entity must satisfy each of the following conditions: * The entity must be a going concern, or the successor of a going concern. * The entity must have been engaged in the same principal business activity for the last three full financial years. * The entity must provide audited financial statements
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* Alignment of employee/management interests – the process of remunerating your employees, executives and directors with shares is simplified, making it easier to align the interests of your employees with the goals of the organisation. * Reassurance of customers and suppliers – organisations listed on ASX generally find that the perception of their financial and business strength is improved.

Question 2
Convertible notes and company issued options are often referred to as “quasi-equity”. i) Describe the characteristics of each of these instruments that serve to distinguish them from straight equity or debt?

ii) Critically analyse why a company may issue quasi-equity rather than straight debt or equity.

Question 3
A number of different approaches may be considered by investors in the equity market. i) Explain the differences between active and passive investments. Analyse the advantages of these two investment strategies.
Active investments – A portfolio structure based on share analysis, new information and risk/return preferences (fundamental and technical analysis to support investment decisions)

Passive investments – a portfolio structure based on the replication of a specific share-market index (Passive Captures the Return of an Entire Market)

Actively managed funds rarely have returns higher than their passive counterparts. Active Management Carries Higher Costs. As passive funds do not do a lot of trading, they have

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