Unique Top-selling F3 Exams - New 2024 CIMA Pratice Exam
CIMA Strategic level Dumps F3 Exam for Full Questions - Exam Study Guide
NEW QUESTION # 14
A company is planning to repurchase some of its shares. Relevant details are as follows:
* 100 million shares in issue
* Current share price $5
* 5 million shares to be repurchased
* 10% repurchase premium
* Repurchased shares to be cancelled
What would you expect the share price after the repurchase to be?
Give your answer to two decimal places.
$ ?
- A. 4.97, 3.98
- B. 4.97, 4.98
Answer: B
NEW QUESTION # 15
The Board of Directors of Company T is considering a rights issue to fund a new investment opportunity which has a zero NPV.
The Board of Directors wishes to explain to shareholders what the theoretical impact on their wealth will be as a result of different possible actions during the rights issue.
Which THREE of the following statements in respect of theoretical shareholder wealth are true?
- A. If the shareholders allow their rights to lapse (do nothing) there will be no impact on their wealth.
- B. If shareholders sell their entire rights entitlement there will be no impact on their wealth.
- C. If the shareholders only partially exercise their rights and allow the remainder to lapse there will be no impact on their wealth.
- D. If shareholders exercise their full rights there will be no impact on their wealth.
- E. If shareholders partially exercise their rights and sell the remaining rights entitlement there will be no impact on their wealth.
Answer: B,D,E
NEW QUESTION # 16
A company has borrowings of S5 million on which it pays interest at 8%. It has an operating profit margin of
20%.
The company plans to increase borrowings by S2 million Interest on additional borrowings would be 10% and the operating profit margin would remain unchanged A debt covenant attached to the new borrowings requires interest cover to be at least 4 times throughout the period of the borrowing Interest cover is defined in the loan documentation as being based on operating profit What is the minimum sales value required each year to avoid a breach of the interest cover covenant'
- A. S12.00 million
- B. TS2.40 million
- C. S3.00 million
- D. S2.88 million
Answer: B
NEW QUESTION # 17
KKL is a listed sports clothing company with three separate business units. KKL is seeking to sell TT', one of these business units
TTP cwns a new. brand of trail running shoes that have Droved hugely popular with lone distance runners. The management team of TTP are frustrated by the constraints imposes b/ KKL in managing tie brand and developing. the bus ness and they believe that TTF has huge growth potential.
The management team of TTP have approached KKL with a proposal to purchase 1~P through a management layout (MDO). KKL has accepted this proposal as TTP has not proved to be a good fit' with the rest of the business and has agreed on the selling price.
Which THREE of the following factors a-e mast Likely to affect the success of the MBO?
- A. The motivation of the TTP management team to invest in future growth.
- B. Searing sufficient. funding for the MBO.
- C. The ability the TTP management team to develop the brand and achieve the expected growth.
- D. The constraints imposed by KKL managing TTF's brand.
- E. The ability of the TTF management team to take over the head office functions successfully.
Answer: B,C,E
NEW QUESTION # 18
The directors of a multinational group have decided to sell off a loss-making subsidiary and are considering the following methods of divestment:
1. Trade sale to an external buyer
2. A management buyout (MBC)
The MDO team and the external buyer have both offered the same price to the parent company for the subsidiary.
Which of the following is an advantage to the parent company of opting for a MBO compared to a trade sale as the preferred method of divestment?
- A. Avoid a hostile reaction from key management.
- B. Focus on the core competencies of the business
- C. Raise the cash more quickly.
- D. Retain the know edge of key management.
Answer: A
NEW QUESTION # 19
A company plans to cut its dividend but is concerned that the share price will fall.
This demonstrates the _____________ effect.
Answer:
Explanation:
dividend signaling
NEW QUESTION # 20
Company X is based in Country A, whose currency is the A$.
It trades with customers in Country B, whose currency is the B$.
Company X aims to maintain its revenue from exports to Country B at 25% of total revenue.
Company A has the following forecast revenue:
The forecast revenue from Country B has assumed an exchange rate of A$1/B$2, that is A$1 = B$2.
If the B$ depreciates against the A$ by 10%, the ratio of revenue generated from Country B as a percentage of total revenue will:
- A. rise to 30.3%.
- B. fall to 23.3%.
- C. fall to 22.7%.
- D. rise to 27.0%.
Answer: B
NEW QUESTION # 21
A company is based in Country Y whose functional currency is YS. It has an investment in Country Z whose functional currency is ZS This year the company expects to generate ZS20 million profit after tax.
Tax Regime
* Corporate income tax rate in Country Y is 60%
* Corporate income tax rate in Country Z Is 30%
* Full double tax relief is available
Assume an exchange rate of YS1 = ZS5
What is the expected profit after tax in YS if the ZS profit is remitted to Country Y?
- A. YS6.67 million
- B. YS1 60 million
- C. YS57.14 million
- D. YS2 29 million
Answer: D
NEW QUESTION # 22
Company C has received an unwelcome takeover bid from Company P.
Company P is approximately twice the size of Company C based on market capitalisation.
Although the two companies have some common business interests, the main aim of the bid is diversification for Company P.
The offer from Company P is a share exchange of 2 shares in Company P for 3 shares in Company C.
There is a cash alternative of $5.50 for each Company C share.
Company C has substantial cash balances which the directors were planning to use to fund an acquisition.
These plans have not been announced to the market.
The following share price information is relevant. All prices are in $.
Which of the following would be the most appropriate action by Company C's directors following receipt of this hostile bid?
- A. Change the Articles of Association to increase the percentage of shareholder votes required to approve a takeover.
- B. Pay a one-off special dividend.
- C. Refer the bid to the country's competition authorities.
- D. Write to shareholders explaining fully why the company's share price is under valued.
Answer: D
NEW QUESTION # 23
Z wishes to borrow at a floating rate and has been told that it can use swaps to reduce the effective interest rate it pays. Z can borrow floating at Libor ' 1, and fixed at 10%.
Which of the following companies would be the most appropriate for Z to enter into a swap with?
- A. Company E - it can borrow floating at L +1 1/2 and fixed at 12%
- B. Company A - it can borrow floating L +1 1/2 and fixed at 9.5%
- C. Company D - it can borrow at L +1 1/2 and fixed at 10.5%
- D. Company C - it can borrow at L +1 1/2 and fixed at 9%
Answer: D
NEW QUESTION # 24
The Government of Eastland is concerned that competition within its private healthcare industry is being distorted by the dominant position of the market leader, Delta Care. The Government has instructed the industry regulator to investigate whether the industry is operating fairly in the interests of patients.
Which of the following factors might the industry regulator review as part of their investigation?
Select ALL that apply.
- A. Industry entry barriers
- B. Medical treatment efficacy rates
- C. Prices across the industry
- D. Each healthcare provider's market share
- E. Profits amongst healthcare providers
Answer: B,D,E
NEW QUESTION # 25
Company AB was established 6 years ago by two individuals who each own 50% of the shares.
Each individual heads a separate division within the company, which now has annual turnover of GBP10 million and employs 40 people.
Some of the employees are very highly paid as they are important contributors to the company's profitability.
The owners of the company wish to realise the full value of their investment within the next 12 months.
Which TWO of the following options are most likely to be acceptable exit strategies to the two owners of the company?
- A. Initial Public Offering (IPO)
- B. Sale to a Private Equity Investor on an earn-out basis
- C. Spin off (or de-merger)
- D. Sale to a larger competitor
- E. Management Buyout
Answer: D,E
NEW QUESTION # 26
At the last financial year end, 31 December 20X1, a company reported:
The corporate income tax rate is 30% and the bank borrowings are subject to an interest cover covenant of 4 times.
The results are presently comfortably within the interest cover covenant as they show interest cover of 8.3 times. The company plans to invest in a new product line which is not expected to affect profit in the first year but will require additional borrowings of $20 million at an annual interest rate of 10%.
What is the likely impact on the existing interest cover covenant?
- A. Interest cover would reduce to 3 times and the covenant would NOT be breached.
- B. Interest cover would reduce to 5 times and the covenant would be breached.
- C. Interest cover would reduce to 5 times and the covenant would NOT be breached.
- D. Interest cover would reduce to 3 times and the covenant would be breached.
Answer: C
NEW QUESTION # 27
A listed publishing company owns a subsidiary company whose business activity is training.
It wishes to dispose of the subsidiary company.
The following information is available:
The board of the publishing company believe that the value of the subsidiary company, and hence the value of the equity invested in it, can be determined by calculating the present value of the subsidiary's free cashflows.
Which of the following is the most appropriate discount rate to use when determining the enterprise value of the company?
- A. A WACC that the reflects the gearing of the publishing company and the equity beta factor of the publishing company.
- B. A WACC that reflects the gearing of the publishing company and the asset beta of a listed company that provides training activities.
- C. A WACC that reflects the gearing of the subsidiary company and the asset beta of a listed company that provides training activities.
- D. A cost of equity that reflects the asset beta of a listed company that provides training activities.
Answer: B
NEW QUESTION # 28
A company generates and distributes electricity and gas to households and businesses.
Forecast results for the next financial year are as follows:
The Industry Regulator has announced a new price cap of $2.00 per Kilowatt.
The company expects this to cause consumption to rise by 15% but costs would remained unaltered.
The price cap is expected to cause the company's net profit to fall to:
- A. $164.00 million profit
- B. $126.50 million loss
- C. $43.00 million profit
- D. $8.75 million profit
Answer: A
NEW QUESTION # 29
Company Z wishes to borrow $50 million for 10 years at a fixed rate of interest.
Two alternative approaches are being considered:
A: Issue a 10 year bond at a fixed rate of 6%, or B: Borrow from the bank at Libor +2.5% for a 10 year period and simultaneously enter into a 10 year interest rate swap.
Current 10 year swap rates against Libor are 4.0% - 4.2%.
What is the difference in the net interest cost between the two alternative approaches?
- A. Approach A is 0.5% a year less expensive
- B. Approach B is 2.0% a year less expensive
- C. Approach B is 2.2% a year less expensive
- D. Approach A is 0.7% a year less expensive
Answer: D
NEW QUESTION # 30
Company E is a listed company. Its directors are valuing a smaller listed company, Company F, as a possible acquisition.
The two companies operate in the same markets and have the same business risk.
Relevant data on the two companies is as follows:
Both companies are wholly equity financed and both pay corporate tax at 30%.
The directors of Company E believe they can "bootstrap" Company F's earnings to improve performance.
Calculate the maximum price that Company E should offer to Company F's shareholders to acquire the company.
Give your answer to the nearest $million.
- A. 3,150
- B. 1,890
- C. 2,700
- D. 4,500
Answer: A
NEW QUESTION # 31
Company A plans to diversify by a cash acquisition of Company B an unlisted company in another country (Country B) which operates in a different industrial sector Company A already manufactures its product in Country B and has a loan denominated in Country B's currency Company A regularly suffers foreign exchange losses due to volatility in the exchange rate between the two countries' currencies in recent years.
Which THREE of the following appear to be be valid justifications of this diversification decision?
- A. The diversification will give Company A greater protection from transaction risk.
- B. The diversification will give Company A protection from political risk
- C. The diversification will enable Company A to enjoy production scale economies
- D. The diversification will give Company A greater protection from translation risk
- E. The diversification into another product market will lower business risk
Answer: A,B,D
NEW QUESTION # 32
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CIMAPRA19-F03-1 exam is a computer-based exam that consists of 90 multiple-choice questions. Candidates are given three hours to complete the exam, which is held at designated testing centers around the world. F3 exam is offered several times a year, and candidates can register for the exam online through the CIMA website. F3 exam fee varies depending on the candidate's location and membership status with CIMA.
CIMA CIMAPRA19-F03-1 exam covers investment appraisal, which involves the evaluation of investment opportunities to determine their potential for generating returns. This section covers various techniques such as net present value, internal rate of return, and payback period. The third section covers risk management and corporate finance, which involves the management of financial risk and the identification of opportunities to maximize shareholder value.
The CIMA F3 exam covers various topics such as financial strategy formulation, evaluating financial strategies, tools for financial analysis, risk management, and stakeholder management. F3 exam aims to test candidates on their ability to create and implement strategies, assess financial risks, and communicate the strategies and financial information effectively with stakeholders. F3 exam is computer-based and consists of objective-type questions, including multiple-choice questions and scenario-based ones.
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