Ace F3 Certification with 435 Actual Questions
PASS CIMA F3 EXAM WITH UPDATED DUMPS
Candidates must meet certain eligibility requirements to take the CIMAPRA19-F03-1 exam. They must have completed the CIMA Certificate in Business Accounting or hold an equivalent qualification. They must also have completed the CIMA Professional Qualification or be in the process of completing it. Candidates must also have at least three years of relevant work experience in finance or accounting.
NEW QUESTION # 221
Company R is a major food retailer. It wishes to acquire Company S, a food manufacturer.
Company S currently supplies many stores owned by Company R with food products that it manufactures.
Company S is of similar size to Company R but has a lower credit rating.
Which of the following is most likely to be a synergistic benefit to R on purchasing S?
- A. Savings due to a reduction in purchase costs and more control over the value chain.
- B. Cost savings due to reducing the range of products manufactured by Company S.
- C. Lower cost of borrowing due to the acquistion of a company with a different credit rating.
- D. Reduced competition resulting in the ability to raise retail selling prices for food products.
Answer: A
NEW QUESTION # 222
Company B is an all equity financed company with a cost of equity of 10%.
It is considering issuing bonds in order to achieve a gearing level of 20% debt and 80% equity.
These bonds will pay a coupon rate of 5% and have an interest yield of 6%.
Company B pays corporate tax at the rate of 25%.
According to Modigliani and Miller's theory of capital structure with tax, what will be Company B's new cost of equity?
A)
B)
C)
D)
- A. Option A
- B. Option C
- C. Option D
- D. Option B
Answer: D
NEW QUESTION # 223
Company Z has just completed the all-cash acquisition of Company A.
Both companies operate in the advertising industry.
The market considered the acquisition a positive strategic move by Company Z.
Which THREE of the following will the shareholders of Company Z expect the company's directors to prioritise following the acquisition?
- A. The retention of key customers of the acquired company.
- B. The realisation of anticipated post-acquisition synergies.
- C. The integration and retention of key employees.
- D. The development of a dividend policy to meet the expectations of the target company shareholders.
- E. The regulatory approval required to complete the acquisition.
Answer: A,B,C
NEW QUESTION # 224
Which of the following statements about the tax impact on debt finance is correct?
- A. Interest on debt is deducted from post-tax profits.
- B. Preference share dividends attract tax relief in the same way as debenture interest.
- C. Interest on debt is deducted from pre-tax profits.
- D. Debt instruments issued with fixed and floating charges do not attract tax relief on interest paid.
Answer: C
NEW QUESTION # 225
A company has a covenant on its 5% long-term bond, stipulating that its retained earnings must not fall below
$2 million.
The company has 100 million shares in issue.
Its most recent dividend was $0.045 per share. It has committed to grow the dividend per share by 4% each year.
The nominal value of the bond is $60 million. It is currently trading at 80% of its nominal value.
Next year's earnings before interest and taxation are projected to be $11.25 million.
The rate of corporate tax is 20%.
If the company increases the dividend by 4%, advise the Board of Directors if the level of retained earnings will comply with the covenant?
- A. Covenant is breached as retained earnings = $1.92 million.
- B. The covenant is not breached as retained earnings = $4.68 million.
- C. Covenant is not breached as retained earnings = $2.10 million.
- D. Covenant is not breached as retained earnings = $2.40 million.
Answer: A
NEW QUESTION # 226
Company X plans to acquire Company Y.
Pre-acquisition information:
Post-acquisition information:
Total combined earnings are expected to increase by 10%
Total combined P/E multiple will remain at 10 times
Which of the following share-for-share exchanges will result in an increase of 10% in Company X's share price post-acquisition?
- A. 1 share in Company X for 2 shares in Company Y
- B. 1 share in Company X for 2.75 shares in Company Y
- C. 2 shares in Company X for 1 shares in Company Y
- D. 3 shares in Company X for 5 shares in Company Y
Answer: D
NEW QUESTION # 227
A listed company plans to raise $350 million to finance a major expansion programme.
The cash flow projections for the programme are subject to considerable variability.
Brief details of the programme have been public knowledge for a few weeks.
The directors are considering two financing options, either a rights issue at a 20% discount to current share price or a long term bond.
The following data is relevant:
The company's share price has fallen by 5% over the past 3 months compared with a fall in the market of 3% over the same period.
The directors favour the bond option.
However, the Chief Accountant has provided arguments for a rights issue.
Which TWO of the following arguments in favour of a right issue are correct?
- A. The recent fall in the share price makes a rights issue more attractive to the company.
- B. The WACC will decrease assuming Modigliani and Miller's Theory of Capital Structure without taxes applies.
- C. The rights issue will lead to less pressure on the operating cash flows of the programme.
- D. The issue of bonds might limit the availability of debt finance in the future.
- E. The administrative costs of a rights issue will be lower.
Answer: C,D
NEW QUESTION # 228
DFG is a successful company and its shares are listed on a recognised stock exchange. The company's gearing ratio is currently in line with the industry average and the directors of DFG do not want to increase the company's financial risk. The company does not carry a large cash balance and its shareholders are not expected to be willing to support a rights issue at this time LMB is a small services company owned and managed by a small board of directors who are going to retire within the next year DFG wishes to purchase LMB and has approached LMB's owners, who are broadly open to the proposal, to discuss the bid and the consideration to be offered by DFG. LMB's owners explain to DFG that they are also keen to defer any tax liabilities they would be subject to on receipt of the consideration.
Based on the information provided, which of the following types of consideration would be most suitable to finance the acquisition?
- A. Cash for the current value of LMB
- B. Loan stock in DFG for the current value of LMB
- C. DFG shares for a percentage of the current value of LMB plus a three year earn-out arrangement
- D. DFG shares for the current value of LMB
Answer: D
NEW QUESTION # 229
A company is considering hedging the interest rate risk on a 3-year floating rate borrowing linked to the
12-month risk-free rate.
If the 12-month risk-free rate for the next three years is 2%, 3% and 4%, which of the following alternatives would result in the lowest average finance cost for the company over the three years?
- A. Enter into a zero-cost collar with a floor of 2.9% and a ceiling of 4%.
- B. Enter into an interest rate swap at 3.1% fixed against 12-month risk-free rate.
- C. Enter into an interest rate cap at an annual premium of 0.533% and a cap of 3%,
- D. Do not hedge.
Answer: D
NEW QUESTION # 230
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 constraints imposed by KKL managing TTF's brand.
- B. The ability the TTP management team to develop the brand and achieve the expected growth.
- C. The ability of the TTF management team to take over the head office functions successfully.
- D. The motivation of the TTP management team to invest in future growth.
- E. Searing sufficient. funding for the MBO.
Answer: B,C,E
NEW QUESTION # 231
XYZ is a multi-national group with subsidiary AA in Country A and subsidiary BB in Country B. The capital structures of AA and BB are set up to take advantage of the lower tax rate in Country A Thin capitalisation rules in Country B will limit the ability for either AA or BB to claim tax relief on:
- A. interest earned by AA
- B. interest paid by BB
- C. interest earned by BB.
- D. interest paid by AA
Answer: B
NEW QUESTION # 232
A company intends to sell one of its business units, Company R by a management buyout (MBO).
A selling price of $100 million has been agreed.
The managers are discussing with a bank and a venture capital company (VCC) the following financing proposal:
The VCC requires a minimum return on its equity investment in the MBO of 30% a year on a compound basis over 5 years.
What is the minimum TOTAL equity value of Company R in 5 years time in order to meet the VCC's required return?
Give your answer to one decimal place.
$ ? million
Answer:
Explanation:
111.4, 111, 111.0, 111.1, 111.2, 111.3, 111.5, 111.6, 111.7
NEW QUESTION # 233
A consultancy company is dependent for profits and growth on the high value individuals it employs.
The company has relatively few tangible assets.
Select the most appropriate reason for the net asset valuation method being considered unsuitable for such a company.
- A. It does not account for tangible assets.
- B. It does not account for the intangible assets.
- C. It accounts for intangible assets at net realisable value.
- D. It accounts for the intangible assets at historical value.
Answer: B
NEW QUESTION # 234
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. Write to shareholders explaining fully why the company's share price is under valued.
- C. Refer the bid to the country's competition authorities.
- D. Pay a one-off special dividend.
Answer: B
NEW QUESTION # 235
Company A is planning to acquire Company B at a price of $ 65 million by means of a cash bid.
Company A is confident that the merged entity can achieve the same price earnings ratio as that of Company A.
What does Company A expect the value of the merged entity to be post acquisition?
- A. $122.5 million
- B. $156.0 million
- C. $207.0 million
- D. $187.5 million
Answer: A
NEW QUESTION # 236
Assume today is 31 December 20X1.
A listed mobile phone company has just launched a new phone which is proving to be a great success.
As a direct result of the product's success, earnings are forecast to increase by:
* 5% a year in each of years 20X2 - 20X6
* 3% from 20X7 onwards
Market analysts were very excited to hear the news of the success of the product and future growth forecasts.
Assuming a semi-efficient market applies, which of the following company valuation methods is likely to give the best estimate of the company's equity value today?
- A. P/E valuation based on the company's long term P/E and earnings for the year ended 31 December 20X1.
- B. Discounted free cash flow using the company's forecast growth rates.
- C. Today's share price x number of shares in issue.
- D. Today's share price x number of shares in issue + retained earnings.
Answer: C
NEW QUESTION # 237
A company's latest accounts show profit after tax of $20.0 million, after deducting interest of $5.0 million. The company expects earnings to grow at 5% per annum indefinitely.
The company has estimated its cost of equity at 12%, which is included in the company WACC of 10%.
Assuming that profit after tax is equivalent to cash flows, what is the value of the equity capital?
Give your answer to the nearest $ million.
Answer:
Explanation:
$ ? million
300, 300000000
NEW QUESTION # 238
A company has identified potential profitable investments that would require a total of S50 million capital expenditure over the next two years The following information is relevant.
* The company has 100 million shares in issue and has a market capitalisation of S500 million
* It has a target debt to equity ratio of 40% based on market values This ratio is currently 30%
* Earnings for the current year are expected to be S1 00 million
* Its last dividend payment was $1 per share One of the company's objectives is to increase dividends by at least 10% each year
* The company has no cash reserves
Which of the following is the most suitable method of financing to meet the company's requirements?
- A. Increase debt to meet the target debt to equity ratio.
- B. Maintain dividends at $1 per share for the next two years.
- C. Reduce dividends for this year only to 50 cents a share.
- D. Use a share repurchase scheme rather than pay a cash dividend
Answer: D
NEW QUESTION # 239
An unlisted company has the following data:
A listed company in the same industry has a P/E of 11.
The value of the unlisted company based on the P/E of this listed company is:
Give your answer to the nearest whole number.
- A. 0
- B. 1
Answer: A
NEW QUESTION # 240
A government is currently considering the privatisation of the national airline. The shares are to be offered to the public via a fixed price Initial Public Offering (IPO).
Which THREE of the following statements are correct?
- A. The rational airline employees will no longer be public sector employees following the completion of the privatisation
- B. The government will receive significant financial resources from the sale of its shareholding in the national airline.
- C. An IPO is normally underwritten
- D. The rational airline will receive significant financial resources as a direct result of the shares company shares in the IPO.
- E. The use of a fixed price offer will ensure that the government raises the maximum amount of finance.
Answer: B,D,E
NEW QUESTION # 241
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CIMA CIMAPRA19-F03-1 (F3 Financial Strategy) Certification Exam is intended for professionals who are looking to enhance their knowledge of financial strategy and advance their careers in the financial industry. F3 exam covers a wide range of topics related to financial strategy, including financial analysis, risk management, investment planning and management, and financial reporting. F3 exam is designed to test the candidate's knowledge of these topics and their ability to apply this knowledge to real-world financial situations.
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