Get Jan-2024 Download Latest & Valid Questions For CIMA F3 exam [Q80-Q104]

Get Jan-2024 Download Latest & Valid Questions For CIMA F3 exam

Ensure Success With Updated Verified F3 Exam Dumps

NEW QUESTION # 80
Two unlisted companies TTT and YYY are being valued. The companies have similar capital structures and risk profiles and operate in the same industry sector It is easier to value TTT than to value YYY because there have recently been several well-publicised private sales of TTT shares.
Relevant company data:

What is the best estimate of YYY's share price?

A. $0.94
B. $1.20
C. $0.68
D. $0.60

Answer: B

NEW QUESTION # 81
CI IJ has decided to move its production plant to overseas country X.
This would make the product cheaper to produce. The technology used to make the product is very advanced and some of the skilled staff would have to move to country X.
The Production Director has identified that there are some political risks in moving to county X.
For each of the political risks of moving to country X shown below, select the correct method for reducing the risk.

Answer:

Explanation:

NEW QUESTION # 82
A company is owned by its five directors who want to sell the business.
Current profit after tax is $750,000.
The directors are currently paid minimal salaries, taking most of their incomes as dividends.
After the company is sold, directors' salaries will need to be increased by $50,000 each year in total.
A suitable Price/Earnings (P/E) ratio is 7, and the rate of corporate tax is 20%.
What is the value of the company using a P/E valuation?

A. $4,970,000
B. $5,530,000
C. $5,250,000
D. $4,900,000

Answer: A

NEW QUESTION # 83
A company's current earnings before interest and taxation are $5 million.
These are expected to remain constant for the forseeable future.
The company has 10 million shares in issue which currently trade at $3.60.
It also has a $10 million long term floating rate loan.
The current interest rate on this loan is 5%.
The company pays tax at 20%.
The company expects interest rates to increase next year to 6% and it's Price/Earnings (P/E) ratio to move to 9.5 times by the end of next year.
What percentage reduction in the share price will occur by the end of next year if the interest rate increase and the P/E movement both occur?

A. Reduction of 1%
B. Reduction of 0%
C. Reduction of 5%
D. Reduction of 7%

Answer: D

NEW QUESTION # 84
Company A is based in country A with the AS as its functional currency. It expects to receive BS20 million from Company B in settlement of an export invoice.
The current exchange rate is A$1 =B$2 and the daily standard deviation of this exchange rate = 0 5% What is the one-day 95% VaR in AS?

A. A$50,000
B. A$164,500
C. A$822,500
D. A$82,250

Answer: D

NEW QUESTION # 85
A large, quoted company that is all-equity financed is planning to acquire a smaller unquoted company that is also all-equity financed.
The acquiring company's directors are using the dividend valuation model to value the target company before making an offer.
Relevant data for the target company:
* Dividends paid in the last financial year $2 million
* Book value of net assets $15 million
* Shares in issue 1 million
The acquiring company's cost of capital is 10%.
Its directors believe they can improve the target company's performance in the long term.
They estimate there will be no growth in the first year of the acquisition but from year 2 onwards there will be a 4% growth each year in perpetuity.
What is the maximum price the acquiring company should offer for each of the shares in the target company?

A. $34.67
B. $15.00
C. $32.78
D. $33.33

Answer: D

NEW QUESTION # 86
A listed company follows a policy of paying a constant dividend. The following information is available:
* Issued share capital (nominal value $0.50) $60 million
* Current market capitalisation $480 million
The shareholders are requesting an increased dividend this year as earnings have been growing. However, the directors wish to retain as much cash as possible to fund new investments. They therefore plan to announce a 1-for-10 scrip dividend to replace the usual cash dividend.
Assuming no other influence on share price, what is the expected share price following the scrip dividend?
Give your answer to 2 decimal places.
$ ?

Answer:

Explanation:
3.64, 3.63, 3.65

NEW QUESTION # 87
B has a S3 million loan outstanding on which the interested rate is reset every 6 months for the following 6 month and the interested is payable at the end of that 6 month period. The next 6 monthly reset period starts in
3 months and the treasurer of B thinks interested rates are likely to raise between and then.
Current 6-month rates are 6.4% and the treasurer can get a rate of 6.9% for a 6-month forward rate agreement (FRA) starting in 3 months time. By transacting an TRA the treasurer can lock in a rate today of 6.9%.
If interested rates are 7.5% in 3 months' time, what will the net amount payable be?
Give your answer to the nearest thousand dollars.

Answer:

Explanation:
104

NEW QUESTION # 88
RST wishes to raise at least $40 million of new equity by issuing up to 10 million new equity shares at a minimum price of $3.00 under an offer for sale by tender. It receives the following tender offers:

What is the maximum amount that RST can raise by this share issue?
(Give your answer to the nearest $ million).

Answer:

Explanation:
49

NEW QUESTION # 89
On 1 January:
* Company X has a value of $50 million
* Company Y has a value of $20 million
* Both companies are wholly equity financed
Company X plans to take over Company Y by means of a share exchange. Following the acquisition the post-tax cashflow of Company X for the foreseeable future is estimated to be $8 million each year. The post-acquisition cost of equity is expected to be 10%.
What is the best estimate of the value of the synergy that would arise from the acquisition?

A. $100 million
B. $60 million
C. $10 million
D. $30 million

Answer: C

NEW QUESTION # 90
The directors of a unlisted manufacturing company have prepared a valuation of their company using the price-earning method.
Their calculation is:
Value if the company's equity = $6 million x 10 =$60 million where.
* $6 million is the company's reported profit before interested and tax in the most recent accounting period and
* 10 is the average price-earnings ratio for all listed companies
Which THREE of the following are weakness of this valuation?

A. Profit after tax should have been used in the calculation instead of profit before interest and tax.
B. The price-earnings ratio should have been an average for companies in the same industry sector rather than alI listed companies
C. The price-earnings valuation method gives a value for the entire entity not Just a value of the equity.
D. A forecast of sustainable profit should have been used instead of a historical figure
E. The equity result needs to be uplifted in recognition that this is an unlisted company.

Answer: A,B,D

NEW QUESTION # 91
A company intends to sell one of its business units. Company W, by a management buyout (MBO). A selling price of S200 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 35% a year on a compound basis over 5 years. What is the minimum total equity value of Company W in 5 years time in order to meet the VCC's required return? Give your answer to one decimal place.

A. 0
B. 1

Answer: A

NEW QUESTION # 92
Which THREE of the following are considered in detail in IFRS 7 Financial Instruments: Disclosures?

A. Enterprise risk
B. Business risk
C. Liquidity risk
D. Market risk
E. Credit risk

Answer: C,D,E

NEW QUESTION # 93
Company A is a large well-established listed entertainment company and Company B is a small unlisted company specializing in providing online media streaming.
Company A has a gearing ratio of 60% (using book values) and interest cover of 2.
Company A is considering making an offer for Company B, either a cash offer financial by raising additional debt finance or a share-for-share exchange.
Which of the following is most likely to occur if Company A offers a share-for exchange rather than offering cash finance by raising debt?

A. Eamings per share would be higher.
B. Divided per share would be higher.
C. There would be no dilution f of control.
D. Geaning would be lower.

Answer: D

NEW QUESTION # 94
A company is preparing an integrated report according to the International <IR> Framework as issued by the International Integrated Reporting Council.
Which THREE of the following should be included in the report?

A. A comparison of the key elements of its financial statements with those of its main competitor.
B. A summary of the key issues discussed by directors in main board meetings.
C. The challenges and uncertainties that the organisation is likely to encounter in pursuing its strategy.
D. An explanation of how the organisation's governance structure supports its ability to create value in the short, medium and long term.
E. A detailed analysis of the organisation's business model.

Answer: C,D,E

NEW QUESTION # 95
A venture capitalist invests in a company by means of buying:
* 9 million shares for $2 a share and
* 8% bonds with a nominal value of $2 million, repayable at par in 3 years' time.
The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment.
The company has 10 million shares in issue.
What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?
Give your answer to the nearest $ million.
$ million.

A. 34, 35, 34000000, 35000000
B. 35, 35, 34000000, 35000000

Answer: A

NEW QUESTION # 96
A UK company enters into a 5 year borrowing with bank P at a floating rate of GBP Libor plus 3%
It simultaneously enters into an interest rate swap with bank Q at 4.5% fixed against GBP Libor plus 1.5%
What is the hedged borrowing rate, taking the borrowing and swap into account?
Give your answer to 1 decimal place.

A. 6.5%
B. 7.5%

Answer: B

NEW QUESTION # 97
A wholly equity financed company has the following objectives:
1. Increase in profit before interest and tax by at least 10% per year.
2. Maintain a dividend payout ratio of 40% of earnings per year.
Relevant data:
* There are 2 million shares in issue.
* Profit before interest and tax in the last financial year was $5 million.
* The corporate income tax rate is 30%.
At the beginning of the current financial year, the company raised long term debt of $2 million at 10% interest each year.
Calculate the dividend per share that will be announced this year assuming the company achieves its objective of increasing profit before interest and tax by 10%.

A. $0.74
B. $1.01
C. $0.67
D. $1.11

Answer: A

NEW QUESTION # 98
Two unlisted companies TTT and YYY are being valued. The companies have similar capital structures and risk profiles and operate in the same industry sector It is easier to value TTT than to value YYY because there have recently been several well-publicised private sales of TTT shares.
Relevant company data:

What is the best estimate of YYY's share price?

A. $0.94
B. $1.20
C. $0.68
D. $0.60

Answer: B

NEW QUESTION # 99
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. YS1 60 million
B. YS2 29 million
C. YS6.67 million
D. YS57.14 million

Answer: B

NEW QUESTION # 100
A company based in Country D, whose currency is the D$, has an objective of maintaining an operating profit margin of at least 10% each year.
Relevant data:
* The company makes sales to Country E whose currency is the E$. It also makes sales to Country F whose currency is the F$.
* All purchases are from Country G whose currency is the G$.
* The settlement of all transactions is in the currency of the customer or supplier.
Which of the following changes would be most likely to help the company achieve its objective?

A. The D$ strengthens against the E$ over time.
B. The F$ weakens against the D$ over time.
C. The D$ weakens against the G$ over time.
D. The D$ strengthens against the G$ over time.

Answer: D

NEW QUESTION # 101
Which of the following would be a reason for a company to adopt a low dividend pay-out policy?

A. A lack of alternative sources of finance
B. Using dividends to give a signal to the stock market
C. A lack of investment opportunities
D. High profitability

Answer: B

NEW QUESTION # 102
Providers of debt finance often insist on covenants being entered into when providing debt finance for companies.
Agreement and adherence to the specific covenants is often a condition of the loan provided by the lender.
Which THREE of the following statements are true in respect of covenants?

A. Covenants are entered into to penalise the company.
B. Covenants are entered into to eliminate the tax liability of the company.
C. Covenants enable the lender to demand immediate repayment or to renegotiate terms if it is breached.
D. Covenants are entered into to impose financial discipline on the company.
E. Covenants are entered into to give the lender added protection on the loan extended to the company.

Answer: C,D,E

Explanation:
Explanation
Discursive_F0

NEW QUESTION # 103
A listed company is financed by debt and equity.
If it increases the proportion of debt in its capital structure it would be in danger of breaching a debt covenant imposed by one of its lenders.
The following data is relevant:

The company now requires $800 million additional funding for a major expansion programme.
Which of the following is the most appropriate as a source of finance for this expansion programme?