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CIMA CIMAPRA19-F03-1 (F3 Financial Strategy) Certification Exam is an essential certification exam for individuals seeking to advance their careers in finance. F3 exam is designed to test the knowledge and skills of finance professionals in areas such as financial strategy, investment decisions, risk management, and financial instruments. F3 Financial Strategy certification is globally recognized, making it a valuable asset for finance professionals seeking to work in various parts of the world.
NEW QUESTION # 133
Company A has a cash surplus.
The discount rate used for a typical project is the company's weighted average cost of capital of 10%.
No investment projects will be available for at least 2 years.
Which of the following is currently most likely to increase shareholder wealth in respect of the surplus cash?
- A. Investing in the local money market at 4% each year.
- B. Investing in a 2 year bond returning 5% each year.
- C. Maintaining the cash in a current account.
- D. Paying the surplus cash as a dividend at the earliest opportunity.
Answer: D
Explanation:
Explanation
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NEW QUESTION # 134
Company A is planning to acquire Company B. Both companies are listed and are of similar size based on market capitalisation No approach has yet been made to Company B's shareholders as the directors of Company A are undecided about the most suitable method of financing the offer Two methods are under consideration a share exchange or a cash offer financed by debt.
Company A currently has a gearing ratio (debt to debt plus equity) of 30% based on market values. The average gearing ratio (debt to debt plus equity) for the industry is 50% Although no formal offer has been made there have been market rumours of the proposed bid. which is seen as favorable to Company A. As a consequence. Company As share price has risen over the past few weeks while Company B's share price has fallen.
Which THREE of the following statements are most likely to be correct?
- A. Company A's weighted average cost of capital will fall if financing is with debt
- B. The method of finance chosen will not affect the post-acquisition earning per share of the combined business
- C. Based on current share price movements, a share exchange would mean Company A has to issue fewer shares to acquire Company B than it would have done a few weeks ago
- D. Company B's shareholders will be able to participate in the future growth of the combined business if it is a share exchange
- E. Company A's gearing will increase following a share exchange.
Answer: A,C
NEW QUESTION # 135
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. fall to 23.3%.
- B. rise to 30.3%.
- C. fall to 22.7%.
- D. rise to 27.0%.
Answer: A
NEW QUESTION # 136
A UK based company is considering investing GBP1 ,000,000 in a project it the USA. It is anticipated that the project will yield net cash inflows of USD580.000 each year for the next three years. These surplus cash flows will be remitted to the UK at the end of each year.
Currently GBP1.00 is worth USD1.30.
The expected inflation rates in the two countries over the next four years are 2% in the UK and 4% in the USA.
Applying the purchasing power parity theory, which of the following represents the expected remittance at the end of year three, in GBP whole the nearest whole GBP)?
- A. GBP546,547
- B. GBP568,846
- C. GBP450,906
- D. GBP472,916
Answer: C
NEW QUESTION # 137
A company's statement of financial position includes non-current assets which are leased, the tax regime follows the accounting treatment.
Which cash flows should be discounted when evaluating the cost of lease finance?
- A. Lease payments, tax relief on implied interest and tax relief on straight-line account depreciation.
- B. Lease payments and straight-line accounting depreciation.
- C. Lease payments, implied interested and straight-line accounting deprediation.
- D. Lease payments and implied interest.
Answer: B
NEW QUESTION # 138
A company is considering a divestment via either a management buyout (MBO) or sale to a private equity purchaser. Which of the following is an argument in favour of the MBO from the viewpoint of the original company?
- A. Higher price due to synergistic benefits.
- B. Better co-operation post divestment.
- C. Improved relationships with management buyout team in the event of a sale to the private equity purchaser.
- D. Enhanced big data opportunities.
Answer: B
NEW QUESTION # 139
TU has relatively few tangible assets and is dependent for profits and growth on the high-value individuals it employs. Which of the following statements best explains why the net asset valuator method's considered unstable for TU?
- A. TU does not account for its intangible assets.
- B. TU accounts for its intangible assets at net realisable value.
- C. TU accounts for its intangible assets at historical value.
- D. TU does not account for its tangible assets
Answer: A
NEW QUESTION # 140
The International Integrated Reporting Council (IIRC) was formed in August 2010 and brings together a cross-section of representatives from a wide variety of business sectors.
The primary purpose of the IIRC's framework is to help enable an organsation to communicate how it:
- A. creates value in the short, medium and long term.
- B. contributes positively to the economic well being of the environment in which it operates.
- C. ensures that the conflicting needs of different stakeholder groups are met in an optimal manner.
- D. minimises the environmental impact of its business processes.
Answer: A
NEW QUESTION # 141
RR has agreed to sell goods to XX for S20.000 XX will pay when the goods are delivered in 6 months time. RR's home currency is the £- The current exchange rate is 4.3 £/S. The projected inflation rate for the S is 2.8%, and for the E 4 6%.
When RR receives payment for its goods, what will the value be to the nearest pound?
- A. £84.520
- B. £85,243
- C. £86 760
- D. £87.506
Answer: D
NEW QUESTION # 142
Company F's current profit before interest and taxation is $5.0 million.
It has a 10% long-term corporate bond in issue with a nominal value of $10 million.
Corporate tax is paid at 25%.
The industry average P/E multiple is 10.
Company X has made an approach to acquire the entire share capital of Company F for $30 million.
Company X has announced that anticipated synergies (after interest and taxation) arising from its acquisition of Company F will be $1 million each year in perpetuity.
Advise the Board of Directors of Company F if the bid should be accepted, based on the above information?
- A. Reject the bid because Company F is potentially worth $60 million to Company X.
- B. Reject the bid because Company F is potentially worth $50 million to Company X.
- C. Accept the bid because Company F is potentially worth $30 million to Company X.
- D. Reject the bid because Company F is potentially worth $40 million to Company X.
Answer: D
NEW QUESTION # 143
Which of the following is NOT an advantage of a share repurchase?
- A. To reduce the cost of capital of a company by increasing the gearing level.
- B. To enable the company to retain cash in the business for reinvestment
- C. To return surplus cash to shareholders by avoiding a one-off dividend
- D. To allow investors to sell shares if no active market currently exists
Answer: B
NEW QUESTION # 144
A listed entertainment and media company produces and distributes films globally. The company invests heavily in intellectual property in order to create the scope for future film projects. The company has five separate distribution companies, each managed as a separate business unit The company is seeking to sell one of its business units in a management buy-out (MBO) to enable it to raise finance for proposed new investments The business unit managers have been in discussions with a bank and venture capitalists regarding the financing for the MBO The venture capitalists are only prepared to invest a mixture of debt and equity and have suggested the following:
The venture capitalists have stated that they expect a minimum return on their equity investment of 3Q°/o a year on a compound basis over the first 5 years of the MBO No dividends will be paid during this period.
Advise the MBO team of the total amount due to the venture capitalist over the 5-year period to satisfy their total minimum return?
- A. $120 14 million
- B. $146 39 million
- C. $111 39 million
- D. $155.14 million
Answer: C
NEW QUESTION # 145
Company A, a listed company, plans to acquire Company T, which is also listed.
Additional information is:
* Company A has 100 million shares in issue, with market price currently at $8.00 per share.
* Company T has 90 million shares in issue,. with market price currently at $5.00 each share.
* Synergies valued at $60 million are expected to arise from the acquisition.
* The terms of the offer will be 2 shares in A for 3 shares in B.
Assuming the offer is accepted and the synergies are realised, what should the post-acquisition price of each of Company A's shares be?
Give your answer to two decimal places.
Answer:
Explanation:
$ ? .
8.19, 8.18
NEW QUESTION # 146
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. fall to 23.3%.
- B. rise to 30.3%.
- C. fall to 22.7%.
- D. rise to 27.0%.
Answer: A
NEW QUESTION # 147
A company's main objective is to achieve an average growth in dividends of 10% a year.
In the most recent financial year:
Sales are expected to grow at 8% a year over the next 5 years.
Costs are expected to grow at 5% a year over the next 5 years.
What is the minimum dividend payout ratio in 5 years' time that would allow the company to achieve its objective?
- A. 30.0%
- B. 27.5%
- C. 21.7%
- D. 22.5%
Answer: C
NEW QUESTION # 148
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 A - it can borrow floating L +1 ½ and fixed at 9.5%
- B. Company C - it can borrow at L +1 ½ and fixed at 9%
- C. Company E - it can borrow floating at L +1 ½ and fixed at 12%
- D. Company D - it can borrow at L +1 ½ and fixed at 10.5%
Answer: B
NEW QUESTION # 149
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 not breached as retained earnings = $2.10 million.
- B. Covenant is breached as retained earnings = $1.92 million.
- C. Covenant is not breached as retained earnings = $2.40 million.
- D. The covenant is not breached as retained earnings = $4.68 million.
Answer: B
NEW QUESTION # 150
Companies A, B, C and D:
* are based in a country that uses the K$ as its currency.
* have an objective to grow operating profit year on year.
* have the same total levels of revenue and cost.
* trade with companies or individuals in the eurozone. All import and export trade with companies or individuals in the eurozone is priced in EUR.
Typical import/export trade for each company in a year are as follows:
Which company's growth objective is most sensitive to a movement in the EUR/K$ exchange rate?
- A. Company D
- B. Company B
- C. Company C
- D. Company A
Answer: B
NEW QUESTION # 151
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. 35, 35, 34000000, 35000000
- B. 34, 35, 34000000, 35000000
Answer: B
NEW QUESTION # 152
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. $4,900,000
- B. $5,250,000
- C. $5,530,000
- D. $4,970,000
Answer: D
NEW QUESTION # 153
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 the intangible assets.
- B. It accounts for intangible assets at net realisable value.
- C. It does not account for tangible assets.
- D. It accounts for the intangible assets at historical value.
Answer: A
NEW QUESTION # 154
A company has 6 million shares in issue. Each share has a market value of $4.00.
$9 million is to be raised using a rights issue.
Two directors disagree on the discount to be offered when the new shares are issued.
* Director A proposes a discount of 25%
* Director B proposes a discount of 30%
Which THREE of the following statements are most likely to be correct?
- A. The theoretical ex-rights price will be higher under Director B's proposal than under Director A's proposal.
- B. More shares will be issued under Director B's proposal than under Director A's proposal.
- C. The terms of the rights issue will be one new share for every two existing shares under Director A's proposal.
- D. Shareholder wealth will be higher under Director A's proposal than under Director B's proposal.
- E. The rights issue price will be $3.00 under Director A's proposal.
Answer: B,C,E
NEW QUESTION # 155
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The F3 Financial Strategy exam covers a wide range of topics related to financial management, including capital investment appraisal, business valuation, risk management, and financial instruments. F3 exam is divided into two sections: Section A and Section B. Section A consists of objective test questions, while Section B involves case study-style questions that require candidates to apply their knowledge and skills to real-life scenarios.
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