Real CIMA F3 Exam Questions Study Guide
Updated and Accurate F3 Questions for passing the exam Quickly
CIMAPRA19-F03-1 exam is an essential component of the CIMA Professional Qualification and is a valuable asset for individuals seeking to advance their careers in finance. Passing F3 exam demonstrates an individual's ability to develop and implement effective financial strategies that contribute to the overall success of an organization.
CIMA F3 (F3 Financial Strategy) Exam is an essential component of the CIMA (Chartered Institute of Management Accountants) professional qualification. F3 exam assesses candidates' knowledge and understanding of various financial management strategies and techniques that are required to create value for businesses. Candidates who pass F3 exam demonstrate their ability to manage and evaluate financial risks, analyze financial statements, and plan and manage budgets effectively. Moreover, candidates who pass F3 exam are equipped with the skills and knowledge needed to make informed decisions that enhance the financial performance of their organizations.
NEW QUESTION # 200
A company is in the process of issuing a 10 year $100 million bond and is considering using an interest rate swap to change the interest profile on some or all of the $100 million new finance.
The company has a target fixed versus floating rate debt profile of 1:1. Before issuing the bond its debt profile was as follows:
Which of the following is the most appropriate interest rate swap structure for the company?
- A. Pay fixed receive floating interest rate swap for $100 million.
- B. Receive fixed pay floating interest rate swap for $100 million.
- C. Receive fixed pay floating interest rate swap for $50 million.
- D. Pay fixed receive floating interest rate swap for $50 million.
Answer: C
NEW QUESTION # 201
A company's current profit before interest and taxation is $1.1 million and it is expected to remain constant for the foreseeable future.
The company has 4 million shares in issue on which the earnings yield is currently 10%. It also has a $2 million bond in issue with a fixed interest rate of 5%.
The corporate income tax rate is 20% and is expected to remain unchanged.
Which of the following is the best estimate of the current share price?
- A. $2.50
- B. $2.75
- C. $2.00
- D. $1.10
Answer: C
NEW QUESTION # 202
Company W is a manufacturing company with three divisions, all of which are making profits:
* Division A which manufactures cars
* Division B which manufactures trucks
* Division C which manufactures agricultural machinery
Company W is facing severe competitive pressure in all of its markets, and is currently operating with a high level of gearing Company W's latest forecasts suggest that it needs to raise cash to avoid breaching loan covenants on its existing debt finance in 6 months' time In a recent strategy review. Divisions A and B were identified as being the core divisions of Company W The management of Division C is known to be interested in the possibility of a management buy-out.
Company Z is known to be interested in making a takeover bid for Company W's truck manufacturing division A rival to Company W has recently successfully demerged its business, this was well received by the Financial markets Which of the following exit strategies will be most suitable for company W?
- A. Management buy-out of Division C
- B. Demerger of Division C
- C. Closure of Division
- D. Sale of Division B to Company Z
Answer: A
NEW QUESTION # 203
Company A plans to acquire Company B, an unlisted company which has been in business for 3 years.
It has incurred losses in its first 3 years but is expected to become highly profitable in the near future.
No listed companies in the country operate the same business field as Company B, a unique new high-risk business process.
The future success of the process and hence the future growth rate in earnings and dividends is difficult to determine.
Company A is assessing the validity of using the dividend growth method to value Company B.
Which THREE of the following are weaknesses of using the dividend growth model to value an unlisted company such as Company B?
- A. The dividend growth model does not take the time value of money into consideration.
- B. The cost of capital will be difficult to estimate.
- C. The future projected dividend stream is used as the basis for the valuation.
- D. The future growth rate in earnings and dividends will be difficult to accurately determine.
- E. The company has been unprofitable to date and hence, there is no established dividend payment pattern.
Answer: B,C,D
NEW QUESTION # 204
A company is financed by debt and equity and pays corporate income tax at 20%.
Its main objective is the maximisation of shareholder wealth.
It needs to raise $200 million to undertake a project with a positive NPV of $10 million.
The company is considering three options:
* A rights issue.
* A bond issue.
* A combination of both at the current debt to equity ratio.
Estimations of the market values of debt and equity both before and after the adoption of the project have been calculated, based upon Modigliani and Miller's capital theory with tax, and are shown below:
Under Modigliani and Miller's capital theory with tax, what is the increase in shareholder wealth?
- A. $10 million irrespective of finance
- B. $210 million if financed by equity
- C. $160 million if financed by a mixture of debt and equity
- D. $50 million if financed by debt
Answer: D
NEW QUESTION # 205
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 # 206
For which THREE of the following risk categories does IFRS 7 require sensitivity analysis?
- A. Credit risk
- B. Supply chain risk
- C. Liquidity risk
- D. Currency risk
- E. Commodity risk
- F. Interest rate risk
Answer: D,E,F
NEW QUESTION # 207
A listed company is planning to raise $21.6 million to finance a new project with a positive net present value of $5 million. The finance is to be raised via a rights issue at a 10% discount to the current share price. There are currently 100 million shares in issue, trading at $2.00 each.
Taking the new project into account, what would the theoretical ex-rights price be?
Give your answer to two decimal places.
Answer:
Explanation:
$ ?
2.02, 2.03
NEW QUESTION # 208
An unlisted software development company has recently reported disappointing results. This was partly due to weak economic conditions but also because of its poor competitive position. The company has a number of exciting development opportunities which would enable it to achieve significant future growth. The company's growth potential has been hindered by its inability to secure sufficient new finance.
To enable the company raise new finance the Directors are considering working forwards an IPO in 10 years and accepting finance from a venture capitalist in order support in the intervening period.
The directors are keen to retain a controlling stake in the company and full representation on the board. They therefore require venture capitalists to provide funds as a mix of debt and equity and not soley equity finance.
Which THREE of the following are most likely to disrupt the directors' plans to use venture capital finance?
- A. Venture capitalists only provide equity finance and will therefore not be interested in providing a combination of debt and equity finance.
- B. The venture capital finance offered is much more expensive than expected.
- C. Venture capitalists normally expect at least one seat on the board.
- D. Venture capitalists normally expect an exit strategy sconer than the planned IPO in 10 years'time.
- E. Venture capitalists always require ownership of more than 50% of the shares in a company to ensure control.
Answer: B,C,D
NEW QUESTION # 209
Company M is a listed company in a highly technical service industry.
The directors are considering making a cash offer for the shares in Company Q, an unquoted company in the same industry.
Relevant data about Company Q:
* The company has seen consistent growth in earnings each year since it was founded 10 years ago.
* It has relatively few non-current assets.
* Many of the employees are leading experts in their field. A recent exercise suggested that the value of the company's human capital exceeded the value of its tangible assets.
The directors and major shareholders of Company Q have indicated willingness to sell the company.
Before negotiations become too advanced, the directors of Company M are considering the benefits to their company that would follow the acquisition.
Which THREE of the following are the most likely benefits of the acquisition to Company M's shareholders?
- A. Improved asset backing for borrowing due to the acquisition of intangible assets.
- B. Access to technical expertise.
- C. Gain economies of scale.
- D. Reduction of risk through diversification.
- E. Improve earnings per share (EPS).
Answer: B,C,E
NEW QUESTION # 210
Company C is a listed company. It is currently considering the acquisition of Company D. The original founder of Company C currently owns 52% of the shares.
Alternative forms of consideration for Company D being considered are as follows:
* Cash payment, financed by new borrowing
* issue of new shares in Company C
Which of the following is an advantage of a cash offer over a share-for exchange from the viewpoint of the original founder of Company C?
- A. A share-for-share exchange would require the approval of the Competition Authorities but a cash offer would not.
- B. A share-for-share exchange would require the approval shareholders in Company C but a cash offer would not.
- C. A share for share exchange would result in a significant change in control of Company C whereas a cash offer would not.
- D. A cash offer would result in a lower gearing ratio therefore reduce the weighted overage cost of capital whereas a cash offer would not.
Answer: C
NEW QUESTION # 211
A company has accumulated a significant amount of excess cash which is not required for investment for the foreseeable future.
It is currently on deposit, earning negligible returns.
The Board of Directors is considering returning this excess cash to shareholders using a share repurchase programme.
The majority of shareholders are individuals with small shareholdings.
Which THREE of the following are advantages of the company undertaking a share repurchase programme?
- A. Institutional investors generally prefer a constant predictable income in the form of dividends.
- B. It reduces the amount of cash for potential future investment opportunities.
- C. Individual shareholders can realise their investment if they wish.
- D. The earnings per share should increase for the shareholders who do not sell their shares.
- E. It reduces excess cash which might have been attractive to predators.
Answer: C,D,E
NEW QUESTION # 212
Company AAB is located in Country A with the A$ as its functional currency It plans to grow by acquisition and has identified Company BBA as a potential takeover candidate Company BBA is located in Country B with the BS as its functional currency.
The directors of Company AAB are concerned about foreign currency risk if the acquisition goes ahead
Which of the following will be most effective in reducing Company AAB's exposure to translation risk if the acquisition is successful1?
- A. Using forward contracts to fix the exchange rate between the AS and the B$
- B. Financing the acquisition with equity in A$'s.
- C. Setting up a mufti-currency bank account to net-off receipts and payments
- D. Financing the acquisition with borrowings in BS's
Answer: A
NEW QUESTION # 213
Company A plans to acquire a minority stake in Company B.
The last available share price for Company B was $0.60.
Relevant data about Company B is as follows:
* A dividend per share of $0.08 has just been paid
* Dividend growth is expected to be 2%
* Earnings growth is expected to be 4%
* The cost of equity is 15%
* The weighted average cost of capital is 13%
Using the dividend growth model, what would be the expected change in share price?
- A. $0.14 increase
- B. $0.03 increase
- C. $0.16 increase
- D. $0.07 fall
Answer: B
NEW QUESTION # 214
The following information relates to Company A's current capital structure:
Company A is considering a change in the capital structure that will increase gearing to 30:70 (Debt:Equity).
The risk -free rate is 3% and the return on the market portfolio is expected to be 10%.
The rate of corporate tax is 25%
Using the Capital Asset Pricing Model, calculate the cost of equity resulting from the proposed change to the capital structure.
- A. 10.1%
- B. 9.3%
- C. 11.4%
- D. 12.3%
Answer: D
NEW QUESTION # 215
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 2.2% a year less expensive
- C. Approach A is 0.7% a year less expensive
- D. Approach B is 2.0% a year less expensive
Answer: C
NEW QUESTION # 216
The table below shows the forecast for a company's next financial year:
The forecast incorporates the following assumptions:
* 25% of operating costs are variable
* Debt finance comprises a $400 million fixed rate loan at 5%
* Corporate income tax is paid at 25%
The company plans to do the following next year from the forecast earnings on the assumption that earnings will be equivalent to free cash flow:
* Pay a total dividend of $20 million
* Invest $40 million in new projects
What is the maximum % reduction in operating activity that could occur next year before the company's dividend and investment plans are affected?
Give your answer to the nearest 0.1%.
Answer:
Explanation:
4.8, 4.7, 4.9, 5.0, 4.6, 4.80, 4.70, 4.90, 5.00, 4.60%
NEW QUESTION # 217
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. GBP472,916
- B. GBP568,846
- C. GBP546,547
- D. GBP450,906
Answer: D
NEW QUESTION # 218
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?
- A. Rights issue
- B. Retained earnings
- C. Bank overdraft
- D. Private placement of a bond
Answer: A
NEW QUESTION # 219
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. 2,700
- B. 3,150
- C. 1,890
- D. 4,500
Answer: B
NEW QUESTION # 220
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.
$ ?
Answer:
Explanation:
4.97, 4.98
NEW QUESTION # 221
A large, listed company in the food and household goods industry needs to raise $50 million for a period of up to 6 months.
It has an excellent credit rating and there is almost no risk of the company defaulting on the borrowings. The company already has a commercial paper programme in place and has a good relationship with its bank.
Which of the following is likely to be the most cost effective method of borrowing the money?
- A. Treasury Bills
- B. 6 month term loan
- C. Commercial paper
- D. Bank overdraft
Answer: C
NEW QUESTION # 222
A company's annual dividend has grown steadily at an annual rate of 3% for many years. It has a cost of equity of 11%. The share price is presently $64.38.
The company is about to announce its latest dividend, which is expected to be $5.00 per share.
The Board of Directors is considering an attractive investment opportunity that would have to be funded by reducing the dividend to $4.50 per share. The board expects the project to enable future dividends to grow by
5% every year and the cost of equity to remain unchanged.
Calculate the change in share price, assuming that the directors announce their intention to proceed with this investment opportunity.
Give your answer to 2 decimal places.
$ ?
Answer:
Explanation:
14.37
NEW QUESTION # 223
......
CIMA F3 (F3 Financial Strategy) is a certification exam that is designed for finance professionals who wish to develop their skills in financial management and strategy. F3 exam is part of the CIMA Professional Qualification, which is internationally recognized and respected by employers worldwide. The CIMA F3 exam tests candidates on their ability to analyze financial information and provide strategic recommendations to improve business performance.
Prepare Important Exam with F3 Exam Dumps: https://www.testpassed.com/F3-still-valid-exam.html
Download Real F3 Exam Dumps for candidates. 100% Free Dump Files: https://drive.google.com/open?id=133ETvH_Nz3_JeTSe7IgBo3_w_oc3VyZk