[Full-Version] 2023 New F3 Actual Exam Dumps, CIMA Practice Test
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CIMA CIMAPRA19-F03-1 (F3 Financial Strategy) Certification Exam is a globally recognized certification exam for candidates who wish to demonstrate their expertise in financial strategy. F3 exam is designed to test candidates on their ability to analyze and evaluate financial information to develop and implement effective financial strategies. F3 exam covers various topics such as financial risk management, investment decisions, and valuation techniques.
NEW QUESTION # 44
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 # 45
Hospital X provides free healthcare to all members of the community, funded by the central Government.
Hospital Y provides healthcare which has to be paid for by the individual patients. It is a listed company, owned by a large number of shareholders.
In comparing the above two organisations and their objectives, which THREE of the following statements are correct?
- A. The performance of X will be appraised primarily on the basis of value for money.
- B. Only Y is likely to have a mixture of financial and non-financial objectives.
- C. X and Y will have the same primary non financial objective - provision of quality of health care.
- D. X is a not-for-profit organisation while Y is a for-profit organisation.
- E. X and Y have the same primary financial objective - to maximise shareholder wealth.
Answer: A,C,D
NEW QUESTION # 46
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.
$ ?
- A. 14.38
- B. 14.37
Answer: B
NEW QUESTION # 47
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 ever 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. GBP568,846
- B. GBP472,916
- C. GBP546,547
- D. GBP450,906
Answer: D
NEW QUESTION # 48
Company A, a listed company, plans to acquire Company T, which is also listed.
Additional information is:
* Company A has 150 million shares in issue, with market price currently at $7.00 per share.
* Company T has 120 million shares in issue,. with market price currently at $6.00 each share.
* Synergies valued at $50 million are expected to arise from the acquisition.
* The terms of the offer will be 2 shares in A for 3 shares in T.
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.
- A. 8.24
- B. 7.24
Answer: A
Explanation:
NEW QUESTION # 49
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 B's shareholders will be able to participate in the future growth of the combined business if it is a share exchange
- B. 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
- C. Company A's weighted average cost of capital will fall if financing is with debt
- D. Company A's gearing will increase following a share exchange.
- E. The method of finance chosen will not affect the post-acquisition earning per share of the combined business
Answer: B,C
NEW QUESTION # 50
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: B
NEW QUESTION # 51
Which THREE of the following statements are true of a money market hedge?
- A. They leave the company exposed to currency risks.
- B. They offer roughly the same outcome as a forward contract.
- C. They may be a little more flexible in comparison to a forward contract.
- D. They are more complex than forward contracts.
- E. They are easy to set up.
Answer: A,B,D
NEW QUESTION # 52
The Board of Directors of a small listed company engaged in exploration are currently considering the future dividend policy of the company. Exploration is considered a high-risk business and consequently the company has a low level of debt finance.
Forecasts indicate a period of profit fluctuation in the next few years as the company is planning to embark on a major capital investment project. Debt finance is unlikely to be available due to the project's high business risk.
Which THREE of the following are practical considerations when determining the company's dividend/retention policy?
- A. The general level of interest rates and the tax savings on interest costs relating to debt finance.
- B. The dividend policies of mature listed multinational companies in the exploration industry.
- C. The legislation and regulation governing distributable profits.
- D. The fluctuating nature of the projected future profits.
- E. The timing and size of the cash flow requirements for the new investment.
Answer: C,D,E
Explanation:
Discursive_F0
NEW QUESTION # 53
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 realisation of anticipated post-acquisition synergies.
- B. The development of a dividend policy to meet the expectations of the target company shareholders.
- C. The retention of key customers of the acquired company.
- D. The integration and retention of key employees.
- E. The regulatory approval required to complete the acquisition.
Answer: A,C,D
NEW QUESTION # 54
A company has in a 5% corporate bond in issue on which there are two loan covenants.
* Interest cover must not fall below 3 times
* Retained earnings for the year must not fall below $3.5 million
The Company has 200 million shares in issue.
The most recent dividend per share was $0.04.
The Company intends increasing dividends by 10% next year.
Financial projections for next year are as follows:
Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?
- A. The company will be in compliance with both covenants.
- B. The company will be in breach of both covenants.
- C. The company will be in breach of the covenant in respect of interest cover only.
- D. The company will breach the covenant in respect of retained earnings only.
Answer: D
NEW QUESTION # 55
A company with 4 million shares in issue wishes to raise $4 million by means of a rights issue
The share price prior to the rights issue is $5.00.
Under the rights issue, 1 million new shares will be issued at $4.00.
When the rights issue is announced it is expected that the Theoretical Ex-rights Price (TERP) will be $4.80
The directors of the company are considering offering any shareholder who does not wish to take up the rights the opportunity to sell the rights back to the company for $1.00.
Which of the following is the most likely consequence of the directors offer?
- A. It will result in fewer shareholders taking up the rights and as a consequence less cash will be raised from the rights issue
- B. The directors offer will increase demand for the shares and as a consequence the share price will rise above the theoretical ex-rights price.
- C. It will encourage more shareholders to sell their lights on the open market.
- D. It will have no effect on the take up of the rights because shareholder wealth will be the same whether the rights are taken up or sold back to the company
Answer: A
NEW QUESTION # 56
Which THREE of the following are likely to be strategic reasons for a horizontal acquisition?
- A. Reduction of risk by building a larger portfolio
- B. Acquisition of an undervalued company
- C. To secure key parts of the value chain
- D. Reduction of competition
- E. To achieve economies of scale
Answer: B,D,E
NEW QUESTION # 57
Which THREE of the following remain unchanged over the life of a 10 year fixed rate bond?
- A. The nominal value
- B. The coupon rate
- C. The market value
- D. The yield
- E. The amount payable on maturity
Answer: A,B,E
NEW QUESTION # 58
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 $1.50 per Kilowatt.
The company expects this to cause consumption to rise by 10% but costs would remained unaltered.
The price cap is expected to cause the company's net profit to fall to:
- A. $35.0 million loss
- B. $27.5 million profit
- C. $47.5 million profit
- D. $20.0 million profit
Answer: C
NEW QUESTION # 59
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.
Answer:
Explanation:
34, 35,
34000000, 35000000
NEW QUESTION # 60
A company has convertible bonds in issue.
The following debt is apply (31 December 20X0):
* Conversion ratio- 20 shares for each $130 bond.
* Current share price - $4 50
* Expected annual growth in share price - 5%
Advise the bond Holder at which date the convers on would be worthwhile?
- A. 31 December 20X0
- B. 31 December 20X1
- C. 31 December 20X2
- D. 31 December 20X3
Answer: D
NEW QUESTION # 61
A company is currently all-equity financed.
The directors are planning to raise long term debt to finance a new project.
The debt:equity ratio after the bond issue would be 40:60 based on estimated market values.
According to Modigliani and Miller's Theory of Capital Structure without tax, the company's cost of equity would:
- A. decrease.
- B. increase.
- C. increase or decrease depending on the bond's coupon rate.
- D. stay the same.
Answer: B
NEW QUESTION # 62
Company H is considering the valuation of an unlisted company which it hopes to acquire.
It has obtained the target company's financial statements.
Company H has been advised that the book value of net assets as shown in the financial statements of the target company does not provide a reliable indicator of their true value.
Advise the Board of Directors which of the following THREE statements are disadvantages of the net asset basis of valuation?
- A. The net book value of current assets is normally a reliable indicator of their realisable value.
- B. The net book value of assets can be obtained from the financial statements.
- C. The net realisable value is usually different from the net book value shown in the financial statements.
- D. Intangible assets are often not shown in the company's financial statements.
- E. The net book value of assets is merely a record of past transactions which complies with accounting conventions.
Answer: C,D,E
NEW QUESTION # 63
A company is planning a share repurchase programme with the following details:
* Repurchased shares will be immediately cancelled.
* The shares will be purchased at a premium to the market share price.
The current market share price is greater than the nominal value of the shares.
Which of the following statements about the impact of the share repurchase programme on the company's financial statements is correct?
- A. The premium to the market value would be charged to the Income Statement.
- B. The share capital figure would reduce by the nominal value of the shares purchased.
- C. The premium to the nominal value would be charged to retained earnings.
- D. The total value of the equity in its Statement of Financial Position would remain unchanged.
Answer: B
NEW QUESTION # 64
It is now 1 January 20X0.
Company V, a private equity company, is considering the acquisition of 40% of the equity of Company A for a total amount of $15 million.
Company A has been established to develop a new type of engine which will be launched at the end of 20X1. Company A is forecasting that the new engine will result in free cash flows to equity of $2m in its first year of operation and that this will rise by 8% per year for the foreseeable future. The new engine is the only commercial activity that Company A is involved in.
Company V intends to sell its stake in Company A when the new engine is launched.
Company A has a cost of equity of 12%.
Assuming that Company V receives an amount that reflects the present value of their shares in company A.
What is the estimated annual rate of return to Company V from this investment? (To the nearest %)
- A. 33%
- B. 3%
- C. 16%
- D. 10%
Answer: D
NEW QUESTION # 65
A company plans a four-year project which will be financed by either an operating lease or a bank loan.
Lease details:
* Four year lease contract.
* Annual lease rentals of $45,000, paid in advance on the 1st day of the year.
Other information:
* The interest rate payable on the bank borrowing is 10%.
* The capital cost of the project is $200,000 which would have to be paid at the beginning of the first year.
* A salvage or residual value of $100,000 is estimated at the end of the project's life.
* Purchased assets attract straight line tax depreciation allowances.
* Corporate income tax is 20% and is payable at the end of the year following the year to which it relates.
A lease-or-buy appraisal is shown below:
Which THREE of the following items are errors within the appraisal?
- A. Tax relief on lease payments have not been lagged correctly
- B. Using the 10% discount rate is incorrect
- C. The salvage value has been included within the lease option
- D. Lease payments are timed incorrectly
- E. The project's operating cashflows should be included
- F. The bank loan repayments should be included
Answer: A,B,C
NEW QUESTION # 66
Select the most appropriate divided for each of the following statements:
Answer:
Explanation:
NEW QUESTION # 67
A company has a cash surplus which it wishes to distribute to shareholders by a share repurchase rather than paying a special dividend.
Which THREE of the following statements are correct?
- A. Determination of the repurchase price will be easy as shareholders will insist on receiving the open market price.
- B. The share repurchase, if approved by the shareholders, will be binding on all of the company's shareholders.
- C. Different tax regimes could result in shareholders having a preference for a share repurchase due to the often more preferential tax treatment of capital gains.
- D. The share repurchase could send a negative signal to shareholders as it could be interpreted as a failure of management to find suitable investment opportunities.
- E. The payment of a special dividend could raise shareholders' expectations of similar distributions in the future, unlike a share repurchase.
Answer: C,D,E
NEW QUESTION # 68
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CIMA F3 exam covers a range of topics, including financial strategy, risk management, investment appraisal, and financial analysis. Candidates who successfully pass the exam will have a comprehensive understanding of financial management and strategy, and will be able to apply this knowledge in real-world business situations. F3 exam is also designed to enhance candidates’ critical thinking skills and problem-solving abilities.
Passing the CIMA F3 exam is a crucial step towards achieving the CIMA qualification and becoming a Chartered Global Management Accountant (CGMA). As a CGMA, finance professionals are recognized for their expertise in financial management and strategy, making them highly sought after in the business world. With the CIMA F3 exam, candidates demonstrate their ability to create and implement effective financial strategies, enabling them to take on senior management roles in finance and accounting departments.
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