Pass Your CIMA F3 Exam with Correct 255 Questions and Answers
Latest [Jan 03, 2022] 2022 Realistic Verified F3 Dumps
NEW QUESTION 76
Company A is a large listed company, with a wide range of both institutional and private shareholders.
It is planning a takeover offer for Company B.
Company A has relatively low cash reserves and its gearing ratio of 40% is higher than most similar companies in its industry.
Which TWO of the following would be the most feasible ways of Company A structuring an offer for Company B?
- A. Cash offer, funded by borrowings.
- B. Cash offer, funded by a rights issue.
- C. Cash offer, funded from existing cash resources.
- D. Debt for share exchange.
- E. Share for share exchange.
Answer: B,E
NEW QUESTION 77
Company Z has identified four potential acquisition targets: companies A, B, C and D.
Company Z has a current equity market value of $580 million.
The price it would have to pay for the equity of each company is as follows:
Only one of the target companies can be acquired and the consideration will be paid in cash.
The following estimations of the new combined value of Company Z have been prepared for each acquisition before deduction of the cash consideration:
Ignoring any premium paid on acquisition, which acquisition should the directors pursue?
- A. D
- B. B
- C. A
- D. C
Answer: D
NEW QUESTION 78
Under traditional theory, an increase in a company's WACC would cause the value of the company to:
- A. Either increase or decrease
- B. Increase
- C. Decrease
- D. Stay the same
Answer: C
NEW QUESTION 79
A listed company in the retail sector has accumulated excess cash.
In recent years, it has experienced uncertainly with forecasting the required level of cash for capital expenditure due to unpredictable economic cycles.
Its excess cash is on deposit earning negligible returns.
The Board of Directors is considering the company's dividend policy, and the need to retain cash in the company.
Which THREE of the following are advantages of retaining excess cash in the company?
- A. Liquidity problems are less likely to be experienced if there is a downturn in business.
- B. The market may interpret the return of excess cash as a sign of weak growth prospects.
- C. Retaining excess cash may make the company vulnerable to hostile takeover.
- D. The excess cash is earning a negligible return.
- E. The company will be in a position to respond promptly to unexpected investment opportunities.
Answer: A,B,E
NEW QUESTION 80
X exports goods to customers in a number of small countries Asia. At present, X invoices customers in X's home currency.
The Sales Director has proposed that X should begin to invoice in the customers currency, and the Treasurers considering the implications of the proposal.
Which TWO of the following statement are correct?
- A. X may be able to sell the receipts forward.
- B. X will know advance the amount of home currency it will receive for the export sales.
- C. The customer will tear the foreign exchange risk and will only buy from X if they are prepared to accept this.
- D. If the proposal is adopted, X will have a lower effective sales price per unit due to exchange rate fluctuations.
- E. The overseas customers may have difficulty obtaining X's name currency with which to make the purchases, so the Sales Director's proposal may increase sales.
Answer: D,E
NEW QUESTION 81
H Company has a fixed rate load at 10.0%, but wishes to swap to variable. It can borrow at LIBOR 8%.
The bank is currently quoting swap rates of 3.1% (bid) and 3.5% (ask).
What net rate will H Company pay if it enters into the swap?
- A. LIBOR +8%
- B. LIBOR +6.5%
- C. LIBOR +3.1%
- D. LIBOR +6.9%
Answer: D
NEW QUESTION 82
An all equity financed company reported earnings for the year ending 31 December 20X1 of $5 million.
One of its financial objectives is to increase earnings by 5% each year.
In the year ending 31 December 20X2 it financed a project by issuing a bond with a $1 million nominal value and a coupon rate of 7%.
The company pays corporate income tax at 30%.
If the company is to achieve its earnings target for the year ending 31 December 20X2, what is the minimum operating profit (profit before interest and tax) that it must achieve?
- A. $7.57 million
- B. $7.50 million
- C. $5.25 million
- D. $8.40 million
Answer: A
NEW QUESTION 83
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. $0.16 increase
- B. $0.03 increase
- C. $0.14 increase
- D. $0.07 fall
Answer: B
NEW QUESTION 84
A company plans to raise $12 million to finance an expansion project using a rights issue.
Relevant data:
* Shares will be offered at a 20% discount to the present market price of $15.00 per share.
* There are currently 2 million shares in issue.
* The project is forecast to yield a positive NPV of $6 million.
What is the yield-adjusted Theoretical Ex-Rights Price following the announcement of the rights issue?
- A. $16.00
- B. $14.00
- C. $9.00
- D. $11.00
Answer: A
Explanation:
Calc_Set3
NEW QUESTION 85
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 is a not-for-profit organisation while Y is a for-profit organisation.
- D. X and Y will have the same primary non financial objective - provision of quality of health care.
- E. X and Y have the same primary financial objective - to maximise shareholder wealth.
Answer: A,C,D
NEW QUESTION 86
At the last financial year end, 31 December 20X1, a company reported:
The corporate income tax rate is 30% and the bank borrowings are subject to an interest cover covenant of 4 times.
The results are presently comfortably within the interest cover covenant as they show interest cover of 8.3 times. The company plans to invest in a new product line which is not expected to affect profit in the first year but will require additional borrowings of $20 million at an annual interest rate of 10%.
What is the likely impact on the existing interest cover covenant?
- A. Interest cover would reduce to 3 times and the covenant would be breached.
- B. Interest cover would reduce to 3 times and the covenant would NOT be breached.
- C. Interest cover would reduce to 5 times and the covenant would be breached.
- D. Interest cover would reduce to 5 times and the covenant would NOT be breached.
Answer: D
NEW QUESTION 87
Which THREE of the following would be most important if a hospital wishes to review the effectiveness of its services?
- A. Patient satisfaction ratings.
- B. Revenue generated from car park charges.
- C. Staff costs compared to previous years.
- D. The proportion of surgical procedures that are deemed to be successful.
- E. Average waiting times for treatment.
Answer: A,D,E
NEW QUESTION 88
A company is financed as follows:
* 400 million $1 shares quoted at $3.00 each.
* $800 million 5% bonds quoted at par.
The company plans to raise $200 million long term debt to finance a project with a net present value of
$100 million.
The bank that is providing the debt is insisting on a maximum gearing level covenant.
Gearing will be based on market values and calculated as debt/(debt + equity).
What is the lowest figure for the gearing covenant that the bank could impose without the company breaching the agreement?
- A. 45%
- B. 46%
- C. 44%
- D. 43%
Answer: C
NEW QUESTION 89
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. Pay a one-off special dividend.
- B. Write to shareholders explaining fully why the company's share price is under valued.
- C. Change the Articles of Association to increase the percentage of shareholder votes required to approve a takeover.
- D. Refer the bid to the country's competition authorities.
Answer: B
NEW QUESTION 90
Company ABC is planning to bid for company DDD, an unlisted company in an unrelated industry sector to ABC.
The directors of ABC are considering a number of different valuation methods for DDD before making a bid.
Which of the following is the MOST appropriate method for ABC to use to value DDD?
- A. Using DDD's tangible assets.
- B. Applying an industry P/E ratio to DDD's forecast earnings.
- C. Discounting DDD's forecast cash flows using ABC's cost of equity.
- D. Applying Company ABC's P/E ratio to DDD's forecast earnings.
Answer: B
NEW QUESTION 91
A company generates operating profit of $17.2 million, and incurs finance costs of $5.7 million.
It plans to increase interest cover to a multiple of 5-to-1 by raising funds from shareholders to repay some existing debt. The pre-tax cost of debt is fixed at 5%, and the refinancing will not affect this.
Assuming no change in operating profit, what amount must be raised from shareholders?
Give your answer in $ millions to the nearest one decimal place.
Answer:
Explanation:
$ ?
45.2
NEW QUESTION 92
Company A is a listed company that produces pottery goods which it sells throughout Europe. The pottery is then delivered to a network of self employed artists who are contracted to paint the pottery in their own homes.
Finished goods are distributed by network of sales agents.The directors of Company A are now considering acquiring one or more smaller companies by means of vertical integration to improve profit margins.
Advise the Board of Company A which of the following acquisitions is most likely to achieve the stated aim of vertical integration?
- A. A pottery factory in the Middle East.
- B. A company that produces accessories.
- C. A listed international logistics firm.
- D. A company in a similar market to Company A.
Answer: C
NEW QUESTION 93
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. Bank overdraft
- B. Rights issue
- C. Private placement of a bond
- D. Retained earnings
Answer: B
NEW QUESTION 94
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 95
A company is concerned that a high proportion of its debt portfolio consists of variable rate finance with an interest rate of LIBOR ' 1 .0%.
It is considering using an interest rate swap to reduce interest rate risk out is concerned about additional finance cost this might create.
A bank has quoted swap rates of 3% 3.5% against LIBOR.
A bank has quoted swap rates of 3% 3.5% against LIBOR.
Is an interest rate swap likely to be beneficial to the company at current LIBOR rates?
- A. No, because interest cost will increase with the interest rate swap in place.
- B. Yes, because interest cost will decrease with the interest rate swap in place.
- C. Yes, because it will have lower interest rate risk and interest cost remains the same.
- D. No, because it would be cheaper to repay variable rate finance aid enter into new fixed rate finance than to enter into an interest rate swap.
Answer: C
NEW QUESTION 96
A company is wholly equity funded. It has the following relevant data:
* Dividend just paid $4 million
* Dividend growth rate is constant at 5%
* The risk free rate is 4%
* The market premium is 7%
* The company's equity beta factor is 1.2
Calculate the value of the company using the Dividend Growth Model.
Give your answer in $ million to 2 decimal places.
Answer:
Explanation:
$ ? million
56.76, 56.75
NEW QUESTION 97
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