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CIMA CIMAPRA19-F03-1 exam is a comprehensive exam that covers a wide range of topics related to financial strategy. F3 exam includes topics such as financial analysis, financial planning and forecasting, investment appraisal, risk management, and business valuation. F3 exam also covers topics related to financial reporting, including financial statements and their analysis.
NEW QUESTION # 128
A company's Board of Directors is assessing the likely impact of financing future new projects using either equity or debt.
The directors are uncertain of the effects on key variables.
Which THREE of the following statements are true?
- A. Equity finance will increase pressure to pay a higher total future dividend.
- B. The choice between using either equity or debt will have no impact on the amount of corporate income tax payable.
- C. Equity finance will reduce the overall financial risk.
- D. Retained earnings has no cost, and is therefore the cheapest form of equity finance.
- E. Debt finance is always preferable to equity finance.
- F. Debt finance will increase the cost of equity.
Answer: A,C,F
NEW QUESTION # 129
Company HJK is planning to bid for listed company BNM
Financial data for BNM for the financial year ended 31 December 20X1:
HJK is not forecasting any growth in these figures for the foreseeable future
Profit and cost data above should be assumed to be equivalent to cash flow data when answenng this question
Which THREE of the following approaches would be most appropriate for HJK to use to value the equity of BNM?
- A. Cash flows of S14 million discounted at the cost of equity
- B. Cash flows of $30 million (= S40 million net of tax at 25%) discounted at WACC minus the value of debt
- C. Share price x number of shares in issue plus retained profits
- D. Share price x number of shares in issue
- E. Cash flows of S24 million discounted at the cost of equity
Answer: B,C,D
NEW QUESTION # 130
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. Demerger of Division C
- B. Management buy-out of Division C
- C. Sale of Division B to Company Z
- D. Closure of Division
Answer: B
NEW QUESTION # 131
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 breach of both covenants.
- B. The company will breach the covenant in respect of retained earnings only.
- C. The company will be in compliance with both covenants.
- D. The company will be in breach of the covenant in respect of interest cover only.
Answer: B
NEW QUESTION # 132
A listed company with a growing share price plans to finance a four-year research project with debt.
The main criterion for the finance is to minimise the annual cashflow payments on the debt.
The research will be sold at the end of the project.
Which of the following would be the most suitable financing method for the company?
- A. Standard bonds
- B. Bonds with warrants
- C. Bank loan
- D. Finance lease
Answer: B
NEW QUESTION # 133
A listed company is planning a share repurchase.
The following data applies
* There are 20 million shares in issue
* The share repurchase will involve buying back 10% of the shares at a price of $1.20
* The company is holding $4.8 million cash
* Earnings for the current year ended are $3.6 million
The Directors are concerned about the impact that this repurchase programme will have on the company's cash balance and current year earnings per share (EPS) ratio.
Advise the directors which of the following statements is correct?
- A. The cash balance will decrease by 50% and EPS will increase by 11%
- B. The cash balance will decrease by 50% and EPS will decrease by11%
- C. The cash balance will decrease by 10% and the EPS will increase by 11%.
- D. The cash balance will decrease by 10% and the EPS will decrease by 11%.
Answer: B
NEW QUESTION # 134
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. $14.00
- B. $11.00
- C. $9.00
- D. $16.00
Answer: D
Explanation:
Calc_Set3
NEW QUESTION # 135
An all equity financed company reported earnings for the year ending 31 December 20X1 of $8 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 4%.
The company pays corporate income tax at 20%.
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. $8.40 million
- B. $10.54 million
- C. $10.50 million
- D. $6.69 million
Answer: B
NEW QUESTION # 136
G purchased a put option that grants the right to cap the interest on a loan at 10.0%. Simultaneously, G sold a call option that grants the holder the benefits of any decrease if interest rates fall below 8.5%.
Which THREE possible explanations would be consistent with G's behavior?
- A. G is willing to risk the loss of savings from a fall in interest rates if that offsets the cost of limiting the cost of rises.
- B. G is concerned that interest rates may rise above 10.0%.
- C. G's strategy is to ensure that its interest rates lie between 8.5% and 10.0%.
- D. G is concerned that interest rates may fall below 10%.
- E. G is concerned that interest rates may rise above 8.5%.
Answer: A,B,C
NEW QUESTION # 137
A company enters into a floating rate borrowing with interest due every 12 months over the five year life of the borrowing.
At the same time, the company arranges an interest rate swap to swap the interest profile on the borrowing from floating to fixed rate.
These transactions are designated as a hedge for hedge accounting purposes under IAS 39 Financial Instruments: Recognition and Measurement.
Assuming the hedge is considered to be effective, how would the swap be accounted for 12 months later?
- A. The swap would be shown at nominal value in the statement of financial position and the change in value posted to other comprehensive income.
- B. The swap would be shown at nominal value in the statement of financial position and the change in value posted to profit or loss.
- C. The swap would be shown at fair value the statement of financial position and the change in value posted to profit or loss.
- D. The swap would be shown at fair value the statement of financial position and the change in value posted to other comprehensive income.
Answer: D
NEW QUESTION # 138
Company S is planning to acquire Company T.
The shareholders in Company T will receive new shares in Company S in an all-share consideration.
Relevant information:
The shareholders in Company T want sufficient shares to receive a 25% premium on the pre-acquisition value of their shares, based on the pre-acquisition share price.
Which of the following share-for-share offers will achieve the desired result?
- A. 10 shares in Company S for 4 shares in Company T
- B. 2 shares in Company S for 1 share in Company T
- C. 1 share in Company S for 2 shares in Company T
- D. 1 share in Company S for 1 share in Company T
Answer: D
NEW QUESTION # 139
PPP's home currency is the PS. An overseas customer is due to make a payment of A$5,000,000 to PPP in 3 months. The present spot rate is 1PS = 5A$. P can obtain an interest rate of 4% per year on P$ deposits and 6% per year on AS deposits.
Forecast the value of the customer's payment to PPP, in PS, when the payment is made in 3 months' time.
Give your answer to the nearest thousand PS.
Answer:
Explanation:
Pending
NEW QUESTION # 140
AA is considering changing its capital structure. The following information is currently relevant to AA:
The gearing rating raising the new debt finance will be 50%.
Which THREE of the following statement about the impact of AA's change in capital structure are true under Modigliani and Miler's capital structure theory with tax.
- A. The cost of debt remain unchanged at 4%
- B. The cost of equity will increase above 10%
- C. The WACC will decrease below 7.6%
- D. The cost of debt will increase above 4%
- E. The cost of equity will decrease below 10%
- F. The WACC increase above 7.6
Answer: A,C,F
NEW QUESTION # 141
The competition authorities are investigating the takeover of Company Z by a larger company, Company Y.
Both companies are food retailers.
The takeover terms involve using a part cash, part share exchange means of payment.
Company Z is resisting the bid, arguing that it undervalues its business, while lobbying extensively among politicians to sway public opinion against the bidder.
Which of the following actions by Company Y is most likely to persuade the competition authorities to approve the acquisition?
- A. Company Y increases the cash element of its bid offer.
- B. Company Y guarantees to preserve employment at its cental distribution depot.
- C. Company Y agrees to dispose of specified outlets which geographically overlap those of Company Z.
- D. Company Y undertakes to pass on any cost savings to customers.
Answer: C
NEW QUESTION # 142
Company M plans to bid for Company J. Company M has 20 million shares in issue and a current share price of $10.00 before publicly announcing the planned takeover. Company J has 10 million shares in issue and a current share price of $4.00.
The directors of Company M are considering an all-share bid of 1 Company M shares for 2 Company J shares.
Synergies worth $20m are expected from the acquisition.
What is the likely change in wealth for Company M's shareholders (in total) if the bid is accepted?
Give your answer to the nearest $ million.
$ ? million
- A. 0
- B. 1
Answer: B
NEW QUESTION # 143
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 accounts for intangible assets at net realisable value.
- B. It does not account for the intangible assets.
- C. It accounts for the intangible assets at historical value.
- D. It does not account for tangible assets.
Answer: B
NEW QUESTION # 144
The competition authorities are investigating the takeover of Company Z by a larger company, Company
Y.
Both companies are food retailers.
The takeover terms involve using a part cash, part share exchange means of payment.
Company Z is resisting the bid, arguing that it undervalues its business, while lobbying extensively among politicians to sway public opinion against the bidder.
Which of the following actions by Company Y is most likely to persuade the competition authorities to approve the acquisition?
- A. Company Y increases the cash element of its bid offer.
- B. Company Y guarantees to preserve employment at its cental distribution depot.
- C. Company Y agrees to dispose of specified outlets which geographically overlap those of Company Z.
- D. Company Y undertakes to pass on any cost savings to customers.
Answer: C
NEW QUESTION # 145
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