Steps Necessary To Pass The F3 Exam from Training Expert TorrentVCE
Valid Way To Pass CIMA Strategic level's F3 Exam
NEW QUESTION 110
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. B
- B. D
- C. A
- D. C
Answer: D
NEW QUESTION 111
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 share capital figure would reduce by the nominal value of the shares purchased.
- B. The premium to the nominal value would be charged to retained earnings.
- C. The total value of the equity in its Statement of Financial Position would remain unchanged.
- D. The premium to the market value would be charged to the Income Statement.
Answer: A
NEW QUESTION 112
Which THREE of the following are benefits of integrated reporting?
- A. Reduce the amount of work that is required to produce the report and accounts.
- B. Improve short term decision making.
- C. Improve the quality of information available to the providers of financial capital.
- D. Promote an understanding of the interdependencies of capitals.
- E. Support integrated decision-making.
Answer: C,D,E
NEW QUESTION 113
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 114
Select the category of risk for each of the descriptions below:
Answer:
Explanation:
NEW QUESTION 115
Select the most appropriate divided for each of the following statements:
Answer:
Explanation:
NEW QUESTION 116
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. 1 share in Company S for 1 share in Company T
- B. 10 shares in Company S for 4 shares in Company T
- C. 2 shares in Company S for 1 share in Company T
- D. 1 share in Company S for 2 shares in Company T
Answer: A
NEW QUESTION 117
A company has:
* A price/earnings (P/E) ratio of 10.
* Earnings of $10 million.
* A market equity value of $100 million.
The directors forecast that the company's P/E ratio will fall to 8 and earnings fall to $9 million.
Which of the following calculations gives the best estimate of new company equity value in $ million following such a change?
A)
B)
C)
D)
- A. Option A
- B. Option D
- C. Option B
- D. Option C
Answer: A
NEW QUESTION 118
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. $0.16 increase
- C. $0.07 fall
- D. $0.03 increase
Answer: D
NEW QUESTION 119
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 fair value 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 nominal value in the statement of financial position and the change in value posted to other comprehensive income.
Answer: A
NEW QUESTION 120
Company B is an all equity financed company with a cost of equity of 10%.
It is considering issuing bonds in order to achieve a gearing level of 20% debt and 80% equity.
These bonds will pay a coupon rate of 5% and have an interest yield of 6%.
Company B pays corporate tax at the rate of 25%.
According to Modigliani and Miller's theory of capital structure with tax, what will be Company B's new cost of equity?
A)
B)
C)
D)
- A. Option D
- B. Option B
- C. Option A
- D. Option C
Answer: B
NEW QUESTION 121
A company is considering either directly exporting its product to customers in a foreign country or setting up a subsidiary in the foreign country to manufacture and supply customers in that country.
Details of each alternative method of supplying the foreign market are as follows:
There is an import tax on product entering the foreign country of 10% of sales value.
This import duty is a tax-allowable deduction in the company's domestic country.
The exchange rate is A$1.00 = B$1.10
Which alternative yields the highest total profit after taxation?
- A. Domestic: A$41,250
- B. Foreign subsidiary: A$35,000
- C. Foreign subsidiary: A$38,500
- D. Domestic: A$33,750
Answer: B
NEW QUESTION 122
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. If the proposal is adopted, X will have a lower effective sales price per unit due to exchange rate fluctuations.
- 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. 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.
- E. X may be able to sell the receipts forward.
Answer: A,D
NEW QUESTION 123
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. 9.3%
- B. 12.3%
- C. 11.4%
- D. 10.1%
Answer: B
NEW QUESTION 124
A company wishes to raise new finance using a rights issue to invest in a new project offering an IRR of 10% The following data applies:
* There are currently 1 million shares in issue at a current market value of $4 each.
* The terms of the rights issue will be $3.50 for 1 new share for 5 existing shares.
* The company's WACC is currently 8%.
What is the yield-adjusted theoretical ex-rights price (TERP)?
Give your answer to 2 decimal places.
$ ?
Answer:
Explanation:
4.06, 4.060
NEW QUESTION 125
KKL is a listed sports clothing company with three separate business units. KKL is seeking to sell TT', one of these business units TTP cwns a new. brand of trail running shoes that have Droved hugely popular with lone distance runners.
The management team of TTP are frustrated by the constraints imposes b/ KKL in managing tie brand and developing. the bus ness and they believe that TTF has huge growth potential.
The management team of TTP have approached KKL with a proposal to purchase 1~P through a management layout (MDO). KKL has accepted this proposal as TTP has not proved to be a good fit' with the rest of the business and has agreed on the selling price.
Which THREE of the following factors a-e mast Likely to affect the success of the MBO?
- A. The constraints imposed by KKL managing TTF's brand.
- B. The ability the TTP management team to develop the brand and achieve the expected growth.
- C. Searing sufficient. funding for the MBO.
- D. The motivation of the TTP management team to invest in future growth.
- E. The ability of the TTF management team to take over the head office functions successfully.
Answer: B,C,E
NEW QUESTION 126
A company is considering taking out $10.000,000 of floating rate bank borrowings to finance a new project.
The current rate available to the company on floating rate barrowings is 8%. The borrowings contain a covenant based on an interested cover of 5 times.
The project is expected to generate the following results:
At what interest rate on the floating rate borrowings is the bank covenant first breached?
- A. 10.0%
- B. 8.0%
- C. 9.4%
- D. 11.0%
Answer: D
NEW QUESTION 127
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 128
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