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CIMA F3 certification exam is divided into two parts: objective test and case study. The objective test consists of 60 multiple-choice questions that cover the key concepts and theories of financial management. The case study part of the exam is designed to test the candidate's ability to apply these concepts and theories to real-world scenarios. The case study exam consists of four to five questions that are based on a given scenario.
Successfully passing the CIMA F3 exam is an important milestone in a candidate's career. It not only demonstrates their understanding of financial strategy but also their commitment to professional development. Once a candidate has passed the exam, they will be one step closer to achieving their CIMA qualification and will be well equipped to take on a range of management accounting roles.
How to book CIMA F3: Financial Strategy Exam
- Step 1: Visit the Official website
- Step 2: Select the CIMA F3: Financial Strategy Exam
- Step 3: Pay the exam amount through debit card
NEW QUESTION # 113
A company in country T is considering either exporting its product directly to customers in country P or establishing a manufacturing subsidiary in country P.
The corporate tax rate in country T is 20% and 25% tax depreciation allowances are available
Which TIIRCC of the following would be considered advantages of establishing a subsidiary in country T?
- A. There are restrictions on companies wishing to remit profit from country P
- B. Year 1 tax depreciation allowances of 100% are available in country P.
- C. There is a double tax treaty between country T and country P.
- D. The corporate tsx rate in country P is 40%.
- E. There are high customs cuties payable of products entering country P.
Answer: B,C,E
NEW QUESTION # 114
A company plans to cut its dividend but is concerned that the share price will fall. This demonstrates the _____________ effect
- A. B
- B. A
Answer: B
NEW QUESTION # 115
A company has forecast the following results for the next financial year:
The following is also relevant:
* Profit after tax for the year can be assumed to be equivalent to free cash flow for the year.
* Debt finance comprises a $10 million floating rate loan which currently carries an interest rate of 5%.
* $400,000 investment in non-current assets is required to achieve required growth, all of which is to financed from next year's free cash flow.
* The company plans to pay a dividend of $150,000 next year, financed from next year's free cash flow.
The company is concerned that interest rates could rise next year to 6% which could then affect their investment plans.
If interest rates were to rise to 6% and the company wishes to maintain its dividend amount, the planned investment expenditure will decrease by:
- A. $75,000
- B. $50,000
- C. $100,000
- D. $25,000
Answer: D
NEW QUESTION # 116
Company Z has identified four potential acquisition targets: companies A, B, C and D.
Company Z has a current equity market value of $590 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. A
- B. C
- C. B
- D. D
Answer: D
NEW QUESTION # 117
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 $2.00 per Kilowatt.
The company expects this to cause consumption to rise by 15% but costs would remained unaltered.
The price cap is expected to cause the company's net profit to fall to:
- A. $164.00 million profit
- B. $126.50 million loss
- C. $43.00 million profit
- D. $8.75 million profit
Answer: A
NEW QUESTION # 118
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. The project's operating cashflows should be included
- B. Tax relief on lease payments have not been lagged correctly
- C. Lease payments are timed incorrectly
- D. The bank loan repayments should be included
- E. Using the 10% discount rate is incorrect
- F. The salvage value has been included within the lease option
Answer: B,E,F
NEW QUESTION # 119
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. 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
- B. Company B's shareholders will be able to participate in the future growth of the combined business if it is a share exchange
- C. Company A's gearing will increase following a share exchange.
- D. The method of finance chosen will not affect the post-acquisition earning per share of the combined business
- E. Company A's weighted average cost of capital will fall if financing is with debt
Answer: A,E
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 C
- D. Option A
Answer: B
NEW QUESTION # 121
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 # 122
Listed company R is in the process of making a cash offer for the equity of unlisted company S.
Company R has a market capitalisation of $200 million and a price/earnings ratio of 10.
Company S has a market capitalisation of $50 million and earnings of $7 million.
Company R intends to offer $60 million and expects to be able to realise synergistic benefits of $20 million by combining the two businesses. This estimate excludes the estimated $8 million cost of integrating the two businesses.
Which of the following figures need to be used when calculating the value of the combined entity in $ millions?
- A. 8, 20, 50, 60, 200
- B. 8, 20, 50, 200
- C. 20, 50, 60, 200
- D. 7, 10, 20, 50, 200
Answer: A
Explanation:
Explanation
Calculation_F0
Calc_Set1
NEW QUESTION # 123
B has a S3 million loan outstanding on which the interested rate is reset every 6 months for the following 6 month and the interested is payable at the end of that 6 month period. The next 6 monthly reset period starts in 3 months and the treasurer of B thinks interested rates are likely to raise between and then.
Current 6-month rates are 6.4% and the treasurer can get a rate of 6.9% for a 6-month forward rate agreement (FRA) starting in 3 months time. By transacting an TRA the treasurer can lock in a rate today of 6.9%.
If interested rates are 7.5% in 3 months' time, what will the net amount payable be?
Give your answer to the nearest thousand dollars.
- A. 0
- B. 1
Answer: B
Explanation:
NEW QUESTION # 124
A company's latest accounts show profit after tax of $20.0 million, after deducting interest of $5.0 million. The company expects earnings to grow at 5% per annum indefinitely.
The company has estimated its cost of equity at 12%, which is included in the company WACC of 10%.
Assuming that profit after tax is equivalent to cash flows, what is the value of the equity capital?
Give your answer to the nearest $ million.
$ ? million
- A. 300, 300000000
- B. 100, 300000000
Answer: A
NEW QUESTION # 125
Company ADE is an unlisted company; it needs to raise a significant amount of finance to fund future expansion. The directors are considering listing the company on the local stock exchange The following discussions have taken place between some of the directors:
Director A - We consider a public issue of bonds in the capital markets, we don't need to list to issue the bonds which will save time and money.
Director B - We should list on the Alternative Investment Market (AIM) and not the main market to avoid any regulatory requirements Director C - We should remain unlisted; we can access an unlimited amount of equity finance through a rights issue Director D - Listing will increase Company ADE's ability to raise new equity and debt finance in the future.
Director E - If we list, Company ADE will be a more likely target for a takeover than if we remain unlisted.
Which TWO of the directors' statements are correct?
- A. Director B
- B. Director D
- C. Director C
- D. Director A
- E. Director E
Answer: A,B
NEW QUESTION # 126
Which TWO of the following situations offer arbitrage opportunities?
- A.
- B.
- C.
- D.
Answer: B
NEW QUESTION # 127
A major energy company, GDE, generates and distributes electricity in country A. The government of country A is concerned about rising inflation and has imposed price controls on GDE, limiting the price it can charge per unit of electricity sold to both domestic and commercial customers. It is likely that price controls will continue for the foreseeable future.
The introduction of price controls is likely to reduce the profit for the current year from $3 billion to $1 billion.
The company has:
* Distributable reserves of $2 billion.
* Surplus cash at the start of the year of $1 billion.
* Plans to pay a total dividend of $1.5 billion in respect of the current year, representing a small annual increase as in previous years. However, no dividends have yet been announced.
Which THREE of the following responses would be MOST appropriate for GDE following the imposition of price controls?
- A. Actively investigate potential new ways of generating revenue by the sale of related goods and services that are outside the scope of the price controls.
- B. Announce a reduction in the annual dividend to a more sustainable level given the new price controls regime.
- C. Actively look for a private equity investor to introduce new and innovative business and financial strategies to the business.
- D. Carry out a wide-ranging review of costs and staffing levels to identify possible cost savings and redundancies.
- E. Raise funds by means of a rights issue in order to maintain historical dividend levels.
Answer: A,B,D
NEW QUESTION # 128
A company has a financial objective of maintaining a gearing ratio of between 30% and 40%, where gearing is defined as debt/equity at market values.
The company has been affected by a recent economic downturn leading to a shortage of liquidity and a fall in the share price during 20X1.
On 31 December 20X1 the company was funded by:
* Share capital of 4 million $1 shares trading at $4.0 per share.
* Debt of $7 million floating rate borrowings.
The directors plan to raise $2 million additional borrowings in order to improve liquidity.
They expect this to reassure investors about the company's liquidity position and result in a rise in the share price to $4.2 per share.
Is the planned increase in borrowings expected to help the company meet its gearing objective?
- A. No, gearing would increase and the gearing objective would be met before the announcement but exceeded after the announcement.
- B. No, gearing would increase but the gearing objective would be met both before and after the announcement.
- C. No, gearing would increase and the gearing objective would be exceeded both before and after the announcement.
- D. Yes, gearing would fall and the gearing objective would be exceeded before the announcement but met after the announcement.
Answer: C
NEW QUESTION # 129
PYP is a listed courier company. It is looking to raise new finance to fit each of its delivery vans with new equipment to allow improved parcel tracking for customers The senior management team of PYP have decided on a 10-year secured bond to finance this investment- Which TWO of the following variables are most likely to decrease the yield to maturity of the bond?
- A. The senior management team decide to issue a convertible bond rather than a conventional bond
- B. Changing the term of the bond from 1 0 years to 5 years to match the expected life of the new equipment
- C. The senior management team decide to issue an unsecured bond rather than a secured bond
- D. The announcement of a new contract for PYP that will increase operating profits by 5°/o over the next 5 years.
Answer: A,B
NEW QUESTION # 130
The Board of Directors of a listed company have decided that it needs to increase its equity capital to ensure it is in a more stable financial position.
The shareholder profile is a mix of institutional and individual small shareholders.
The board is considering either:
* A scrip dividend
* A zero dividend
Which THREE of the following would be considered disadvantages of a scrip dividend compared to a zero dividend?
- A. There will be company secretarial and additional administration involved with a scrip dividend.
- B. A scrip dividend will dilute the control of current shareholders.
- C. A scrip issue may give shareholders the impression that they are receiving something of value.
- D. A scrip dividend results in distributable reserves being moved to non-distributable reserves.
- E. A scrip dividend results in more shares in issue which will create an expectation for future dividends.
Answer: A,D,E
NEW QUESTION # 131
Company X is an established, unquoted company which provides IT advisory services.
The company's results and cashflows are growing steadily and it has few direct competitors due to the very specialised nature of it's business. Dividends are predictable and paid annually.
Company P is looking to buy 30% of company X's equity shares.
Which TWO of the following methods are likely to be considered most suitable valuation methods for valuing company P's investment in Company X?
- A. Earnings yield method using a listed IT company as proxy
- B. P/E ratio method using IT industry average
- C. Asset based using replacement cost
- D. Dividend based using DVM
- E. Cash based using free cash flow before interest
Answer: D,E
NEW QUESTION # 132
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. Debt for share exchange.
- B. Share for share exchange.
- C. Cash offer, funded from existing cash resources.
- D. Cash offer, funded by a rights issue.
- E. Cash offer, funded by borrowings.
Answer: B,D
NEW QUESTION # 133
A listed company is planning a share repurchase.
The following data applies:
* There are 10 million shares in issue
* The share repurchase will involve buying back 20% of the shares at a price of $0.75
* The company is holding $2 million cash
* Earnings for the current year ended are $2 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 20% and the EPS will increase by 25%.
- B. The cash balance will decrease by 75% and EPS will increase by 25%.
- C. The cash balance will decrease by 20% and the EPS will decrease by 25%.
- D. The cash balance will decrease by 75% and EPS will decrease by 25%.
Answer: B
NEW QUESTION # 134
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