CIMAPRA19-F03-1 Exam Questions - Real & Updated Questions PDF
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CIMAPRA19-F03-1 (F3 Financial Strategy) certification exam is a highly respected qualification in the finance industry that demonstrates a candidate's expertise in financial strategy. It is administered by the Chartered Institute of Management Accountants (CIMA) and covers a range of topics related to financial strategy. Candidates must meet certain eligibility requirements to take the exam, and it is administered at Pearson VUE test centers around the world.
NEW QUESTION # 203
A company has a covenant on its 5% long-term bond, stipulating that its retained earnings must not fall below
$2 million.
The company has 100 million shares in issue.
Its most recent dividend was $0.045 per share. It has committed to grow the dividend per share by 4% each year.
The nominal value of the bond is $60 million. It is currently trading at 80% of its nominal value.
Next year's earnings before interest and taxation are projected to be $11.25 million.
The rate of corporate tax is 20%.
If the company increases the dividend by 4%, advise the Board of Directors if the level of retained earnings will comply with the covenant?
- A. Covenant is not breached as retained earnings = $2.10 million.
- B. The covenant is not breached as retained earnings = $4.68 million.
- C. Covenant is breached as retained earnings = $1.92 million.
- D. Covenant is not breached as retained earnings = $2.40 million.
Answer: C
NEW QUESTION # 204
A company has accumulated a significant amount of excess cash which is not required for investment for the foreseeable future.
It is currently on deposit, earning negligible returns.
The Board of Directors is considering returning this excess cash to shareholders using a share repurchase programme.
The majority of shareholders are individuals with small shareholdings.
Which THREE of the following are advantages of the company undertaking a share repurchase programme?
- A. Institutional investors generally prefer a constant predictable income in the form of dividends.
- B. Individual shareholders can realise their investment if they wish.
- C. The earnings per share should increase for the shareholders who do not sell their shares.
- D. It reduces excess cash which might have been attractive to predators.
- E. It reduces the amount of cash for potential future investment opportunities.
Answer: B,C,D
NEW QUESTION # 205
A company based in Country A with the A$ as its functional currency requires A$500 million 20-year debt finance to finance a long-term investment The company has a high credit rating, but has not previously issued corporate bonds which are listed on the stock exchange Which THREE of the following are advantages of issuing 20 year bonds compared with simply borrowing for a 20 year period?
- A. Larger capital market
- B. Greater availability of debt of 20-year duration
- C. Less administrative effort to arrange the new finance
- D. Lower arrangement costs
- E. Lower interest rate
Answer: A,B,E
NEW QUESTION # 206
A company is planning a new share issue.
The funds raised will be used to repay debt on which it is currently paying a high interest rate.
Operating profit and dividends are expected to remain unchanged in the near future.
If the share issue is implemented, which THREE of the following are most likely to increase?
- A. Interest cover
- B. The number of shares in issue
- C. Next year's payment of corporate income tax
- D. The cost of equity
- E. The gearing (book value of debt as a percentage of the book value of equity + debt)
Answer: B,C,E
NEW QUESTION # 207
A listed company is planning to raise $21.6 million to finance a new project with a positive net present value of $5 million. The finance is to be raised via a rights issue at a 10% discount to the current share price. There are currently 100 million shares in issue, trading at $2.00 each.
Taking the new project into account, what would the theoretical ex-rights price be?
Give your answer to two decimal places.
Answer:
Explanation:
$ ?
2.02, 2.03
NEW QUESTION # 208
Which of the following is NOT an advantage of a share repurchase?
- A. To return surplus cash to shareholders by avoiding a one-off dividend
- B. To enable the company to retain cash in the business for reinvestment
- C. To reduce the cost of capital of a company by increasing the gearing level.
- D. To allow investors to sell shares if no active market currently exists
Answer: B
NEW QUESTION # 209
A company has just received a hostile bid. Which of the following response strategies could be considered?
- A. Revalue non-current assets
- B. Approach a White Knight
- C. Change the Articles of Association to amend voting rights
- D. Poison pill strategy
Answer: B
NEW QUESTION # 210
A company is planning a share buyback. In which of the following circumstances would a share buyback be appropriate?
- A. The company wants to reduce the nominal value of its shares to make them more marketable.
- B. The company has a one off cash surplus and no available investment opportunities.
- C. The country in which the company operates taxes capital gains at a higher rate than income.
- D. The company wants to reduce its gearing.
Answer: B
NEW QUESTION # 211
The table below shows the forecast for a company's next financial year:
The forecast incorporates the following assumptions:
* 25% of operating costs are variable
* Debt finance comprises a $400 million fixed rate loan at 5%
* Corporate income tax is paid at 25%
The company plans to do the following next year from the forecast earnings on the assumption that earnings will be equivalent to free cash flow:
* Pay a total dividend of $20 million
* Invest $40 million in new projects
What is the maximum % reduction in operating activity that could occur next year before the company's dividend and investment plans are affected?
Give your answer to the nearest 0.1%.
Answer:
Explanation:
4.8, 4.7, 4.9, 5.0, 4.6, 4.80, 4.70, 4.90, 5.00, 4.60%
NEW QUESTION # 212
Company A is unlisted and all-equity financed. It is trying to estimate its cost of equity.
The following information relates to another company, Company B, which operates in the same industry as Company A and has similar business risk:
Equity beta = 1.6
Debt:equity ratio 40:60
The rate of corporate income tax is 20%.
The expected premium on the market portfolio is 7% and the risk-free rate is 5%.
What is the estimated cost of equity for Company A?
Give your answer to one decimal place.
? %
Answer:
Explanation:
12.3, 12.30
NEW QUESTION # 213
Which THREE of the following long term changes are most likely to increase the credit rating of a company?
- A. A decrease in the (Book value of debt) / (Book value of equity) ratio.
- B. An increase in the interest cover ratio.
- C. A decrease in the dividend cover ratio.
- D. An increase in the free cashflow generated from operations.
- E. A decrease in the (Net debt) / (Earnings before interest, tax, depreciation and amortisation) ratio.
Answer: B,D,E
NEW QUESTION # 214
An unlisted company is attempting to value its equity using the dividend valuation model.
Relevant information is as follows:
* A dividend of $500,000 has just been paid.
* Dividend growth of 8% is expected for the foreseeable future.
* Earnings growth of 6% is expected for the foreseeable future.
* The cost of equity of a proxy listed company is 15%.
* The risk premium required due to the company being unlisted is 3%.
The calculation that has been performed is as follows:
Equity value = $540,000 / (0.18 - 0.08) = $5,400,000
What is the fault with the calculation that has been performed?
- A. The cost of equity used in the calculation should have been 12% (15% subtract 3%).
- B. The cost of equity used in the calculation should have been 15%; no adjustment was necessary.
- C. The dividend growth rate is unsuitable given that earning growth is lower than dividend growth.
- D. The dividend cashflow used should have been $500,000 rather than $540,000.
Answer: C
NEW QUESTION # 215
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. Rights issue
- B. Bank overdraft
- C. Retained earnings
- D. Private placement of a bond
Answer: A
NEW QUESTION # 216
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 does not account for the intangible assets.
- B. It accounts for the intangible assets at historical value.
- C. It does not account for tangible assets.
- D. It accounts for intangible assets at net realisable value.
Answer: A
NEW QUESTION # 217
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 # 218
A company has announced a rights issue of 1 new share for every 4 existing shares.
Relevant data:
* The current market price per share is $10.00.
* Rights are to be issued at a 20% discount to the current price.
* The rate of return on the new funds raised is expected to be 10%.
* The rate of return on existing funds is 5%.
What is the yield-adjusted theoretical ex-rights price?
Give your answer to two decimal places.
$ ?
- A. 11.20, 11.3
- B. 11.20, 11.2
Answer: B
NEW QUESTION # 219
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 profit or loss.
- B. The swap would be shown at fair value the statement of financial position and the change in value posted to other comprehensive income.
- C. The swap would be shown at nominal value in 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: B
NEW QUESTION # 220
Extracts from a company's profit forecast for the next financial year is as follows:
Since preparing the forecast, the company has decided to return surplus cash to shareholders by a share repurchase arrangement.
The share repurchase would result in the company purchasing 20% of the 2,000 million ordinary shares currently in issue and cancelling them.
Assuming the share repurchase went ahead, the impact on the company's forecast earnings per share will be an increase of:
- A. $0,050
- B. $0,100
- C. $0,125
- D. $0,075
Answer: A
NEW QUESTION # 221
On 1 January:
* Company ABB has a value of $55 million
* Company BBA has a value of $25 million
* Both companies are wholly equity financed
Company ABB plans to take over Company BBA by means of a share exchange Following the acquisition the post-tax cashflow of Company ABB for the foreseeable future is estimated to be $10 million each year The post-acquisition cost of equity is expected to be 10% What is the best estimate of the value of the synergy that would arise from the acquisition?
- A. $20 million
- B. $75 million
- C. $125 million
- D. $30 million
Answer: C
NEW QUESTION # 222
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CIMA F3 exam is structured in a way that enables candidates to demonstrate their understanding of the fundamental principles of financial strategy and their ability to apply these principles to real-world scenarios. CIMAPRA19-F03-1 exam is divided into two sections, Section A and Section B. Section A focuses on the development of financial strategies, while Section B is designed to test candidates' ability to implement and monitor these strategies. The F3 exam is a rigorous test of knowledge and skill, and candidates are required to demonstrate a thorough understanding of financial concepts, analytical skills, and the ability to formulate effective financial strategies.
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