Latest CIMAPRA19-F03-1 Pass Guaranteed Exam Dumps Certification Sample Questions
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NEW QUESTION # 90
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
Answer:
Explanation:
8
NEW QUESTION # 91
An all equity financed company plans an issue of new ordinary shares to the general public to raise finance for a new project
The following data applies:
* 10 million ordinary shares are currently in issue with a market value of S3 each share
* The new project will cost S2.88 million and is expected to give a positive NPV of S1 million
* The issue will be priced at a AaA discount to the current share price.
What gam or loss per share will accrue to the existing shareholders?
- A. Gain of $0.08
- B. Loss of $0.18
- C. Gain of 0.18
- D. Loss of $0.08
Answer: A
NEW QUESTION # 92
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. Sale of Division B to Company Z
- B. Closure of Division
- C. Demerger of Division C
- D. Management buy-out of Division C
Answer: D
NEW QUESTION # 93
The Board of Directors of a listed company wish to estimate a reasonable valuation of the entire share capital of the company in the event of a takeover bid.
The company's current profit before taxation is $10 0 million.
The rate of corporate tax is 20%.
The average P/E multiple of listed companies in the same industry is 10 times current earnings.
The P/E multiple of recent takeovers in the same industry have ranged from 11 times to 12 times current earnings.
The average P/E multiple of the top 100 companies on the stock market is 16 times current earnings.
Advise the Board of Directors which of the following is a reasonable estimate of a range of values of the entire share capital in the event of a bid being made for the whole company?
- A. Minimum = S80 million, and maximum = $128 million.
- B. Minimum = $88 million, and maximum = $96 million.
- C. Minimum = $110 million, and maximum = $120 million.
- D. Minimum = S100 million, and maximum = $120 million.
Answer: B
NEW QUESTION # 94
Company ABC's management has noticed that Company BCD has quickly built up a 20% stake by buying shares in Company ABC and are concerned that this is the start of a hostile bid.
This build-up of shares triggers the poison pill provision which automatically converts the rights to buy future preference shares previously issued to existing shareholders in Company ABC to full ordinary shares
What is the most likely impact of the triggering of a poison pill strategy at this stage in the bidding process?
- A. It is too late for a poison pill strategy to have any impact on a hostile takeover because Company BCD has already built up a significant stake in Company ABC.
- B. The threat of a hostile takeover is reduced because Company ABC becomes more expensive to buy.
- C. Company BCD loses value on its shareholding and has to sell at a loss before losing more value
- D. Company ABC becomes less attractive due to a fall in value of the shares as a result of the discount.
Answer: B
NEW QUESTION # 95
Company P is a pharmaceutical company listed on an alternative investment market.
The company is developing a new drug which it hopes to market in approximately six years' time.
Company P is owned and managed by a group of doctors who wish to retain control of the company. The company operates from leased laboratories with minimal fixed assets.
Its value comes from the quality of its research staff and their research.
The company currently has one approved drug which generates sufficient cashflow to cover day to day operations but not sufficient for major new research and development.
Company P wish to raise debt finance to develop the new drug.
Recommend which of the following types of debt finance would be most appropriate for Company P to help finance the development of this new drug.
- A. 3% Commercial Paper.
- B. 4% Convertible bond with a conversion ratio of 350 ordinary shares per bond.
- C. 5% Bond repayable at par in 7 years' time.
- D. 6% Eurobond repayable at par in 5 years' time.
Answer: B
NEW QUESTION # 96
Which of the following would be a reason for a company to adopt a low dividend pay-out policy?
- A. A lack of investment opportunities
- B. A lack of alternative sources of finance
- C. Using dividends to give a signal to the stock market
- D. High profitability
Answer: C
NEW QUESTION # 97
Company A is planning to acquire Company B by means of a cash offer. The directors of Company B are prepared to recommend acceptance if a bid price can be agreed. Estimates of the net present value (NPV) of future cash flows for the two companies and the combined group post acquisition have been prepared by Company A's accountant. There are as follows:
What is the maximum price that Company A should offer for the shares in Company B?
Give your answer to the nearest $ million
Answer:
Explanation:
150
NEW QUESTION # 98
A company is funded by:
* $40 million of debt (market value)
* $60 million of equity (market value)
The company plans to:
* Issue a bond and use the funds raised to buy back shares at their current market value.
* Structure the deal so that the market value of debt becomes equal to the market value of equity.
According to Modigliani and Miller's theory with tax and assuming a corporate income tax rate of 20%, this plan would:
- A. increase shareholder wealth.
- B. decrease the company's equity beta.
- C. increase the market value of the company's equity.
- D. increase the company's asset beta.
Answer: A
NEW QUESTION # 99
A venture capitalist invests in a company by means of buying
* 6 million shares for $3 a share and
* 7% bonds with a nominal value of $2 million, repayable at par in 3 years' time The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment The company has 8 million shares in issue What is the minimum total equity value for the company in 3 years' time required to satisfy the venture capitalist's expected return?
Answer:
Explanation:
Give your answer to the nearest $ million
31
NEW QUESTION # 100
A company is planning to issue a 5 year $100 million bond at a fixed rate of 6%.
It is also considering whether or not to enter into a 10 year $100 million swap to receive 5% fixed and pay Libor + 1% once a year.
The company predicts that Libor will be 4% over the life of the 5 years.
What is the impact of the swap on the company's annual interest cost assuming that the Libor prediction is correct?
- A. Increase by 1%.
- B. Fall by 2%.
- C. Fall by 1%.
- D. Remain the same.
Answer: D
NEW QUESTION # 101
Which of the following statements about the tax impact on debt finance is correct?
- A. Interest on debt is deducted from post-tax profits.
- B. Preference share dividends attract tax relief in the same way as debenture interest.
- C. Interest on debt is deducted from pre-tax profits.
- D. Debt instruments issued with fixed and floating charges do not attract tax relief on interest paid.
Answer: C
NEW QUESTION # 102
Providers of debt finance often insist on covenants being entered into when providing debt finance for companies.
Agreement and adherence to the specific covenants is often a condition of the loan provided by the lender.
Which THREE of the following statements are true in respect of covenants?
- A. Covenants are entered into to eliminate the tax liability of the company.
- B. Covenants enable the lender to demand immediate repayment or to renegotiate terms if it is breached.
- C. Covenants are entered into to penalise the company.
- D. Covenants are entered into to give the lender added protection on the loan extended to the company.
- E. Covenants are entered into to impose financial discipline on the company.
Answer: B,D,E
Explanation:
Explanation
Discursive_F0
NEW QUESTION # 103
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. Yes, gearing would fall and the gearing objective would be exceeded before the announcement but met after the announcement.
- B. No, gearing would increase and the gearing objective would be exceeded both before and after the announcement.
- C. No, gearing would increase and the gearing objective would be met before the announcement but exceeded after the announcement.
- D. No, gearing would increase but the gearing objective would be met both before and after the announcement.
Answer: B
NEW QUESTION # 104
The ex div share price of a company's shares is $2.20.
An investor in the company currently holds 1,000 shares.
The company plans to issue a scrip dividend of 1 new share for every 10 shares currently held.
After the scrip dividend, what will be the total wealth of the shareholder?
Give your answer to the nearest whole $.
Answer:
Explanation:
$ ? .
2200
NEW QUESTION # 105
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