[Jul 11, 2024] Latest CIMAPRA19-F03-1 Exam with Accurate F3 Financial Strategy PDF Questions
Practice To CIMAPRA19-F03-1 - Prep4sureExam Remarkable Practice On your F3 Financial Strategy Exam
NEW QUESTION # 175
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.
$ ?
Answer:
Explanation:
11.20, 11.2
NEW QUESTION # 176
A profit-seeking company intends to acquire another company for a variety of reasons, primarily to enhance shareholder wealth.
Which THREE of the following offer the greatest potential for enhancing shareholder wealth?
- A. Achieving more press coverage for the company.
- B. Achieving greater cultural diversity.
- C. Elimination of existing competition.
- D. Creating new opportunities for employees.
- E. Acquiring Intellectual Property assets.
- F. Exploiting production synergies.
Answer: C,E,F
NEW QUESTION # 177
Company C has received an unwelcome takeover bid from Company P.
Company P is approximately twice the size of Company C based on market capitalisation.
Although the two companies have some common business interests, the main aim of the bid is diversification for Company P.
The offer from Company P is a share exchange of 2 shares in Company P for 3 shares in Company C.
There is a cash alternative of $5.50 for each Company C share.
Company C has substantial cash balances which the directors were planning to use to fund an acquisition.
These plans have not been announced to the market.
The following share price information is relevant. All prices are in $.
Which of the following would be the most appropriate action by Company C's directors following receipt of this hostile bid?
- A. Refer the bid to the country's competition authorities.
- B. Write to shareholders explaining fully why the company's share price is under valued.
- C. Pay a one-off special dividend.
- D. Change the Articles of Association to increase the percentage of shareholder votes required to approve a takeover.
Answer: B
NEW QUESTION # 178
Which of the following explains an aim of integrated reporting in accordance with The International <IR> Framework as issued by the International Integrated Reporting Council?
- A. To highlight the separation of strategy, governance and financial performance in a social, environmental and economic context.
- B. To support decision making and actions that focus on creating value over the short, medium and long term.
- C. To highlight the need for greater reporting of performance to stakeholders in a greater level of detail than at present.
- D. To integrate the various accepted accounting practices of member bodies into a single, unified code of accounting principles.
Answer: B
NEW QUESTION # 179
Company M is a listed company in a highly technical service industry.
The directors are considering making a cash offer for the shares in Company Q, an unquoted company in the same industry.
Relevant data about Company Q:
* The company has seen consistent growth in earnings each year since it was founded 10 years ago.
* It has relatively few non-current assets.
* Many of the employees are leading experts in their field. A recent exercise suggested that the value of the company's human capital exceeded the value of its tangible assets.
The directors and major shareholders of Company Q have indicated willingness to sell the company.
Before negotiations become too advanced, the directors of Company M are considering the benefits to their company that would follow the acquisition.
Which THREE of the following are the most likely benefits of the acquisition to Company M's shareholders?
- A. Reduction of risk through diversification.
- B. Gain economies of scale.
- C. Improved asset backing for borrowing due to the acquisition of intangible assets.
- D. Access to technical expertise.
- E. Improve earnings per share (EPS).
Answer: B,D,E
NEW QUESTION # 180
A company is currently all-equity financed.
The directors are planning to raise long term debt to finance a new project.
The debt:equity ratio after the bond issue would be 40:60 based on estimated market values.
According to Modigliani and Miller's Theory of Capital Structure without tax, the company's cost of equity would:
- A. increase or decrease depending on the bond's coupon rate.
- B. stay the same.
- C. increase.
- D. decrease.
Answer: C
NEW QUESTION # 181
Select the most appropriate divided for each of the following statements:
Answer:
Explanation:
NEW QUESTION # 182
A company is financed by debt and equity and pays corporate income tax at 20%.
Its main objective is the maximisation of shareholder wealth.
It needs to raise $200 million to undertake a project with a positive NPV of $10 million.
The company is considering three options:
* A rights issue.
* A bond issue.
* A combination of both at the current debt to equity ratio.
Estimations of the market values of debt and equity both before and after the adoption of the project have been calculated, based upon Modigliani and Miller's capital theory with tax, and are shown below:
Under Modigliani and Miller's capital theory with tax, what is the increase in shareholder wealth?
- A. $10 million irrespective of finance
- B. $210 million if financed by equity
- C. $50 million if financed by debt
- D. $160 million if financed by a mixture of debt and equity
Answer: C
NEW QUESTION # 183
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 # 184
Select whether the following statements are true or false with regard to Modigliani and Miller's dividend policy theory.
Answer:
Explanation:
NEW QUESTION # 185
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. $9.00
- C. $11.00
- D. $16.00
Answer: D
NEW QUESTION # 186
The Board of Directors of a small listed company engaged in exploration are currently considering the future dividend policy of the company. Exploration is considered a high-risk business and consequently the company has a low level of debt finance.
Forecasts indicate a period of profit fluctuation in the next few years as the company is planning to embark on a major capital investment project. Debt finance is unlikely to be available due to the project's high business risk.
Which THREE of the following are practical considerations when determining the company's dividend/retention policy?
- A. The timing and size of the cash flow requirements for the new investment.
- B. The dividend policies of mature listed multinational companies in the exploration industry.
- C. The general level of interest rates and the tax savings on interest costs relating to debt finance.
- D. The fluctuating nature of the projected future profits.
- E. The legislation and regulation governing distributable profits.
Answer: A,D,E
Explanation:
Discursive_F0
NEW QUESTION # 187
Which of the following statements about companies seeking a stock market listing is correct?
- A. When a company seeks a listing this may unsettle its staff, potentially resulting in a loss of valued employees.
- B. A listing will require the owners to either sell a majority of their shares, or, if they retain their shares, to step down from the board.
- C. A listing may make it harder for a company to raise money from its existing lenders.
- D. The enhanced reputation of the company can improve its credit rating reducing the risk of non-payment to suppliers and lenders.
Answer: D
NEW QUESTION # 188
The directors of a unlisted manufacturing company have prepared a valuation of their company using the price-earning method.
Their calculation is:
Value if the company's equity = $6 million x 10 =$60 million where.
* $6 million is the company's reported profit before interested and tax in the most recent accounting period and
* 10 is the average price-earnings ratio for all listed companies
Which THREE of the following are weakness of this valuation?
- A. The price-earnings ratio should have been an average for companies in the same industry sector rather than alI listed companies
- B. A forecast of sustainable profit should have been used instead of a historical figure
- C. Profit after tax should have been used in the calculation instead of profit before interest and tax.
- D. The price-earnings valuation method gives a value for the entire entity not Just a value of the equity.
- E. The equity result needs to be uplifted in recognition that this is an unlisted company.
Answer: A,B,C
NEW QUESTION # 189
An all equity financed company reported earnings for the year ending 31 December 20X1 of $5 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 7%.
The company pays corporate income tax at 30%.
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. $7.57 million
- B. $7.50 million
- C. $8.40 million
- D. $5.25 million
Answer: A
NEW QUESTION # 190
Company T is a listed company in the retail sector.
Its current profit before interest and taxation is $5 million.
This level of profit is forecast to be maintainable in future.
Company T has a 10% corporate bond in issue with a nominal value of $10 million.
This currently trades at 90% of its nominal value.
Corporate tax is paid at 20%.
The following information is available:
Which of the following is a reasonable expectation of the equity value in the event of an attempted takeover?
- A. $41.6 million
- B. $65.0 million
- C. $32.0 million
- D. $50.2 million
Answer: A
NEW QUESTION # 191
A company is located in a single country. The company manufactures electncal goods for export and for sale in its home country. When exporting, it invoices in its customers' currency. What currency risks is the company exposed to?
- A. Transaction risk only
- B. Transaction, economic and translation risks.
- C. Translation and economic risks.
- D. Transaction and economic risks
Answer: B
NEW QUESTION # 192
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 B
- B. Option A
- C. Option D
- D. Option C
Answer: A
NEW QUESTION # 193
Company ACC. an ungeared car manufacturer has launched a takeover bid of Company BDD. a key competitor operating in the same industry Company BDD has high gearing Company ACC has a large surplus cash balance and believes that the acquisition is an opportunity to enhance shareholder wealth through the realisation of synergistic benefits. Which THREE of the following would most likely be synergistic benefits to Company ACC of purchasing Company BDD9 I
- A. Reduction in staff costs due to the removal of duplicated roles.
- B. Cost savings in production due to economies of scale
- C. Reduction in financial risk due to diversification
- D. Decreased cost of debt
- E. Enhanced profit due to reduced competition
Answer: A,B,D
NEW QUESTION # 194
Company P is a large unlisted food-processing company.
Its current profit before interest and taxation is $4 million, which it expects to be maintainable in the future.
It has a $10 million long-term loan on which it pays interest of 10%.
Corporate tax is paid at the rate of 20%.
The following information on P/E multiples is available:
Which of the following is the best indication of the equity value of Company P?
- A. $40 million
- B. $24 million
- C. $48 million
- D. $80 million
Answer: B
NEW QUESTION # 195
A wholly equity financed company has the following objectives:
1. Increase in profit before interest and tax by at least 10% per year.
2. Maintain a dividend payout ratio of 40% of earnings per year.
Relevant data:
* There are 2 million shares in issue.
* Profit before interest and tax in the last financial year was $4 million.
* The corporate income tax rate is 20%.
At the beginning of the current financial year, the company raised long term debt of $2 million at 5% interest each year.
Calculate the dividend per share that will be announced this year assuming the company achieves its objective of increasing profit before interest and tax by 10%.
- A. $1.20
- B. $1.09
- C. $0.52
- D. $0.47
Answer: C
NEW QUESTION # 196
Company A is based in Country A where the functional currency is the A$. Currently all sales are to domestic customers in Country A. However, the company is planning to expand internationally by acquiring Company B, a distribution company in Country B, to enable it to sell goods worldwide The functional currency of Country B is the BS Company A will invoice its international customers in their local currency.
Wage increases in Country B are forecast to be modest, due to high unemployment levels, but overall inflation in Country B is forecast to be significantly higher than in Country A Which TWO of the following statements about the economic risk of the acquisition of Company B are true?
- A. Using purchasing power parity, AS is forecast to strengthen against B$, so the economic risk can be ignored
- B. Economic risk can be eliminated by using forward contracts to convert future cash flows into A$
- C. Higher inflation will increase the project's BS returns, so the economic risk can be ignored
- D. Exporting into a variety of international markets will reduce economic risk.
- E. Financing this acquisition with block denominated in B$ will reduce economic risk.
Answer: D
NEW QUESTION # 197
A listed company in the retail sector has accumulated excess cash.
In recent years, it has experienced uncertainly with forecasting the required level of cash for capital expenditure due to unpredictable economic cycles.
Its excess cash is on deposit earning negligible returns.
The Board of Directors is considering the company's dividend policy, and the need to retain cash in the company.
Which THREE of the following are advantages of retaining excess cash in the company?
- A. The market may interpret the return of excess cash as a sign of weak growth prospects.
- B. Liquidity problems are less likely to be experienced if there is a downturn in business.
- C. The company will be in a position to respond promptly to unexpected investment opportunities.
- D. The excess cash is earning a negligible return.
- E. Retaining excess cash may make the company vulnerable to hostile takeover.
Answer: A,B,C
NEW QUESTION # 198
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. Lease payments are timed incorrectly
- B. The salvage value has been included within the lease option
- C. The project's operating cashflows should be included
- D. The bank loan repayments should be included
- E. Tax relief on lease payments have not been lagged correctly
- F. Using the 10% discount rate is incorrect
Answer: B,E,F
NEW QUESTION # 199
Company E is a listed company. Its directors are valuing a smaller listed company, Company F, as a possible acquisition.
The two companies operate in the same markets and have the same business risk.
Relevant data on the two companies is as follows:
Both companies are wholly equity financed and both pay corporate tax at 30%.
The directors of Company E believe they can "bootstrap" Company F's earnings to improve performance.
Calculate the maximum price that Company E should offer to Company F's shareholders to acquire the company.
Give your answer to the nearest $million.
- A. 1,890
- B. 2,700
- C. 4,500
- D. 3,150
Answer: D
NEW QUESTION # 200
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