BraindumpsVCE F3 Real Exam Question Answers Updated [Apr 20, 2023]
Easily To Pass New CIMA F3 Dumps with 346 Questions
NEW QUESTION # 133
Company A plans to acquire Company B in a 1-for-1 share exchange.
Pre-acquisition information is as follows:
Post-acquisition information is as follows:
* Annual earnings are expected to increase by $4 million.
* The P/E multiple of the combined company is expected to be 12 times.
If the acquisition proceeds, what is the expected percentage increase in the post acquisition share price of Company A?
- A. 8%
- B. 0%
- C. 50%
- D. 6%
Answer: B
NEW QUESTION # 134
A company wishes to raise new finance using a rights issue. The following data applies:
* There are 10 million shares in issue with a market value of $4 each
* The terms of the rights will be 1 new share for 4 existing shares held
* After the rights issue, the theoretical ex-rights price (TERP) will be $3.80
Assuming all shareholders take up their rights, how much new finance will be raised ?
Give your answer to one decimal place.
$ ? million
- A. 7.5, 6.50
- B. 7.5, 7.50
Answer: B
NEW QUESTION # 135
An entity prepares financial statements to 30 June.
During the year ended 30 June 20X2 the following events occurred:
1 July 20X1
* The entitiy borrowed $100 million at a variable rate of interest.
* In order to protect itself against the variability of its interest cashflows, the entity entered into a pay-fixed-receive-variable interest swap with annual settlements. The fair value of the swap on this date was zero.
30 June 20X2
* The entity received a net settlement of $2 million under the swap. After this net settlement, the fair value of the swap was $5 million - a financial asset.
The entity decides to use hedge accounting for this arrangement and has designated it as a cash flow hedge.
The swap is a perfect hedge of the variability of the cash interest payments.
Which of the following describes the treatment of the settlement and the change in the fair value of the swap in the statement of profit or loss and other comprehensive income for the year ended 30 June 20X2?
- A. $7 million is recognised in other comprehensive income.
- B. $2 million is recognised in profit or loss and $5 million is recognised in other comprehensive income.
- C. $5 million is recognised in profit or loss and $2 million is recognised in other comprehensive income.
- D. $7 million is recognised in profit or loss.
Answer: B
NEW QUESTION # 136
A company plans to cut its dividend but is concerned that the share price will fall. This demonstrates the
_____________ effect
Answer:
Explanation:
clientele
NEW QUESTION # 137
A company raised fixed rate bank finance together with an interest rate swap for the same term and same principal value to pay floating receive fixed rate interest on an annual basis.
Which THREE of the following statements are correct?
- A. Under the swap, interest is exchanged every year.
- B. The company has effectively obtained floating rate debt.
- C. On the first day of this arrangement, the company receives the principal borrowed from the bank and pays this across to the swap counterparty.
- D. The swap contract is normally a contract between a company and a bank.
- E. LIBID (London Interbank Bid Rate) is normally used as the reference rate for determining interest due under the swap.
Answer: A,B,D
NEW QUESTION # 138
A listed company plans to raise new capital which will be required for future investment projects. The company has a gearing ratio of 50%, which is just below the company's target ratio.
The directors are comparing the benefits and drawbacks of each of the following two alternative sources of finance;
* Unsecured bank borrowings.
* Convertible bonds.
Which of the following statements is correct?
- A. The coupon rate of a convertible bond is likely to be lower than for unsecured borrowings.
- B. If the convertible bond holders eventually convert to shares the company's gearing ratio will rise whereas it will be unaffected if finance is with unsecured borrowings.
- C. Additional finance will be raised upon conversion of the convertible bond but not with unsecured borrowings.
- D. If the share price does not increase sufficiently for conversion to take place the company will have more expensive debt with a convertible bond than with unsecured borrowings.
Answer: C
NEW QUESTION # 139
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. 9.4%
- B. 11.0%
- C. 10.0%
- D. 8.0%
Answer: B
NEW QUESTION # 140
Company A has made an offer to take over all the shares in Company B on the following terms:
* For every 20 shares currently held, Company B's shareholders will receive $100 bond with a coupon rate of 3%
* The bond will be repaid in 10 years' time at its par value of $100.
* The current yield on 10 year bonds of similar risk is 6%.
What is the effective offer price per share being made to Company B's shareholders?
- A. $3.89
- B. $4.50
- C. $6.89
- D. $6.43
Answer: A
NEW QUESTION # 141
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 and economic risks
- C. Translation and economic risks.
- D. Transaction, economic and translation risks.
Answer: D
NEW QUESTION # 142
Assume today is 31 December 20X1.
A listed mobile phone company has just launched a new phone which is proving to be a great success.
As a direct result of the product's success, earnings are forecast to increase by:
* 5% a year in each of years 20X2 - 20X6
* 3% from 20X7 onwards
Market analysts were very excited to hear the news of the success of the product and future growth forecasts.
Assuming a semi-efficient market applies, which of the following company valuation methods is likely to give the best estimate of the company's equity value today?
- A. Discounted free cash flow using the company's forecast growth rates.
- B. Today's share price x number of shares in issue.
- C. Today's share price x number of shares in issue + retained earnings.
- D. P/E valuation based on the company's long term P/E and earnings for the year ended 31 December 20X1.
Answer: B
NEW QUESTION # 143
A company's current earnings before interest and taxation are $5 million.
These are expected to remain constant for the forseeable future.
The company has 10 million shares in issue which currently trade at $3.60.
It also has a $10 million long term floating rate loan.
The current interest rate on this loan is 5%.
The company pays tax at 20%.
The company expects interest rates to increase next year to 6% and it's Price/Earnings (P/E) ratio to move to
9.5 times by the end of next year.
What percentage reduction in the share price will occur by the end of next year if the interest rate increase and the P/E movement both occur?
- A. Reduction of 1%
- B. Reduction of 0%
- C. Reduction of 7%
- D. Reduction of 5%
Answer: C
NEW QUESTION # 144
Which THREE of the following long term changes are most likely to increase the credit rating of a company?
- A. A decrease in the dividend cover ratio.
- B. An increase in the interest cover ratio.
- C. A decrease in the (Net debt) / (Earnings before interest, tax, depreciation and amortisation) ratio.
- D. An increase in the free cashflow generated from operations.
- E. A decrease in the (Book value of debt) / (Book value of equity) ratio.
Answer: B,C,D
NEW QUESTION # 145
NNN is a company financed by both equity and debt. The directors of NNN wish to calculate a valuation of the company's equity and at a recent board meeting discussed various methods of business valuation.
Which THREE of the following are appropriate methods for the directors of NNN to use in this instance?
- A. Cash flow to all investors discounted at WACC less the value of debt.
- B. Cash flow to all investors discounted at WACC.
- C. Cash flow to equity discounted at the cost of equity less the value of debt.
- D. Cash flow to equity discounted at the cost of equity.
- E. Total earnings multiplied by a suitable price-earnings ratio.
Answer: A,D,E
NEW QUESTION # 146
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. $25,000
- B. $100,000
- C. $50,000
- D. $75,000
Answer: A
NEW QUESTION # 147
A company's Board of Directors is assessing the likely impact of financing future new projects using either equity or debt.
The directors are uncertain of the effects on key variables.
Which THREE of the following statements are true?
- A. Equity finance will reduce the overall financial risk.
- B. Debt finance is always preferable to equity finance.
- C. Retained earnings has no cost, and is therefore the cheapest form of equity finance.
- D. Equity finance will increase pressure to pay a higher total future dividend.
- E. Debt finance will increase the cost of equity.
- F. The choice between using either equity or debt will have no impact on the amount of corporate income tax payable.
Answer: A,D,E
NEW QUESTION # 148
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 give the lender added protection on the loan extended to the company.
- B. Covenants are entered into to impose financial discipline on the company.
- C. Covenants enable the lender to demand immediate repayment or to renegotiate terms if it is breached.
- D. Covenants are entered into to eliminate the tax liability of the company.
- E. Covenants are entered into to penalise the company.
Answer: A,B,C
Explanation:
Explanation
Discursive_F0
NEW QUESTION # 149
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The CIMA CIMAPRA19-F03-1 (F3 Financial Strategy) Certification Exam is a professional certification exam offered by the Chartered Institute of Management Accountants (CIMA). This exam is designed to test the knowledge and skills of candidates in the area of financial strategy. It is intended for individuals who are interested in pursuing a career in finance and accounting, or for those who are already working in the field and want to enhance their knowledge and skills.
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