[Sep-2021] CIMA F3 Dumps – Reduce Your Chance of Failure in F3 Exam

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NEW QUESTION 88
The Treasurer of Z intends to use interest rate options to set an interest rate cap on Z's borrowings.
Which of the following statement is correct?

• A. The cost of a collar is lower than the cost of a cap a one.
• B. The Treasurer will have to negotiate the options with Z's Dark
• C. The Treasurer will retain the benefit of movcTcnt3 in interest ratc3 below the floor limit.
• D. The Treasurer should buy an interested rate floor and sell an interested cap ta the same time

Answer: A

 

NEW QUESTION 89
Company A has a cash surplus.
The discount rate used for a typical project is the company's weighted average cost of capital of 10%.
No investment projects will be available for at least 2 years.
Which of the following is currently most likely to increase shareholder wealth in respect of the surplus cash?

• A. Maintaining the cash in a current account.
• B. Paying the surplus cash as a dividend at the earliest opportunity.
• C. Investing in a 2 year bond returning 5% each year.
• D. Investing in the local money market at 4% each year.

Answer: B

Explanation:
Explanation
Calc_Set4

 

NEW QUESTION 90
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 91
CI IJ has decided to move its production plant to overseas country X.
This would make the product cheaper to produce. The technology used to make the product is very advanced and some of the skilled staff would have to move to country X.
The Production Director has identified that there are some political risks in moving to county X.
For each of the political risks of moving to country X shown below, select the correct method for reducing the risk.

Answer:

Explanation:

 

NEW QUESTION 92
A venture capitalist invests in a company by means of buying:
* 9 million shares for $2 a share and
* 8% 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 10 million shares in issue.
What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?
Give your answer to the nearest $ million.

Answer:

Explanation:
$ million.
34, 35, 34000000, 35000000

 

NEW QUESTION 93
A company is based in Country Y whose functional currency is Y$. It has an investment in Country Z whose functional currency is Z$.
This year the company expects to generate Z$ 10 million profit after tax.
Tax Regime:
* Corporate income tax rate in country Y is 50%
* Corporate income tax rate in country Z is 20%
* Full double tax relief is available
Assume an exchange rate of Y$ 1 = Z$ 5.
What is the expected profit after tax in Y$ if the Z$ profit is remitted to Country Y?

• A. Y$ 1.25 million
• B. Y$ 1.00 million
• C. Y$ 4.00 million
• D. Y$ 31.25 million

Answer: A

 

NEW QUESTION 94
A listed company in a high technology industry has decided to value its intellectual capital using the Calculated Intangible Value method (CIV).
Relevant data for the company:
* Pays corporate income tax at 30%
* Cost of equity is 9%, pre-tax cost of debt is 7% and the WACC is 8%
* The value spread has been calculated as $26 million
Calculate the CIV for the company.

• A. 325 million
• B. 531 million
• C. 228 million
• D. 289 million

Answer: C

 

NEW QUESTION 95
M is an accountant who wishes to take out a forward rate agreement as a hedging instrument but the company treasurer has advised that a short-term interest rate future would be a better option.
Which of the following is true of a short-term interest rate future?

• A. It must be kept for ne whole duration of the contract
• B. It can be tailored to the exact reeds of the company.
• C. It interest rates have gone down the price of the future will have fallen.
• D. The date is flexible and the position can be closed quickly and easily.

Answer: A

 

NEW QUESTION 96
Company S is planning to acquire Company T.
The shareholders in Company T will receive new shares in Company S in an all-share consideration.
Relevant information:

The shareholders in Company T want sufficient shares to receive a 25% premium on the pre-acquisition value of their shares, based on the pre-acquisition share price.
Which of the following share-for-share offers will achieve the desired result?

• A. 1 share in Company S for 1 share in Company T
• B. 10 shares in Company S for 4 shares in Company T
• C. 2 shares in Company S for 1 share in Company T
• D. 1 share in Company S for 2 shares in Company T

Answer: A

 

NEW QUESTION 97
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. $16.00
• B. $14.00
• C. $11.00
• D. $9.00

Answer: A

Explanation:
Calc_Set3

 

NEW QUESTION 98
Which THREE of the following are benefits of integrated reporting?

• A. Reduce the amount of work that is required to produce the report and accounts.
• B. Improve short term decision making.
• C. Improve the quality of information available to the providers of financial capital.
• D. Promote an understanding of the interdependencies of capitals.
• E. Support integrated decision-making.

Answer: C,D,E

 

NEW QUESTION 99
A company is considering whether to lease or buy an asset.
The following data applies:
* The bank will charge interest at 7.14% per annum
* The asset will cost $1 million
* Tax-allowable depreciation is available on a straight line basis over 5 years
* There is no residual value
* Corporate tax is paid at 30% in the year when the profit is earned
What is the NPV of the buy option?
Give your answer to the nearest $000.

Answer:

Explanation:
$ ?
740

 

NEW QUESTION 100
A company has:
* A price/earnings (P/E) ratio of 10.
* Earnings of $10 million.
* A market equity value of $100 million.
The directors forecast that the company's P/E ratio will fall to 8 and earnings fall to $9 million.
Which of the following calculations gives the best estimate of new company equity value in $ million following such a change?
A)

B)

C)

D)

• A. Option A
• B. Option D
• C. Option B
• D. Option C

Answer: A

 

NEW QUESTION 101
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. Announce a reduction in the annual dividend to a more sustainable level given the new price controls regime.
• B. Carry out a wide-ranging review of costs and staffing levels to identify possible cost savings and redundancies.
• C. Actively look for a private equity investor to introduce new and innovative business and financial strategies to the business.
• D. 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.
• E. Raise funds by means of a rights issue in order to maintain historical dividend levels.

Answer: A,B,D

 

NEW QUESTION 102
RST wishes to raise at least $40 million of new equity by issuing up to 10 million new equity shares at a minimum price of $3.00 under an offer for sale by tender. It receives the following tender offers:

What is the maximum amount that RST can raise by this share issue?
(Give your answer to the nearest $ million).

Answer:

Explanation:
49

 

NEW QUESTION 103
Company A is subject to a takeover bid from Company B, both companies operate in the same industry and each of them demand a significant market share Company B h3S made an of an of $5 per share to the shareholders of Company A.
The directors of Company A do not believe the takeover would be h the best interests of the stakeholders and other stakeholders of Company A due to the following reruns
1. Company B has recently taken ever several ether companies resulting in them breaking up the company and se ling on the assets.
2 The directors of Company A believe the offer of $5 per snare undervalues tie company The directors of Company A are therefore keen to prevent the bid from going ahead Which THREE of the following defence strategies could be used by the directors of Company Air this situation?

• A. Offer the company to an alternative While Knight bidder.
• B. Give existing shareholders the right to buy bonds in the future.
• C. Refer the bid to the Competition Authorizes because of the risk of a large number of employee redundancies if Company B's Did were to be successful
• D. Appeal to their own shareholders that the company should not be broken up because i: has strong growth prospects.
• E. Inform shareholders of the potential current value of the non-current assets including intangibles, to show that their true value is higher than the bid value.

Answer: A,C,D

 

NEW QUESTION 104
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. $80 million
• B. $24 million
• C. $40 million
• D. $48 million

Answer: B

 

NEW QUESTION 105
Company A has a cash surplus.
The discount rate used for a typical project is the company's weighted average cost of capital of 10%.
No investment projects will be available for at least 2 years.
Which of the following is currently most likely to increase shareholder wealth in respect of the surplus cash?

• A. Maintaining the cash in a current account.
• B. Paying the surplus cash as a dividend at the earliest opportunity.
• C. Investing in a 2 year bond returning 5% each year.
• D. Investing in the local money market at 4% each year.

Answer: B

Explanation:
Calc_Set4

 

NEW QUESTION 106
A company is planning to repurchase some of its shares. Relevant details are as follows:
* 100 million shares in issue
* Current share price $5
* 5 million shares to be repurchased
* 10% repurchase premium
* Repurchased shares to be cancelled
What would you expect the share price after the repurchase to be?
Give your answer to two decimal places.
$ ?

Answer:

Explanation:
4.97, 4.98

 

NEW QUESTION 107
A company is owned by its five directors who want to sell the business.
Current profit after tax is $750,000.
The directors are currently paid minimal salaries, taking most of their incomes as dividends.
After the company is sold, directors' salaries will need to be increased by $50,000 each year in total.
A suitable Price/Earnings (P/E) ratio is 7, and the rate of corporate tax is 20%.
What is the value of the company using a P/E valuation?

• A. $5,250,000
• B. $4,900,000
• C. $4,970,000
• D. $5,530,000

Answer: C

 

NEW QUESTION 108
Under traditional theory, an increase in a company's WACC would cause the value of the company to:

• A. Stay the same
• B. Increase
• C. Decrease
• D. Either increase or decrease

Answer: C

 

NEW QUESTION 109
......

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