[2023] CIMAPRA19-F03-1.pdf - Questions Answers PDF Sample Questions Reliable
CIMA CIMAPRA19-F03-1 Dumps PDF Are going to be The Best Score
The CIMA F3 exam is divided into three sections: financial strategy, risk management, and financial analysis. The financial strategy section covers topics such as strategic planning, capital budgeting, and financial modeling. The risk management section covers topics such as risk identification, assessment, and mitigation. The financial analysis section covers topics such as financial statement analysis, ratio analysis, and performance analysis.
The CIMA F3 (F3 Financial Strategy) Certification Exam is a challenging but rewarding exam that is essential for any finance professional who wants to advance their career. With the right preparation and a strong understanding of financial principles and concepts, candidates can successfully pass the exam and achieve their career goals in the finance industry.
NEW QUESTION # 76
A company wishes to raise new finance using a rights issue to invest in a new project offering an IRR of 10%
The following data applies:
* There are currently 1 million shares in issue at a current market value of $4 each.
* The terms of the rights issue will be $3.50 for 1 new share for 5 existing shares.
* The company's WACC is currently 8%.
What is the yield-adjusted theoretical ex-rights price (TERP)?
Give your answer to 2 decimal places.
$ ?
- A. 4.06, 4.050
- B. 4.06, 4.060
Answer: B
NEW QUESTION # 77
Company AAB is located in country A whose currency is the AS It has a subsidiary, BBA, located m country B that has the BS as its currency AAB has asked BBA to pay BS40 million surplus funds to AAB to assist with a planned new capital investment in country A The exchange rate today is AS1 = BS3
Tax regimes
* Company BBA pays withholding tax of 25% on all cash remitted to the parent company
* Company AAB pays tax of 10% on at cash received from its subsidiary
How much will company AAB have available for investment after receiving the surplus funds from BBA?
- A. A$ 81 million
- B. A$ 27 million
- C. A$ 9 million
- D. A$ 12 million
Answer: C
NEW QUESTION # 78
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. $24 million
- B. $48 million
- C. $40 million
- D. $80 million
Answer: A
NEW QUESTION # 79
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. P/E valuation based on the company's long term P/E and earnings for the year ended 31 December 20X1.
- B. Today's share price x number of shares in issue + retained earnings.
- C. Discounted free cash flow using the company's forecast growth rates.
- D. Today's share price x number of shares in issue.
Answer: D
NEW QUESTION # 80
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 # 81
A company's Board of Directors is considering raising a long-term bank loan incorporating a number of covenants.
The Board members are unsure what loan covenants involve.
Which THREE of the following statements regarding loan covenants are true?
- A. A covenant gives the financial institution the right but not the obligation to convert debt into equity in a case of non-compliance.
- B. A loan covenant has no contractually binding obligations.
- C. A financial covenant usually requires the company to adhere to specific financial conditions or targets.
- D. A positive loan covenant would require the company to undertake specific actions.
- E. A restrictive covenant prohibits the company from conducting certain actions without the approval of the lending institution.
Answer: C,D,E
NEW QUESTION # 82
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 D
- B. Option C
- C. Option B
- D. Option A
Answer: D
NEW QUESTION # 83
A company is considering the issue of a convertible bond compared to a straight bond issue (non- convertible bond).
Director A is concerned that issuing a convertible bond will upset the shareholders for the following reasons:
* it will dilute their control
* the interest payments will be higher therefore reducing liquidity
* it will increase the gearing ratio therefore increasing financial risk Director B disagrees, and is preparing a board paper to promote the issue of the convertible bond rather than a non-convertible.
Advise the Director B which THREE of the following statements should be included in his board paper to promote the issue of the convertible bond?
- A. Over the life of the bond, a convertible will be more expensive than a non-convertible.
- B. When converted into shares, the company will receive a cash inflow which can be used for future investments.
- C. Issuing a convertible bond will have a more favourable impact on the gearing ratio than a non- convertible bond.
- D. The coupon rate on the convertible bond will be lower than that on a non-convertible bond.
- E. The convertible bond may not dilute control as the bond holder has an option to choose conversion.
Answer: C,D,E
NEW QUESTION # 84
A company is concerned that a high proportion of its debt portfolio consists of variable rate finance with an interest rate of LIBOR ' 1 .0%.
It is considering using an interest rate swap to reduce interest rate risk out is concerned about additional finance cost this might create.
A bank has quoted swap rates of 3% 3.5% against LIBOR.
A bank has quoted swap rates of 3% 3.5% against LIBOR.
Is an interest rate swap likely to be beneficial to the company at current LIBOR rates?
- A. No, because interest cost will increase with the interest rate swap in place.
- B. Yes, because interest cost will decrease with the interest rate swap in place.
- C. Yes, because it will have lower interest rate risk and interest cost remains the same.
- D. No, because it would be cheaper to repay variable rate finance aid enter into new fixed rate finance than to enter into an interest rate swap.
Answer: C
NEW QUESTION # 85
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. The swap contract is normally a contract between a company and a bank.
- B. Under the swap, interest is exchanged every year.
- C. The company has effectively obtained floating rate debt.
- D. On the first day of this arrangement, the company receives the principal borrowed from the bank and pays this across to the swap counterparty.
- E. LIBID (London Interbank Bid Rate) is normally used as the reference rate for determining interest due under the swap.
Answer: A,B,C
NEW QUESTION # 86
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 investigate potential new ways of generating revenue by the sale of related goods and services that are outside the scope of the price controls.
- D. Raise funds by means of a rights issue in order to maintain historical dividend levels.
- E. Actively look for a private equity investor to introduce new and innovative business and financial strategies to the business.
Answer: A,B,C
NEW QUESTION # 87
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 in 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. Appeal to their own shareholders that the company should not be broken up because i: has strong growth prospects.
- C. 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.
- D. 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
- E. Give existing shareholders the right to buy bonds in the future.
Answer: A,B,D
NEW QUESTION # 88
Which THREE of the following non-financial objectives would be most appropriate for a listed company in the food retailing industry?
- A. Reduce production time
- B. Reduce customer complaints
- C. Increase customer service quality
- D. Improve staff morale
- E. Reduce raw material wastage
Answer: B,C,D
NEW QUESTION # 89
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. $5.25 million
- C. $8.40 million
- D. $7.50 million
Answer: A
NEW QUESTION # 90
Company M's current profit before interest and taxation is $5.0 million.
It has a long-term 10% corporate bond in issue with a nominal value of $10 million.
The rate of corporate tax is 25%.
It plans to continue to pay out 50% of its earnings in dividends and earnings are expected to grow by 3% each year in perpetuity.
Its cost of equity is 10%.
Using the dividend growth model, advise the Board of Directors of Company M which of the following provide a reasonable valuation of Company M's equity?
- A. $73.6 million
- B. $44.1 million
- C. $50.1 million
- D. $22.1 million
Answer: D
NEW QUESTION # 91
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.
$ million.
- A. 34, 35, 34000000, 35000000
- B. 34, 34, 34000000, 35000000
Answer: A
NEW QUESTION # 92
A company's statement of financial position includes non-current assets which are leased, the tax regime follows the accounting treatment.
Which cash flows should be discounted when evaluating the cost of lease finance?
- A. Lease payments, tax relief on implied interest and tax relief on straight-line account depreciation.
- B. Lease payments and implied interest.
- C. Lease payments, implied interested and straight-line accounting deprediation.
- D. Lease payments and straight-line accounting depreciation.
Answer: C
NEW QUESTION # 93
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. $75,000
- B. $100,000
- C. $50,000
- D. $25,000
Answer: D
NEW QUESTION # 94
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. Write to shareholders explaining fully why the company's share price is under valued.
- B. Pay a one-off special dividend.
- C. Change the Articles of Association to increase the percentage of shareholder votes required to approve a takeover.
- D. Refer the bid to the country's competition authorities.
Answer: A
NEW QUESTION # 95
A company has in a 5% corporate bond in issue on which there are two loan covenants.
* Interest cover must not fall below 3 times
* Retained earnings for the year must not fall below $3.5 million
The Company has 200 million shares in issue.
The most recent dividend per share was $0.04.
The Company intends increasing dividends by 10% next year.
Financial projections for next year are as follows:
Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?
- A. The company will breach the covenant in respect of retained earnings only.
- B. The company will be in breach of both covenants.
- C. The company will be in compliance with both covenants.
- D. The company will be in breach of the covenant in respect of interest cover only.
Answer: A
NEW QUESTION # 96
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).
- A. 0
- B. 1
Answer: B
Explanation:
NEW QUESTION # 97
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. 0%
- B. 6%
- C. 8%
- D. 50%
Answer: A
NEW QUESTION # 98
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 nominal value in 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 fair value 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 # 99
An unlisted company.
* Is owned by the original founders and members of their families
* Pays annual dividends each year depending on the cash requirements of the dominant shareholders.
* Has earnings that are highly sensitive to underlying economic conditions.
* Is a small business in a large Industry where there are listed companies with comparable capital structures Which of the following methods is likely to give the most accurate equity value for this unlisted company?
- A. Dividend valuation model.
- B. P/E based valuation using the P/E of a similar company.
- C. Discounted cash flow analysis at WACC (based on cash flows after tax but before financing) plus the market value of debt.
- D. Net asset valuation
Answer: A
NEW QUESTION # 100
......
Use CIMAPRA19-F03-1 Exam Dumps (2023 PDF Dumps) To Have Reliable CIMAPRA19-F03-1 Test Engine: https://www.crampdf.com/CIMAPRA19-F03-1-exam-prep-dumps.html
CIMA Strategic level CIMAPRA19-F03-1 Exam and Certification Test Engine: https://drive.google.com/open?id=16brpscHMeIgW8b-MFbehG34B2eyjtEkb