CIMA Strategic level F3 Real Exam Questions and Answers FREE Updated on Feb 11, 2022
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NEW QUESTION 108
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. $9.00
- B. $16.00
- C. $14.00
- D. $11.00
Answer: B
Explanation:
Calc_Set3
NEW QUESTION 109
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. $65.0 million
- B. $32.0 million
- C. $50.2 million
- D. $41.6 million
Answer: D
NEW QUESTION 110
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. 6% Eurobond repayable at par in 5 years' time.
- D. 5% Bond repayable at par in 7 years' time.
Answer: B
NEW QUESTION 111
XYZ has a variable rate loan of $200 million on which it is paying interest of Liber ' 3%.
XYZ entered into a swap with AG bank to convert this to a fixed rate 8% loan. AB bank charges an annual commission of 0.4% for making this arrangement Calculate the net payment from KYZ to AB bank at the end of the first year if Libor was 2% throughout the year.
Give your answer in $ million, to one decimal place.
Answer:
Explanation:
22.8
NEW QUESTION 112
Which THREE of the following are the most likely exit routes that apply to a venture capitalist?
- A. Selling back to the original owners
- B. Trade sale to another company
- C. Flotation via a stock market listing
- D. Raising long term debt from the company
- E. Liquidation of the company
Answer: A,B,C
NEW QUESTION 113
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 restrictive covenant prohibits the company from conducting certain actions without the approval of the lending institution.
- D. A positive loan covenant would require the company to undertake specific actions.
- E. A financial covenant usually requires the company to adhere to specific financial conditions or targets.
Answer: C,D,E
NEW QUESTION 114
A company plans to raise finance for a new project.
It is considering either the issue of a redeemable cumulative preference share or a Eurobond.
Advise the directors which of the following statements would justify the issue of preference shares over a bond?
- A. The company can claim tax relief on the dividend paid on the preference share at a higher rate than the interest paid on the Eurobond.
- B. If profits are poor, dividends do not have to be paid on the preference share - however, interest would need to be paid on the Eurobond.
- C. The issue of the preference share would reduce the company's gearing - however, the Eurobond would increase it.
- D. Preference shares are not secured against the assets of the business - however, the Eurobond would be.
Answer: B
NEW QUESTION 115
A UK based company is considering investing GBP1 ,000,003 in a project it the USA. It is anticipated that the project will yield net cash inflows of USD580.000 each year for the next three years. These surplus cash flows will be remitted to the UK at the end of each year.
Currently GBP1.00 is worth USD1.30.
The expected inflation rates in the two countries ever the next four years are 2% in the UK and 4% in the USA.
Applying the purchasing power parity theory, which of the following represents the expected remittance at the end of year three, in GBP whole the nearest whole GBP)?
- A. GBP472,916
- B. GBP568,846
- C. GBP450,906
- D. GBP546,547
Answer: C
NEW QUESTION 116
Company AD is planning to acquire Company DC. It is evaluating two methods of structuring the terms of the bid, which will be ether a debt-funded cash offer or a share exchange The following Information is relevant
* The two companies are of similar size and in related industries
* AB's gearing ratio measured as debt to debt plus equity, is currently 30% based on market values. This Is the company's optimum capital structure set to reflect the risk appetite of shareholders.
* The combined company is expected to generate savings and synergies
Which THREE of the following are advantages to AB's shareholders of a debt-funded cash offer compared with a share exchange?
- A. Gearing will increase.
- B. EPS Mil Increase
- C. More of the synergistic benefits of the acquisition will accrue to AB's current shareholders.
- D. WACC will increase f credit worthless falls too low, further increasing the returns to shareholders.
- E. Shareholder control will remain with AB's current shareholders
Answer: B,C,E
NEW QUESTION 117
A company has:
* $7 million market value of equity
* $5 million market value of debt
* WACC of 9.375%
* Corporate income tax rate of 15%
According to Modigliani and Miller's theory of capital structure with tax, what is the ungeared cost of equity?
- A. 10.00%
- B. 8.79%
- C. 14.52%
- D. 10.27%
Answer: A
NEW QUESTION 118
A company's current profit before interest and taxation is $1.1 million and it is expected to remain constant for the foreseeable future.
The company has 4 million shares in issue on which the earnings yield is currently 10%. It also has a $2 million bond in issue with a fixed interest rate of 5%.
The corporate income tax rate is 20% and is expected to remain unchanged.
Which of the following is the best estimate of the current share price?
- A. $2.50
- B. $2.00
- C. $1.10
- D. $2.75
Answer: B
NEW QUESTION 119
Hospital X provides free healthcare to all members of the community, funded by the central Government.
Hospital Y provides healthcare which has to be paid for by the individual patients. It is a listed company, owned by a large number of shareholders.
In comparing the above two organisations and their objectives, which THREE of the following statements are correct?
- A. X and Y will have the same primary non financial objective - provision of quality of health care.
- B. X is a not-for-profit organisation while Y is a for-profit organisation.
- C. X and Y have the same primary financial objective - to maximise shareholder wealth.
- D. Only Y is likely to have a mixture of financial and non-financial objectives.
- E. The performance of X will be appraised primarily on the basis of value for money.
Answer: A,B,E
NEW QUESTION 120
B has a S3 million loan outstanding on which the interested rate is reset every 6 months for the following 6 month and the interested is payable at the end of that 6 month period. The next 6 monthly reset period starts in
3 months and the treasurer of B thinks interested rates are likely to raise between and then.
Current 6-month rates are 6.4% and the treasurer can get a rate of 6.9% for a 6-month forward rate agreement (FRA) starting in 3 months time. By transacting an TRA the treasurer can lock in a rate today of 6.9%.
If interested rates are 7.5% in 3 months' time, what will the net amount payable be?
Give your answer to the nearest thousand dollars.
Answer:
Explanation:
104
NEW QUESTION 121
When valuing an unlisted company, a P/E ratio for a similar listed company may be used but adjustments to the P/E ratio may be necessary.
Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use?
- A. Unlisted companies being generally smaller and less established.
- B. A lower level of scrutiny and regulation for unlisted companies.
- C. A profit item within the unlisted company's latest earnings which will not reoccur.
- D. The relative lack of marketability of unlisted company shares.
- E. Control premium not being included within the proxy p/e ratio used.
- F. The forecast earnings growth being relatively higher in the unlisted company.
Answer: A,B,D
NEW QUESTION 122
Company U has made a bid for the entire share capital of Company B.
Company U is offering the shareholders in Company B the option of either a share exchange or a cash alternative.
Advise the shareholders in Company B which THREE of the following would be considered disadvantages of accepting the cash consideration?
- A. Taxation is payable on realised capital gains.
- B. Cash consideration is certain whereas Company U's future share price performance is uncertain.
- C. Interest rates on deposit accounts are currently at a historic low and are expected to remain low.
- D. Company U is not expected to change its dividend policy post-acquisition.
- E. There will be no opportunity to participate in the future economic success of Company U.
Answer: A,C,E
NEW QUESTION 123
Company A has made an offer to acquire Company Z.
Both companies are quoted and their current market share prices are:
* Company A - $4
* Company Z - $5
Shareholders in company Z have been given three alternative offers:
* Cash of $5.50 per share
* Share for share exchange on the basis of 3 for 2
* 10.5% long dated bond for every 20 shares
The bond is has a nominal value of $100 and the expected yield on bonds of similar risk is 10%.
You are advising a Company Z shareholder on the three offers.
She requires a 15% premium if she is to accept the offer.
In providing your advice, which of the following statements is correct?
- A. The bond offer is only worth $100 which represents a zero premium and should be rejected.
- B. The value of the consideration given by the cash and bond offers is certain, unlike the share offer.
- C. The bond offer is above the minimum threshold and should be accepted.
- D. The share for share exchange is the only offer which is above the acceptance threshold.
Answer: D
NEW QUESTION 124
A company in country T is considering either exporting its product directly to customers in country P or establishing a manufacturing subsidiary in country P.
The corporate tax rate in country T is 20% and 25% tax depreciation allowances are available Which TIIRCC of the following would be considered advantages of establishing a subsidiary in country T?
- A. There is a double tax treaty between country T and country P.
- B. Year 1 tax depreciation allowances of 100% are available in country P.
- C. The corporate tsx rate in country P is 40%.
- D. There are high customs cuties payable of products entering country P.
- E. There are restrictions on companies wishing to remit profit from country P
Answer: A,B,D
NEW QUESTION 125
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. 3,150
- B. 1,890
- C. 2,700
- D. 4,500
Answer: A
NEW QUESTION 126
The ex div share price of Company A's shares is $.3.50
An investor in Company A currently holds 2,000 shares.
Company A plans to issue a script divided of 1 new shares for every 10 shares currently held.
After the scrip divided, what will be the total wealth of the shareholder?
Give your answer to the nearest whole $.
Answer:
Explanation:
7000
NEW QUESTION 127
A company's main objective is to achieve an average growth in dividends of 10% a year.
In the most recent financial year:
Sales are expected to grow at 8% a year over the next 5 years.
Costs are expected to grow at 5% a year over the next 5 years.
What is the minimum dividend payout ratio in 5 years' time that would allow the company to achieve its objective?
- A. 27.5%
- B. 22.5%
- C. 21.7%
- D. 30.0%
Answer: C
NEW QUESTION 128
Using the CAPM, the expected return for a company is 10%. The market return is 7% and the risk free rate is
1%.
What does the beta factor used in this calculation indicate about the risk of the company?
- A. It has lower risk than the average market risk.
- B. It is not possible to tell from CAPM.
- C. It has the same risk as the average market risk.
- D. It has greater risk than the average market risk.
Answer: D
NEW QUESTION 129
Company C invests heavily in Research and Development an need to raise $45 million to finance future projects. It has decided to use equity finance raised by a tender offer, The following tender offers have been received from potential investors:
Company C wishes to select an offer price that will project shareholders from a significant dilution of control but still raise the required amount of finance.
What offer price should Company C's select?
- A. $4.75
- B. $4.50
- C. $4.00
- D. $4.25
Answer: B
NEW QUESTION 130
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