Download the Latest F3 Dumps - 2023 F3 Exam Questions
Latest CIMA F3 Certification Practice Test Questions
NEW QUESTION # 74
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 legislation and regulation governing distributable profits.
- D. The general level of interest rates and the tax savings on interest costs relating to debt finance.
- E. The fluctuating nature of the projected future profits.
Answer: A,C,E
Explanation:
Discursive_F0
NEW QUESTION # 75
Company X is based in Country A, whose currency is the A$.
It trades with customers in Country B, whose currency is the B$.
Company X aims to maintain its revenue from exports to Country B at 25% of total revenue.
Company A has the following forecast revenue:
The forecast revenue from Country B has assumed an exchange rate of A$1/B$2, that is A$1 = B$2.
If the B$ depreciates against the A$ by 10%, the ratio of revenue generated from Country B as a percentage of total revenue will:
- A. rise to 27.0%.
- B. fall to 23.3%.
- C. fall to 22.7%.
- D. rise to 30.3%.
Answer: B
NEW QUESTION # 76
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 # 77
A geared and profitable company is evaluating the best method of financing the purchase of new machinery. It is considering either buying the machinery outright, financed by a secured bank borrowing and selling the machinery at the end of a fixed period of time or obtain the machinery under a lease for the same period of time.
Which is the correct discount rate to use when discounting the incremental cash flows of the lease against those of the buy and borrow alternative?
- A. The company's WACC.
- B. The company's cost of equity
- C. The post-tax cost of the bank borrowing
- D. The pre-tax cost of the bank borrowing
Answer: A
NEW QUESTION # 78
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. Change the Articles of Association to increase the percentage of shareholder votes required to approve a takeover.
- B. Write to shareholders explaining fully why the company's share price is under valued.
- C. Pay a one-off special dividend.
- D. Refer the bid to the country's competition authorities.
Answer: B
NEW QUESTION # 79
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 Treasurer should buy an interested rate floor and sell an interested cap ta the same time
- 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 cost of a collar is lower than the cost of a cap a one.
Answer: D
NEW QUESTION # 80
An unlisted company wishes to obtain an estimated value for its shares in anticipation of a private sale of a large parcel of shares.
Relevant data for the unlisted company:
* It has a residual dividend policy.
* It has earnings that are highly sensitive to underlying economic conditions.
* It is a small business in a large industry where there are listed companies but there are none with a similar capital structure.
The company intends to base valuations on the cost of equity of a proxy company after adjusting for any differences in capital structure where appropriate.
Which of the following methods is likely to give the most accurate equity value for this unlisted company?
- A. Net asset valuation.
- B. Dividend valuation model.
- C. Discounted cash flow analysis at WACC based on free cash flow to equity.
- D. P/E based valuation using the P/E of a similar listed company in the same industry.
Answer: B
NEW QUESTION # 81
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. Debt finance is always preferable to equity finance.
- B. Equity finance will increase pressure to pay a higher total future dividend.
- C. Debt finance will increase the cost of equity.
- D. Equity finance will reduce the overall financial risk.
- E. The choice between using either equity or debt will have no impact on the amount of corporate income tax payable.
- F. Retained earnings has no cost, and is therefore the cheapest form of equity finance.
Answer: B,C,D
NEW QUESTION # 82
The competition authorities are investigating the takeover of Company Z by a larger company, Company Y.
Both companies are food retailers.
The takeover terms involve using a part cash, part share exchange means of payment.
Company Z is resisting the bid, arguing that it undervalues its business, while lobbying extensively among politicians to sway public opinion against the bidder.
Which of the following actions by Company Y is most likely to persuade the competition authorities to approve the acquisition?
- A. Company Y undertakes to pass on any cost savings to customers.
- B. Company Y agrees to dispose of specified outlets which geographically overlap those of Company Z.
- C. Company Y increases the cash element of its bid offer.
- D. Company Y guarantees to preserve employment at its cental distribution depot.
Answer: B
NEW QUESTION # 83
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 # 84
A listed company plans to raise $350 million to finance a major expansion programme.
The cash flow projections for the programme are subject to considerable variability.
Brief details of the programme have been public knowledge for a few weeks.
The directors are considering two financing options, either a rights issue at a 20% discount to current share price or a long term bond.
The following data is relevant:
The company's share price has fallen by 5% over the past 3 months compared with a fall in the market of 3% over the same period.
The directors favour the bond option.
However, the Chief Accountant has provided arguments for a rights issue.
Which TWO of the following arguments in favour of a right issue are correct?
- A. The rights issue will lead to less pressure on the operating cash flows of the programme.
- B. The issue of bonds might limit the availability of debt finance in the future.
- C. The WACC will decrease assuming Modigliani and Miller's Theory of Capital Structure without taxes applies.
- D. The administrative costs of a rights issue will be lower.
- E. The recent fall in the share price makes a rights issue more attractive to the company.
Answer: A,B
NEW QUESTION # 85
Integrated reporting is designed to make visible the capitals on which the organisation depends, and how the organisation uses those capitals to create value in the short, medium and long term
Which THREE of the following capitals are specifically identified in the Integrated Reporting <IR> Framework?
- A. Research and Development
- B. Financial
- C. Manufactured
- D. Human
- E. Community
Answer: C,D
NEW QUESTION # 86
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. $8.40 million
- B. $7.57 million
- C. $5.25 million
- D. $7.50 million
Answer: B
NEW QUESTION # 87
A company is considering either directly exporting its product to customers in a foreign country or setting up a subsidiary in the foreign country to manufacture and supply customers in that country.
Details of each alternative method of supplying the foreign market are as follows:
There is an import tax on product entering the foreign country of 10% of sales value.
This import duty is a tax-allowable deduction in the company's domestic country.
The exchange rate is A$1.00 = B$1.10
Which alternative yields the highest total profit after taxation?
- A. Foreign subsidiary: A$35,000
- B. Foreign subsidiary: A$38,500
- C. Domestic: A$41,250
- D. Domestic: A$33,750
Answer: A
NEW QUESTION # 88
AA is considering changing its capital structure. The following information is currently relevant to AA:
The gearing rating raising the new debt finance will be 50%.
Which THREE of the following statement about the impact of AA's change in capital structure are true under Modigliani and Miler's capital structure theory with tax.
- A. The cost of equity will decrease below 10%
- B. The cost of debt will increase above 4%
- C. The WACC increase above 7.6
- D. The cost of debt remain unchanged at 4%
- E. The WACC will decrease below 7.6%
- F. The cost of equity will increase above 10%
Answer: C,E
NEW QUESTION # 89
A company's latest accounts show profit after tax of $20.0 million, after deducting interest of $5.0 million. The company expects earnings to grow at 5% per annum indefinitely.
The company has estimated its cost of equity at 12%, which is included in the company WACC of 10%.
Assuming that profit after tax is equivalent to cash flows, what is the value of the equity capital?
Give your answer to the nearest $ million.
Answer:
Explanation:
$ ? million
300, 300000000
NEW QUESTION # 90
The table below shows the forecast for a company's next financial year:
The forecast incorporates the following assumptions:
* 25% of operating costs are variable
* Debt finance comprises a $400 million fixed rate loan at 5%
* Corporate income tax is paid at 25%
The company plans to do the following next year from the forecast earnings on the assumption that earnings will be equivalent to free cash flow:
* Pay a total dividend of $20 million
* Invest $40 million in new projects
What is the maximum % reduction in operating activity that could occur next year before the company's dividend and investment plans are affected?
Give your answer to the nearest 0.1%.
- A. 4.8, 4.7, 4.9, 5.0, 4.6, 4.80, 4.70, 4.90, 5.00, 4.60%
- B. 4.8, 4.7, 4.9, 5.0, 4.6, 4.80, 4.70, 4.90, 5.00, 3.60%
Answer: A
NEW QUESTION # 91
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:
Explanation
Calc_Set3
NEW QUESTION # 92
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CIMA CIMAPRA19-F03-1 requires candidates to have a solid understanding of financial strategy and an ability to apply this knowledge in practical situations. F3 exam consists of three objective tests that each focus on a different area of financial strategy. These tests are designed to evaluate a candidate's knowledge and understanding, and test their ability to apply their knowledge to real-life financial scenarios.
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