Ultimate Guide to Prepare Free CIMA CIMAPRA19-F03-1 Exam Questions and Answer
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CIMA CIMAPRA19-F03-1 (F3 Financial Strategy) Certification Exam is a comprehensive examination that assesses a candidate's knowledge and understanding of financial strategy. CIMAPRA19-F03-1 exam is designed to test the candidate's ability to apply financial concepts and principles to real-world situations in order to make informed decisions that drive business success. CIMAPRA19-F03-1 exam covers a wide range of topics, including financial analysis, risk management, investment strategies, and financing options.
NEW QUESTION # 98
Company A is planning to acquire Company B.
Company A's managers think they can improve the performance of Company B to the extent that its own P/E ratio should be applied to Company B's earnings.
Relevant Data:
What is the expected synergy if the acquisition goes ahead?
Give your answer to the nearest $ million.
Answer:
Explanation:
$ ? million
8, 8000000
NEW QUESTION # 99
A company intends to sell one of its business units. Company W, by a management buyout (MBO). A selling price of S200 million has been agreed.
The managers are discussing with a bank and a venture capital company (VCC) the following financing proposal.
The VCC requires a minimum return on its equity investment In the MBO of 35% a year on a compound basis over 5 years. What is the minimum total equity value of Company W in 5 years time in order to meet the VCC's required return? Give your answer to one decimal place.
- A. 0
- B. 1
Answer: B
NEW QUESTION # 100
A company has:
* $6 million market value of equity
* $4 million market value of debt
* WACC of 11.04%
* Corporate income tax rate of 20%
According to Modigliani and Miller's theory of capital structure with tax, what is the ungeared cost of equity?
- A. 16.24%
- B. 12.54%
- C. 12.00%
- D. 10.16%
Answer: C
NEW QUESTION # 101
Company A plans to acquire a minority stake in Company B.
The last available share price for Company B was $0.60.
Relevant data about Company B is as follows:
* A dividend per share of $0.08 has just been paid
* Dividend growth is expected to be 2%
* Earnings growth is expected to be 4%
* The cost of equity is 15%
* The weighted average cost of capital is 13%
Using the dividend growth model, what would be the expected change in share price?
- A. $0.07 fall
- B. $0.16 increase
- C. $0.03 increase
- D. $0.14 increase
Answer: C
NEW QUESTION # 102
A company is planning a share repurchase programme with the following details:
* Repurchased shares will be immediately cancelled.
* The shares will be purchased at a premium to the market share price.
The current market share price is greater than the nominal value of the shares.
Which of the following statements about the impact of the share repurchase programme on the company's financial statements is correct?
- A. The premium to the nominal value would be charged to retained earnings.
- B. The share capital figure would reduce by the nominal value of the shares purchased.
- C. The total value of the equity in its Statement of Financial Position would remain unchanged.
- D. The premium to the market value would be charged to the Income Statement.
Answer: B
NEW QUESTION # 103
An analyst has valued a company using the free cash flow valuation model.
The analyst used the following data in determining the value:
* Estimated free cashflow in 1 year's time = $100,000
* Estimated growth in free cashflow after the first year = 5% each year indefinitely
* Appropriate cost of equity = 10%
The result produced by the analyst was as follows:
Value of equity = $100,000 (1+0.05)/0.10 = $1,050,000
The analyst made a number of errors in determining the value.
By how much has the analyst undervalued the company?
- A. $2,100,000
- B. $950,000
- C. $2,000,000
- D. $1,050,000
Answer: B
NEW QUESTION # 104
VVV has a floating rate loan that it wishes to replace with a fixed rate. The cost of the existing loan is the risk-free rate + 3%. VW would have to pay a fixed rate of 7% on a fixed rate loan VVVs bank has found a potential counterparty for a swap arrangement.
The counterparty wishes to raise a variable rate loan It would pay the risk-free rate +1 % on a variable rate loan and 8% on a fixed rate.
The bank will require 10% of the savings from the swap and WV and the counterparty will share the remaining saving equally.
Calculate VWs effective rate of interest from this swap arrangement.
- A. VVV would pay the risk-free rate + 1 %
- B. VVV would pay 5.65%
- C. VVV would pay 5.5%
- D. VVV would pay 5.2%
Answer: B
NEW QUESTION # 105
Select the category of risk for each of the descriptions below:
Answer:
Explanation:
NEW QUESTION # 106
A company is valuing its equity prior to an initial public offering (IPO).
Relevant data:
* Earnings per share $1.00
* WACC is 8% and the cost of equity is 12%
* Dividend payout ratio 40%
* Dividend growth rate 2% in perpetuity
The current share price using the Dividend Valuation Model is closest to:
- A. $4.00
- B. $4.08
- C. $6.80
- D. $6.12
Answer: B
NEW QUESTION # 107
Company MB is in negotiations to acquire the entire share capital of Company BBA. Information about each company is as follows:
It is expected that Company BBA's profit before interest and tax will be $30 million in each of the two years after acquisition. Company AAB is considering how best to structure the offer Company AAB's discount factor and appropriate cost of equity for use in valuing Company BBA is 10% Shareholders taxation implications should be ignored Which of the following provides the shareholders of Company BBA with the highest offer price?
- A. A cash offer of S290 million now.
- B. A cash offer at 105% of the share price of Company BBA.
- C. Cash of $270 million now plus 60% of Company BBA's profit before interest and tax for the two years after acquisition, paid in 2 years' time.
- D. A share-for-share exchange of five shares in Company AAB for every eight shares in Company BBA.
Answer: C
NEW QUESTION # 108
An unlisted company has the following data:
A listed company in the same industry has a P/E of 11.
The value of the unlisted company based on the P/E of this listed company is:
Give your answer to the nearest whole number.
- A. 0
- B. 1
Answer: A
NEW QUESTION # 109
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. $2 million is recognised in profit or loss and $5 million is recognised in other comprehensive income.
- B. $7 million is recognised in profit or loss.
- C. $5 million is recognised in profit or loss and $2 million is recognised in other comprehensive income.
- D. $7 million is recognised in other comprehensive income.
Answer: A
NEW QUESTION # 110
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. Preference shares are not secured against the assets of the business - however, the Eurobond would be.
- B. 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.
- C. 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.
- D. The issue of the preference share would reduce the company's gearing - however, the Eurobond would increase it.
Answer: C
NEW QUESTION # 111
Company J plans to acquire Company K, an unlisted company whose equity is to be valued using a P/E ratio approach.
A listed company has been identified which is very similar to Company K and which can be used as a proxy.
However, the growth prospects of Company K are higher than those of the proxy.
The Directors of Company J are aware that certain adjustments will be necessary to the proxy company's P/E ratio in order to obtain a more reliable valuation.
The following adjustments have been agreed:
* 20% due to Company K being unlisted.
* 15% to allow for the growth rate difference.
The total adjustment to the proxy p/e ratio is:
- A. 5% decrease
- B. 35% increase
- C. 35% decrease
- D. 5% increase
Answer: A
NEW QUESTION # 112
Company F's current profit before interest and taxation is $5.0 million.
It has a 10% long-term corporate bond in issue with a nominal value of $10 million.
Corporate tax is paid at 25%.
The industry average P/E multiple is 10.
Company X has made an approach to acquire the entire share capital of Company F for $30 million.
Company X has announced that anticipated synergies (after interest and taxation) arising from its acquisition of Company F will be $1 million each year in perpetuity.
Advise the Board of Directors of Company F if the bid should be accepted, based on the above information?
- A. Reject the bid because Company F is potentially worth $50 million to Company X.
- B. Reject the bid because Company F is potentially worth $60 million to Company X.
- C. Reject the bid because Company F is potentially worth $40 million to Company X.
- D. Accept the bid because Company F is potentially worth $30 million to Company X.
Answer: C
NEW QUESTION # 113
Select the category of risk for each of the descriptions below:
Answer:
Explanation:
NEW QUESTION # 114
Select the most appropriate divided for each of the following statements:
Answer:
Explanation:
NEW QUESTION # 115
Company YZZ has made a bid for the entire share capital of Company ZYY
Company YZZ is offering the shareholders in Company ZYY the option of either a share exchange or a cash alternative Which THREE of the following would be considered disadvantages of accepting the cash consideration for the shareholders of Company ZYY?
- A. Company YZZ Is not expected to change *s dividend policy post-acquisition
- B. Interest rates on deposit accounts are currently at an historic low and are expected to remain low
- C. Taxation is payable on realised capital gains.
- D. There will be no opportunity to participate in the future economic success of Company YZZ
- E. Cash consideration is certain whereas Company YZZ's future share price performance is uncertain
Answer: B,C,D
NEW QUESTION # 116
A company has announced a rights issue of 1 new share for every 4 existing shares.
Relevant data:
* The current market price per share is $10.00.
* Rights are to be issued at a 20% discount to the current price.
* The rate of return on the new funds raised is expected to be 10%.
* The rate of return on existing funds is 5%.
What is the yield-adjusted theoretical ex-rights price?
Give your answer to two decimal places.
$ ?
Answer:
Explanation:
11.20, 11.2
NEW QUESTION # 117
Companies A, B, C and D:
* are based in a country that uses the K$ as its currency.
* have an objective to grow operating profit year on year.
* have the same total levels of revenue and cost.
* trade with companies or individuals in the eurozone. All import and export trade with companies or individuals in the eurozone is priced in EUR.
Typical import/export trade for each company in a year are as follows:
Which company's growth objective is most sensitive to a movement in the EUR/K$ exchange rate?
- A. Company LLL
- B. Company NNN
- C. Company MMM
- D. Company OOO
Answer: C
NEW QUESTION # 118
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CIMA CIMAPRA19-F03-1 (F3 Financial Strategy) Certification Exam is a globally recognized and respected certification that focuses on providing in-depth knowledge of financial strategy to professionals in the financial industry. F3 Financial Strategy certification is designed to help individuals develop the skills needed to make sound financial decisions and implement effective financial strategies. With this certification, individuals can showcase their expertise in financial analysis, risk management, investment planning and management, and financial reporting.
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