[Apr-2024] CIMA Strategic level F3 Exam Practice Dumps
2024 F3 Premium Files Test pdf - Free Dumps Collection
NEW QUESTION # 137
A financial services company reported the following results in its most recent accounting period:
The company has an objective to achieve 5% earnings growth each year. The directors are discussing how this objective might be achieved next year.
Revenues have been flat over the last couple of years as the company has faced difficult trading conditions.
Revenue is expected to stay constant in the coming year and so the directors are focussing efforts on reducing costs in an attempt to achieve earnings growth next year.
Interest costs will not change because the company's borrowings are subject to a fixed rate of interest.
What operating profit margin will the company have to achieve next year in order to just achieve its 5% earnings growth objective'?
- A. 58.0%
- B. 55.8%
- C. 58.5%
- D. 60.0%
Answer: A
NEW QUESTION # 138
Which TWO of the following statements about debt instruments are correct?
- A. If corporation tax rates rise, the tax shield effect on debenture interest will be reduced.
- B. The true cost of servicing debt instruments to the company is the post-tax cost of debt.
- C. Changes in corporation tax rates will have no effect on the tax shield of fixed rate debentures.
- D. A zero coupon will eliminate the tax shield effect on debt payments.
Answer: C,D
NEW QUESTION # 139
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. 21.7%
- C. 30.0%
- D. 22.5%
Answer: B
NEW QUESTION # 140
In the context of the Integrated Reporting <IR=> Framework which THREE of the following statements are correct?
- A. The primary purpose of an integrated report is to ensure that management take environmental issues into consideration when making decisions.
- B. Under integrated reporting 'natural capital' refers to the renewable and non-renewable resources and processes which provide goods or services that support the organisation in the conduct of its business.
- C. Sustainability reporting is an intrinsic component of an integrated report
- D. An integrated report integrates economic, environmental and social reports and is issued alongside the annual financial statements.
- E. The primary purpose of an integrated report is to explain to providers of financial capital how an entity creates value over time.
Answer: B,C,E
NEW QUESTION # 141
A company plans to cut its dividend but is concerned that the share price will fall.
This demonstrates the _____________ effect
Answer:
Explanation:
clientele
NEW QUESTION # 142
Country X's short-term interest rates are slightly higher than its long-term rates. Which THREE of the following statements are correct?
- A. This difference may reverse.
- B. Country X's currency is expected to strengthen in the long-term.
- C. Interest rates will definitely fall.
- D. Interest rates are expected to fall.
- E. A long-term borrower would save by taking out a short-term loan and then refinancing
Answer: A,B,E
NEW QUESTION # 143
Company A, a listed company, plans to acquire Company T, which is also listed.
Additional information is:
* Company A has 150 million shares in issue, with market price currently at $7.00 per share.
* Company T has 120 million shares in issue,. with market price currently at $6.00 each share.
* Synergies valued at $50 million are expected to arise from the acquisition.
* The terms of the offer will be 2 shares in A for 3 shares in T.
Assuming the offer is accepted and the synergies are realised, what should the post-acquisition price of each of Company A's shares be?
Give your answer to two decimal places.
Answer:
Explanation:
8.24
NEW QUESTION # 144
Company B is an all equity financed company with a cost of equity of 10%.
It is considering issuing bonds in order to achieve a gearing level of 20% debt and 80% equity.
These bonds will pay a coupon rate of 5% and have an interest yield of 6%.
Company B pays corporate tax at the rate of 25%.
According to Modigliani and Miller's theory of capital structure with tax, what will be Company B's new cost of equity?
A)
B)
C)
D)
- A. Option C
- B. Option B
- C. Option D
- D. Option A
Answer: B
NEW QUESTION # 145
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 # 146
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 $40 million to Company X.
- B. Accept the bid because Company F is potentially worth $30 million to Company X.
- C. Reject the bid because Company F is potentially worth $60 million to Company X.
- D. Reject the bid because Company F is potentially worth $50 million to Company X.
Answer: A
NEW QUESTION # 147
A company wishes to raise additional debt finance and is assessing the impact this will have on key ratios.
The following data currently applies:
* Profit before interest and tax for the current year is $500,000
* Long term debt of $300,000 at a fixed interest rate of 5%
* 250,000 shares in issue with a share price of $8
The company plans to borrow an additional $200,000 on the first day of the year to invest in new project which will improve annual profit before interest and tax by $24,000.
The additional debt would carry an interest rate of 3%.
Assume the number of shares in issue remain constant but the share price will increase to $8.50 after the investment.
The rate of corporate income tax is 30%.
After the investment, which of the following statements is correct?
- A. Interest cover will fall; P/E ratio will rise.
- B. Interest cover will fall; P/E ratio will fall.
- C. Interest cover will rise; P/E ratio will rise.
- D. Interest cover will rise; P/E ratio will fall.
Answer: A
NEW QUESTION # 148
Company C is a listed company. It is currently considering the acquisition of Company D.
The original founder of Company C currently owns 52% of the shares.
Alternative forms of consideration for Company D being considered are as follows:
* Cash payment, financed by new borrowing
* issue of new shares in Company C
Which of the following is an advantage of a cash offer over a share-for exchange from the viewpoint of the original founder of Company C?
- A. A share-for-share exchange would require the approval shareholders in Company C but a cash offer would not.
- B. A share-for-share exchange would require the approval of the Competition Authorities but a cash offer would not.
- C. A cash offer would result in a lower gearing ratio therefore reduce the weighted overage cost of capital whereas a cash offer would not.
- D. A share for share exchange would result in a significant change in control of Company C whereas a cash offer would not.
Answer: D
NEW QUESTION # 149
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 debt remain unchanged at 4%
- B. The cost of equity will increase above 10%
- C. The cost of equity will decrease below 10%
- D. The WACC will decrease below 7.6%
- E. The cost of debt will increase above 4%
- F. The WACC increase above 7.6
Answer: A,D,F
NEW QUESTION # 150
A company generates and distributes electricity and gas to households and businesses.
Forecast results for the next financial year are as follows:
The Industry Regulator has announced a new price cap of $2.00 per Kilowatt.
The company expects this to cause consumption to rise by 15% but costs would remained unaltered.
The price cap is expected to cause the company's net profit to fall to:
- A. $164.00 million profit
- B. $8.75 million profit
- C. $126.50 million loss
- D. $43.00 million profit
Answer: A
NEW QUESTION # 151
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. Change the Articles of Association to increase the percentage of shareholder votes required to approve a takeover.
- C. Refer the bid to the country's competition authorities.
- D. Pay a one-off special dividend.
Answer: A
NEW QUESTION # 152
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. $4,900,000
- B. $4,970,000
- C. $5,250,000
- D. $5,530,000
Answer: B
NEW QUESTION # 153
The Board of Directors of a listed company have decided that it needs to increase its equity capital to ensure it is in a more stable financial position.
The shareholder profile is a mix of institutional and individual small shareholders.
The board is considering either:
* A scrip dividend
* A zero dividend
Which THREE of the following would be considered disadvantages of a scrip dividend compared to a zero dividend?
- A. A scrip dividend will dilute the control of current shareholders.
- B. A scrip dividend results in more shares in issue which will create an expectation for future dividends.
- C. There will be company secretarial and additional administration involved with a scrip dividend.
- D. A scrip dividend results in distributable reserves being moved to non-distributable reserves.
- E. A scrip issue may give shareholders the impression that they are receiving something of value.
Answer: B,C,D
NEW QUESTION # 154
LPM Company is based in Country C. whose currency is the CS
It has entered Into a contract to buy a machine in three months' time. The supplier is overseas and the payment is to be made in a different currency from the CS The treasurer at LPM Company is considering using a money market hedge to manage the transaction risk associated with a payment.
The assumptions of interest rate parity apply
Which THREE of the following statements concerning the use of a money market hedge for this supplier payment are correct*?
- A. It offers a significantly better outcome than a forward contract
- B. lt avoids the need to find immediate finance
- C. It manages transaction risk
- D. Any opportunity to benefit from future exchange rate movements is lost.
- E. It can be tailored to match the size of the payment
Answer: A,C,E
NEW QUESTION # 155
Company XXY operates in country X with the X$ as its currency. It is looking to acquire company ZZY which operates in country Z with the Z$ as its currency.
The assistant accountant at Company XXY has started to prepare an initial valuation of Company ZZY's equity for the first 3 years, however their valuation is incomplete. TBC' in the table below indicates that her calculations have yet to be completed.
The following information is relevant:
What is the correct figure (to the nearest million S) to include in year 3 as the present value in X$ million?
- A. X$453 million
- B. X$504 million
- C. X$360 million
- D. X$401 million
Answer: C
NEW QUESTION # 156
At the last financial year end, 31 December 20X1, a company reported:
The corporate income tax rate is 30% and the bank borrowings are subject to an interest cover covenant of 4 times.
The results are presently comfortably within the interest cover covenant as they show interest cover of 8.3 times. The company plans to invest in a new product line which is not expected to affect profit in the first year but will require additional borrowings of $20 million at an annual interest rate of 10%.
What is the likely impact on the existing interest cover covenant?
- A. Interest cover would reduce to 5 times and the covenant would be breached.
- B. Interest cover would reduce to 5 times and the covenant would NOT be breached.
- C. Interest cover would reduce to 3 times and the covenant would NOT be breached.
- D. Interest cover would reduce to 3 times and the covenant would be breached.
Answer: B
NEW QUESTION # 157
......
Get ready to pass the F3 Exam right now using our CIMA Strategic level Exam Package: https://dumpsstar.vce4plus.com/CIMA/F3-valid-vce-dumps.html