PrepAwayExam F3 Real Exam Question Answers Updated [Jan 24, 2022]
Easily To Pass New CIMA F3 Dumps with 255 Questions
NEW QUESTION 83
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 above the minimum threshold and should be accepted.
- B. The share for share exchange is the only offer which is above the acceptance threshold.
- C. The bond offer is only worth $100 which represents a zero premium and should be rejected.
- D. The value of the consideration given by the cash and bond offers is certain, unlike the share offer.
Answer: B
NEW QUESTION 84
A listed company has recently announced a profit warning.
The company's share price fell 20% on the day of the announcement but had been fairly static in the weeks leading up to the announcement.
Which form of efficient market is most likely to be indicated by this share price movement?
- A. Weak form
- B. Strong form
- C. Semi-strong form
- D. Random walk
Answer: C
NEW QUESTION 85
A company has a covenant on its 5% long term corporate bond.
* Covenant - The earnings must not fall below $7 million
The bond has a nominal value of $60 million.
It is currently trading at 80% of its nominal value.
The projected earnings before interest and taxation for next year are $11.5 million.
The company retains 80% of its earnings. It pays tax at 20%.
Advise the Board of Directors which of the following covenant conditions will apply next year?
- A. The earnings will be = $7.28 million (The covenant will not be breached).
- B. The earnings will be = $5.44 million (The covenant will be breached).
- C. The earnings will be = $11.50 million (The covenant will not be breached).
- D. The earnings will be = $6.80 million (The covenant will be breached).
Answer: D
NEW QUESTION 86
Which TIIRCC of the following are most likely to reduce the long term credit rating co a company?
- A. The issue of new shares where the funds raised are invested in expanding into a new nigh risk market.
- B. The issue of a new bond where the funds raised are invested in a project that has an NPV of nil.
- C. The issue of new shares where the funds raised are invested in a project that has an NPV of nil.
- D. Loss of a major customer that contributed 30% of sales revenue.
- E. Disposal of a loss-making division where the funds raised will be used to pay a special dividend to shareholders.
Answer: B,D,E
NEW QUESTION 87
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. $32.0 million
- B. $50.2 million
- C. $65.0 million
- D. $41.6 million
Answer: D
NEW QUESTION 88
For which THREE of the following risk categories does IFRS 7 require sensitivity analysis?
- A. Supply chain risk
- B. Commodity risk
- C. Currency risk
- D. Credit risk
- E. Interest rate risk
- F. Liquidity risk
Answer: B,C,E
NEW QUESTION 89
A company plans a four-year project which will be financed by either an operating lease or a bank loan.
Lease details:
* Four year lease contract.
* Annual lease rentals of $45,000, paid in advance on the 1st day of the year.
Other information:
* The interest rate payable on the bank borrowing is 10%.
* The capital cost of the project is $200,000 which would have to be paid at the beginning of the first year.
* A salvage or residual value of $100,000 is estimated at the end of the project's life.
* Purchased assets attract straight line tax depreciation allowances.
* Corporate income tax is 20% and is payable at the end of the year following the year to which it relates.
A lease-or-buy appraisal is shown below:
Which THREE of the following items are errors within the appraisal?
- A. The salvage value has been included within the lease option
- B. Using the 10% discount rate is incorrect
- C. Lease payments are timed incorrectly
- D. The project's operating cashflows should be included
- E. Tax relief on lease payments have not been lagged correctly
- F. The bank loan repayments should be included
Answer: A,B,E
NEW QUESTION 90
Company X is an established, unquoted company which provides IT advisory services.
The company's results and cashflows are growing steadily and it has few direct competitors due to the very specialised nature of it's business. Dividends are predictable and paid annually.
Company P is looking to buy 30% of company X's equity shares.
Which TWO of the following methods are likely to be considered most suitable valuation methods for valuing company P's investment in Company X?
- A. Dividend based using DVM
- B. P/E ratio method using IT industry average
- C. Asset based using replacement cost
- D. Earnings yield method using a listed IT company as proxy
- E. Cash based using free cash flow before interest
Answer: A,E
NEW QUESTION 91
A company is financed as follows:
* 400 million $1 shares quoted at $3.00 each.
* $800 million 5% bonds quoted at par.
The company plans to raise $200 million long term debt to finance a project with a net present value of
$100 million.
The bank that is providing the debt is insisting on a maximum gearing level covenant.
Gearing will be based on market values and calculated as debt/(debt + equity).
What is the lowest figure for the gearing covenant that the bank could impose without the company breaching the agreement?
- A. 45%
- B. 46%
- C. 44%
- D. 43%
Answer: C
NEW QUESTION 92
A listed company is financed by debt and equity.
If it increases the proportion of debt in its capital structure it would be in danger of breaching a debt covenant imposed by one of its lenders.
The following data is relevant:
The company now requires $800 million additional funding for a major expansion programme.
Which of the following is the most appropriate as a source of finance for this expansion programme?
- A. Bank overdraft
- B. Rights issue
- C. Private placement of a bond
- D. Retained earnings
Answer: B
NEW QUESTION 93
Which of the following statements is true of a spin-off (or demerger)?
- A. Increases the risk of a takeover bid for the core entity.
- B. Raises finance to fund new projects.
- C. Allows investors to identify the true value of the demerged business.
- D. Changes the ownership structure of the core entity by introducing new shareholders.
Answer: C
NEW QUESTION 94
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 $1.50 per Kilowatt.
The company expects this to cause consumption to rise by 10% but costs would remained unaltered.
The price cap is expected to cause the company's net profit to fall to:
- A. $35.0 million loss
- B. $27.5 million profit
- C. $47.5 million profit
- D. $20.0 million profit
Answer: C
NEW QUESTION 95
A company is deciding whether to offer a scrip dividend or a cash dividend to its shareholders.
Although the company has excellent long-term growth prospects, it is experiencing short-term profit and cash flow problems.
Which of the following statements is most likely to be a reason for choosing the scrip dividend?
- A. It is a way of increasing earnings per share.
- B. It is a way of encouraging shareholders to allow cash to be retained in the business.
- C. It is a way of increasing dividend per share.
- D. It is a way of raising additional finance to promote future growth.
Answer: B
NEW QUESTION 96
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 97
An unlisted software development company has recently reported disappointing results. This was partly due to weak economic conditions but also because of its poor competitive position. The company has a number of exciting development opportunities which would enable it to achieve significant future growth. The company's growth potential has been hindered by its inability to secure sufficient new finance.
To enable the company raise new finance the Directors are considering working forwards an IPO in 10 years and accepting finance from a venture capitalist in order support in the intervening period.
The directors are keen to retain a controlling stake in the company and full representation on the board. They therefore require venture capitalists to provide funds as a mix of debt and equity and not soley equity finance.
Which THREE of the following are most likely to disrupt the directors' plans to use venture capital finance?
- A. Venture capitalists always require ownership of more than 50% of the shares in a company to ensure control.
- B. Venture capitalists normally expect an exit strategy sconer than the planned IPO in 10 years'time.
- C. Venture capitalists normally expect at least one seat on the board.
- D. Venture capitalists only provide equity finance and will therefore not be interested in providing a combination of debt and equity finance.
- E. The venture capital finance offered is much more expensive than expected.
Answer: B,C,E
NEW QUESTION 98
Which of the following statements best describes a residual dividend policy?
- A. Dividends are paid only after the on-going operational needs of the business have been met.
- B. Dividends are paid only if no further positive NPV projects are available.
- C. All surplus earnings are invested back into the business.
- D. Dividends are paid at a constant rate.
Answer: B
NEW QUESTION 99
A company is reporting under IFRS 7 Financial Instruments: Disclosures for the first time and the directors are concerned about whether this will lead to the disclosure of information that could affect the company's share price.
The company is based in a country that uses the A$ but 40% of revenue relates to export sales to the USA and priced in US$.
When the company reports under IFRS 7 for the first time, the share price is most likely to:
- A. Decrease since investors place a lower value on higher risk businesses.
- B. Either increase or decrease depending on market reaction to new information on how financial risk is managed.
- C. Increase due to greater clarity of information available on the extent of US$ risks and how they are managed.
- D. Stay the same since US$ risk can already be quantified from segmental analysis disclosures included elsewhere in the annual report.
Answer: B
NEW QUESTION 100
Company T has 1,000 million shares in issue with a current share price of $10 each.
Company V has 300 million shares in issue with a current share price of $5 each.
Company T is considering acquiring Company V.
Total synergy gains of $100 million have been estimated.
The purchase of Company V's shares would be by cash at a 10% premium above the current share price.
In seeking approval for the acquisition, the likely reaction from T's shareholders will be:
- A. rejected as T's shareholders will see a decrease in their wealth overall of $50 million.
- B. accepted as there is $100 million of synergy which will all go to T's shareholders.
- C. accepted as there will be an increase in the value of the business of $1,500 million.
- D. rejected as T's shareholders will not be willing to pay more than $1,500 million for V.
Answer: A
NEW QUESTION 101
Company S is planning to acquire Company T.
The shareholders in Company T will receive new shares in Company S in an all-share consideration.
Relevant information:
The shareholders in Company T want sufficient shares to receive a 25% premium on the pre-acquisition value of their shares, based on the pre-acquisition share price.
Which of the following share-for-share offers will achieve the desired result?
- A. 1 share in Company S for 1 share in Company T
- B. 1 share in Company S for 2 shares in Company T
- C. 10 shares in Company S for 4 shares in Company T
- D. 2 shares in Company S for 1 share in Company T
Answer: A
NEW QUESTION 102
A company is considering either exporting its product directly to customers in a foreign country or establishing a manufacturing subsidiary in that country.
The corporate tax rate in the company's own country is 20% and 25% tax depreciation allowances are available.
Which THREE of the following would be considered advantages of establishing the subsidiary in the foreign country?
- A. There is a double tax treaty between the company's domestic country and the foreign country.
- B. There are high customs duties payable on products entering the foreign country.
- C. There are restrictions on companies wishing to remit profit from the foreign country.
- D. Year 1 tax depreciation allowances of 100% are available in the foreign country.
- E. The corporate tax rate in the foreign country is 40%.
Answer: A,B,D
NEW QUESTION 103
A listed company is planning a share repurchase.
The following data applies:
* There are 10 million shares in issue
* The share repurchase will involve buying back 20% of the shares at a price of $0.75
* The company is holding $2 million cash
* Earnings for the current year ended are $2 million
The Directors are concerned about the impact that this repurchase programme will have on the company's cash balance and current year earnings per share (EPS) ratio.
Advise the directors which of the following statements is correct?
- A. The cash balance will decrease by 20% and the EPS will increase by 25%.
- B. The cash balance will decrease by 75% and EPS will decrease by 25%.
- C. The cash balance will decrease by 75% and EPS will increase by 25%.
- D. The cash balance will decrease by 20% and the EPS will decrease by 25%.
Answer: C
NEW QUESTION 104
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. $25,000
- B. $50,000
- C. $75,000
- D. $100,000
Answer: A
NEW QUESTION 105
A consultancy company is dependent for profits and growth on the high value individuals it employs.
The company has relatively few tangible assets.
Select the most appropriate reason for the net asset valuation method being considered unsuitable for such a company.
- A. It does not account for tangible assets.
- B. It accounts for intangible assets at net realisable value.
- C. It accounts for the intangible assets at historical value.
- D. It does not account for the intangible assets.
Answer: D
NEW QUESTION 106
Extracts from a company's profit forecast for the next financial year as follows:
Since preparing the forecast, the company has decided to return surplus cash to shareholders by a share repurchase arrangement.
The share repurchase would result in the company purchasing 20% of the 1,250 million ordinary shares currently in issue and canceling them.
Assuming the share repurchase went ahead, the impact on the company's forecast earnings per share will be an increase of:
- A. $0.175
- B. $0.125
- C. $0.100
- D. $0.200
Answer: C
NEW QUESTION 107
......
Latest F3 Study Guides 2022 - With Test Engine PDF: https://www.prepawayexam.com/CIMA/braindumps.F3.ete.file.html
Get New F3 Practice Test Questions Answers : https://drive.google.com/open?id=19iHymXo7Cg0k0f3k78rC3ansvWNhTram