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CIMA F3 Exam Syllabus Topics:
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NEW QUESTION 167
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. $126.50 million loss
- C. $8.75 million profit
- D. $43.00 million profit
Answer: A
NEW QUESTION 168
RR has agreed to sell goods to XX for S20.000 XX will pay when the goods are delivered in 6 months time.
RR's home currency is the £- The current exchange rate is 4.3 £/S. The projected inflation rate for the S is
2.8%, and for the E 4 6%.
When RR receives payment for its goods, what will the value be to the nearest pound?
- A. £86 760
- B. £85,243
- C. £84.520
- D. £87.506
Answer: D
NEW QUESTION 169
Company A has just announced a takeover bid for Company B. The two companies are large companies in the same industry_ The bid is considered to be hostile.
Company B's Board of Directors intends to try to prevent the takeover as they do not consider it to be in the best interests of shareholders
Which THREE of the following are considered to be legitimate post-offer defences?
- A. Alter the memorandum and articles of association to state that a minimum of 75% of shareholders must agree to the bid before it can proceed
- B. Publish very optimistic financial forecasts for Company B even though the Board of Directors realises that these are highly unlikely to be achievable
- C. Make a counter bid for Company A provided such an acquisition could enhance Company B's shareholder wealth
- D. Refer the bid to the competition authorities to try to have the bid prohibited on competition grounds
- E. Have all the assets independently professionally revalued to demonstrate that the offer undervalues the company
Answer: A,C,D
NEW QUESTION 170
A listed company is planning a share repurchase.
Research into different offer prices has given the following data with regards acceptance by the shareholders at different prices:
What price should be offered to shareholders if the retained earnings of the company are to remain unchanged?
- A. $9.50
- B. $10.00
- C. $9.00
- D. $8.50
Answer: A
NEW QUESTION 171
A company wishes to raise new finance using a rights issue. The following data applies:
* There are 10 million shares in issue with a market value of $4 each
* The terms of the rights will be 1 new share for 4 existing shares held
* After the rights issue, the theoretical ex-rights price (TERP) will be $3.80
Assuming all shareholders take up their rights, how much new finance will be raised ?
Give your answer to one decimal place.
$ ? million
- A. 7.5, 7.50
- B. 7.5, 6.50
Answer: A
NEW QUESTION 172
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$.
When the company reports under IFRS 7 for the first time, the share price is most likely to:
- A. Either increase or decrease depending on market reaction to new information on how financial risk is managed.
- B. Decrease since investors place a lower value on higher risk businesses.
- C. Stay the same since US$ risk can already be quantified from segmental analysis disclosures included elsewhere in the annual report.
- D. Increase due to greater clarity of information available on the extent of US$ risks and how they are managed.
Answer: A
NEW QUESTION 173
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. Allows investors to identify the true value of the demerged business.
- C. Changes the ownership structure of the core entity by introducing new shareholders.
- D. Raises finance to fund new projects.
Answer: B
NEW QUESTION 174
A company has in a 5% corporate bond in issue on which there are two loan covenants.
* Interest cover must not fall below 3 times
* Retained earnings for the year must not fall below $3.5 million
The Company has 200 million shares in issue.
The most recent dividend per share was $0.04.
The Company intends increasing dividends by 10% next year.
Financial projections for next year are as follows:
Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?
- A. The company will breach the covenant in respect of retained earnings only.
- B. The company will be in breach of both covenants.
- C. The company will be in breach of the covenant in respect of interest cover only.
- D. The company will be in compliance with both covenants.
Answer: A
NEW QUESTION 175
A venture capitalist invests in a company by means of buying:
* 9 million shares for $2 a share and
* 8% bonds with a nominal value of $2 million, repayable at par in 3 years' time.
The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment.
The company has 10 million shares in issue.
What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?
Give your answer to the nearest $ million.
Answer:
Explanation:
$ million.
34, 35, 34000000, 35000000
NEW QUESTION 176
A company enters into a floating rate borrowing with interest due every 12 months over the five year life of the borrowing.
At the same time, the company arranges an interest rate swap to swap the interest profile on the borrowing from floating to fixed rate.
These transactions are designated as a hedge for hedge accounting purposes under IAS 39 Financial Instruments: Recognition and Measurement.
Assuming the hedge is considered to be effective, how would the swap be accounted for 12 months later?
- A. The swap would be shown at nominal value in the statement of financial position and the change in value posted to other comprehensive income.
- B. The swap would be shown at nominal value in the statement of financial position and the change in value posted to profit or loss.
- C. The swap would be shown at fair value the statement of financial position and the change in value posted to other comprehensive income.
- D. The swap would be shown at fair value the statement of financial position and the change in value posted to profit or loss.
Answer: C
NEW QUESTION 177
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 are high customs cuties payable of products entering country P.
- B. There is a double tax treaty between country T and country P.
- C. Year 1 tax depreciation allowances of 100% are available in country P.
- D. There are restrictions on companies wishing to remit profit from country P
- E. The corporate tsx rate in country P is 40%.
Answer: A,B,C
NEW QUESTION 178
Select the category of risk for each of the descriptions below:
Answer:
Explanation:
NEW QUESTION 179
PTT has a number of subsidiary companies around the world, including FTT based in Europe and CTT based in Indonesia
CTT purchases all of us raw materials from FTT CTT processes these materials and the resulting products are exported to several different countries CTT pays FTT in the Indonesian currency.
Indonesia's inflation is higher than that of FTTs home country
Which of the following statements are correct?
Select ALL that apply
- A. FTT could ask for ail payments to K to be made in its home currency, which would reduce exposure to currency risk
- B. FTT will be exposed to transaction risk The Indonesian currency that it receives Is likely to decline over time because of anticipated inflation
- C. CTT will be exposed to translation risk because FTT will almost certainly have to reflect the changing prices in its selling price and it will be difficult for CTT to make a profit
- D. FTT will be exposed to transaction risks as the Indonesian currency will appreciate over time because of the expected inflation rates
- E. FTT could investigate whether it could import anything from Indonesia in order to create a natural hedge.
Answer: A,B,D
NEW QUESTION 180
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. Lease payments are timed incorrectly
- B. The salvage value has been included within the lease option
- C. Tax relief on lease payments have not been lagged correctly
- D. Using the 10% discount rate is incorrect
- E. The bank loan repayments should be included
- F. The project's operating cashflows should be included
Answer: B,C,D
NEW QUESTION 181
A listed company follows a policy of paying a constant dividend. The following information is available:
* Issued share capital (nominal value $0.50) $60 million
* Current market capitalisation $480 million
The shareholders are requesting an increased dividend this year as earnings have been growing. However, the directors wish to retain as much cash as possible to fund new investments. They therefore plan to announce a
1-for-10 scrip dividend to replace the usual cash dividend.
Assuming no other influence on share price, what is the expected share price following the scrip dividend?
Give your answer to 2 decimal places.
Answer:
Explanation:
$ ?
3.64, 3.63, 3.65
NEW QUESTION 182
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 183
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. $20.0 million profit
- D. $47.5 million profit
Answer: D
NEW QUESTION 184
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.
$ ?
- A. 11.20, 11.2
- B. 11.20, 11.3
Answer: A
NEW QUESTION 185
A UK company enters into a 5 year borrowing with bank P at a floating rate of GBP Libor plus 3% It simultaneously enters into an interest rate swap with bank Q at 4.5% fixed against GBP Libor plus 1.5% What is the hedged borrowing rate, taking the borrowing and swap into account?
Give your answer to 1 decimal place.
Answer:
Explanation:
7.5%
NEW QUESTION 186
Company A operates in country A with the AS as its functional currency. Company A expects to receive BS500.000 in 6 months' time from a customer in Country B which uses the B$.
Company A intends to hedge the currency risk using a money market hedge
The following information is relevant:
What is the AS value of the BS expected receipt in 6 months' time under a money market hedge?
- A. AS32, 051
- B. AS31, 790
- C. AS32, 532
- D. AS31, 482
Answer: A
NEW QUESTION 187
A company wishes to raise new finance using a rights issue to invest in a new project offering an IRR of 10% The following data applies:
* There are currently 1 million shares in issue at a current market value of $4 each.
* The terms of the rights issue will be $3.50 for 1 new share for 5 existing shares.
* The company's WACC is currently 8%.
What is the yield-adjusted theoretical ex-rights price (TERP)?
Give your answer to 2 decimal places.
$ ?
Answer:
Explanation:
4.06, 4.060
NEW QUESTION 188
Company Z wishes to borrow $50 million for 10 years at a fixed rate of interest.
Two alternative approaches are being considered:
A: Issue a 10 year bond at a fixed rate of 6%, or B: Borrow from the bank at Libor +2.5% for a 10 year period and simultaneously enter into a 10 year interest rate swap.
Current 10 year swap rates against Libor are 4.0% - 4.2%.
What is the difference in the net interest cost between the two alternative approaches?
- A. Approach B is 2.2% a year less expensive
- B. Approach B is 2.0% a year less expensive
- C. Approach A is 0.7% a year less expensive
- D. Approach A is 0.5% a year less expensive
Answer: C
NEW QUESTION 189
ADC is planning to acquire DEF in order to benefit from the expertise of DEF's owner 'managers Both are Listed companies. ADC is trying to decide whether to offer cash or shares in consideration for DEF's shares.
Which THREE of the following are advantages to ABC of offering shares to acquire CEF?
- A. It shares tie benefits of future growth with the DCT shareholder.
- B. It incentivises DEF to continue creating value for the combined group
- C. The risk of poor future performance of the acquisition is shared with the DEF company shareholder.
- D. It dilutes ownership in ABC.
- E. It preserves liquidity
- F. It results in a tax saving for ABC.
Answer: A,B,C
NEW QUESTION 190
Select the most appropriate divided for each of the following statements:
Answer:
Explanation:
NEW QUESTION 191
Country X's short-term interest rates are slightly higher than its long-term rates. Which THREE of the following statements are correct?
- A. Interest rates are expected to fall.
- B. This difference may reverse.
- C. A long-term borrower would save by taking out a short-term loan and then refinancing
- D. Interest rates will definitely fall.
- E. Country X's currency is expected to strengthen in the long-term.
Answer: B,C,E
NEW QUESTION 192
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