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CIMA CIMAPRA19-F03-1 (F3 Financial Strategy) Certification Exam is designed to assess the candidate's ability to develop and implement financial strategies in an organization. CIMAPRA19-F03-1 exam covers a range of topics, including financial analysis, financial planning, investment decisions, and risk management. CIMAPRA19-F03-1 exam is divided into two sections, each containing objective test questions and case studies.

CIMA F3 (Financial Strategy) Exam is a key module in the CIMA qualification. It forms an integral part of the learning process of professionals who are seeking to advance in the field of financial management. The F3 exam is designed to test a candidate's understanding of financial management concepts, and their ability to apply them in real-world situations. This module is ideally suited to professionals who are looking to move up the ranks in their organizations and become strategic finance managers, CFOs or finance directors.

 

NEW QUESTION # 116
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. 30.0%
• B. 27.5%
• C. 21.7%
• D. 22.5%

Answer: C

NEW QUESTION # 117
A company has a loss-making division that it has decided to divest in order to raise cash for other parts of the business.
The losses stem from a combination of a lack of capital investment and poor divisional management.
The loss-making division would require new capital investment of at least $20 million in order to replace worn out and obsolete assets.
If this investment was carried out, the present value of the future cashflows, excluding the investment expenditure, is expected to be $15 million.
Which TWO of the following divestment methods are most likely to be suitable for the company?

• A. Spin-off
• B. De-merger
• C. Trade sale
• D. Liquidation
• E. Management buy-out

Answer: C,D

NEW QUESTION # 118
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.
$ ?

• A. 3.64, 3.63, 3.66
• B. 3.64, 3.63, 3.65

Answer: B

NEW QUESTION # 119
TU has relatively few tangible assets and is dependent for profits and growth on the high-value individuals it employs. Which of the following statements best explains why the net asset valuator method's considered unstable for TU?

• A. TU does not account for its intangible assets.
• B. TU accounts for its intangible assets at historical value.
• C. TU accounts for its intangible assets at net realisable value.
• D. TU does not account for its tangible assets

Answer: A

NEW QUESTION # 120
A UK based company is considering investing GBP1 ,000,003 in a project it the USA. It is anticipated that the project will yield net cash inflows of USD580.000 each year for the next three years. These surplus cash flows will be remitted to the UK at the end of each year.
Currently GBP1.00 is worth USD1.30.
The expected inflation rates in the two countries ever the next four years are 2% in the UK and 4% in the USA.
Applying the purchasing power parity theory, which of the following represents the expected remittance at the end of year three, in GBP whole the nearest whole GBP)?

• A. GBP472,916
• B. GBP568,846
• C. GBP546,547
• D. GBP450,906

Answer: D

NEW QUESTION # 121
Providers of debt finance often insist on covenants being entered into when providing debt finance for companies.
Agreement and adherence to the specific covenants is often a condition of the loan provided by the lender.
Which THREE of the following statements are true in respect of covenants?

• A. Covenants are entered into to give the lender added protection on the loan extended to the company.
• B. Covenants are entered into to penalise the company.
• C. Covenants enable the lender to demand immediate repayment or to renegotiate terms if it is breached.
• D. Covenants are entered into to impose financial discipline on the company.
• E. Covenants are entered into to eliminate the tax liability of the company.

Answer: A,C,D

Explanation:
Discursive_F0

NEW QUESTION # 122
A company is considering whether to lease or buy an asset.
The following data applies:
* The bank will charge interest at 7.14% per annum
* The asset will cost $1 million
* Tax-allowable depreciation is available on a straight line basis over 5 years
* There is no residual value
* Corporate tax is paid at 30% in the year when the profit is earned
What is the NPV of the buy option?
Give your answer to the nearest $000.
$ ?

• A. 0
• B. 1

Answer: A

NEW QUESTION # 123
A company is currently all-equity financed with a cost of equity of 8%.
It plans to raise debt with a pre-tax cost of 4% in order to buy back equity shares.
After the buy-back, the debt-to-equity ratio at market values will be 1 to 2.
The corporate income tax rate is 30%.
Which of the following represents the company's cost of equity after the buy-back according to Modigliani and Miller's Theory of Capital Structure with taxes?

• A. 9.4%
• B. 8%
• C. 9.8%
• D. 13.6%

Answer: A

NEW QUESTION # 124
A company currently has a 6.25% fixed rate loan but it wishes to change the interest style of the loan to variable by using an interest rate swap directly with the bank.
The bank has quoted the following swap rate:
* 5.50% - 5.55% in exchange for LIBOR
LIBOR is currently 5%.
If the company enters into the swap and LIBOR remains at 5%, what will the company's interest cost be?

• A. 5.00%
• B. 5.75%
• C. 6.25%
• D. 5.70%

Answer: B

NEW QUESTION # 125
PYP is a listed courier company. It is looking to raise new finance to fit each of its delivery vans with new equipment to allow improved parcel tracking for customers The senior management team of PYP have decided on a 10-year secured bond to finance this investment- Which TWO of the following variables are most likely to decrease the yield to maturity of the bond?

• A. Changing the term of the bond from 1 0 years to 5 years to match the expected life of the new equipment
• B. The senior management team decide to issue an unsecured bond rather than a secured bond
• C. The senior management team decide to issue a convertible bond rather than a conventional bond
• D. The announcement of a new contract for PYP that will increase operating profits by 5°/o over the next 5 years.

Answer: A,C

NEW QUESTION # 126
HHH Company has a fixed rate loan at 10.0%, but wishes to swap to variable. It can borrow at the risk-free rate +8%. The bank is currently quoting swap rates of 3.1% (bid) and 3.5% (ask). What net rate will HHH Company pay if it enters into the swap?

• A. Risk-free rate +8%
• B. Risk-free rate+3.1%
• C. Risk-free rate +6.9%
• D. Risk-free rate +6.5%

Answer: B

NEW QUESTION # 127
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. $41.6 million
• B. $32.0 million
• C. $65.0 million
• D. $50.2 million

Answer: A

NEW QUESTION # 128
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.
$ ? million

Answer:

Explanation:
300,
300000000

NEW QUESTION # 129
Company ADE is an unlisted company; it needs to raise a significant amount of finance to fund future expansion. The directors are considering listing the company on the local stock exchange The following discussions have taken place between some of the directors:
Director A - We consider a public issue of bonds in the capital markets, we don't need to list to issue the bonds which will save time and money.
Director B - We should list on the Alternative Investment Market (AIM) and not the main market to avoid any regulatory requirements Director C - We should remain unlisted; we can access an unlimited amount of equity finance through a rights issue Director D - Listing will increase Company ADE's ability to raise new equity and debt finance in the future.
Director E - If we list, Company ADE will be a more likely target for a takeover than if we remain unlisted.
Which TWO of the directors' statements are correct?

• A. Director E
• B. Director D
• C. Director A
• D. Director B
• E. Director C

Answer: B,D

NEW QUESTION # 130
A company with a market capitalisation of S50million is considering raising $1 million debt to fund a new
10-year capital investment protect
The value of this issue is considered to be small in comparison to the company's market capitalisation The company is considering whether to raise the debt finance by either a "bond private placing' or a 'public bond issue.
Which THREE of the following statements are correct?

• A. An initial public bond issue will be administratively complex and relatively expensive for the relatively small amount of debt being raised whereas a bond private placing will be relatively less complex
• B. An average investor is made aware of a potential initial public bond issue whereas the average investor is only made aware of a bond private placing after it has occurred.
• C. The company's credit rating will be a key element in determining the interest rate payable and the potential success of either the public bond issue or the bond private placing
• D. An initial public bond issue can be arranged relatively quickly whereas a bond private placing can take up to a year to arrange.
• E. An initial public bond issue does not need to be underwritten whereas a bond private placing must be underwritten.

Answer: A,D

NEW QUESTION # 131
BBA is a wholly owned subsidiary of AAB BBA operates in country B where the currency is the B$.
The following is an extract from BBA's financial statements at 31 December 20X1:

The following Information is relevant:
" The bonds were trading at $110 per $100 on 31 December 20X1. "Operating profit of BBA for the year ended 31 December 20X1 was S15 million
* The P/E ratio is 8
* Corporate income tax rate is 20%.
The tax authorities m country B Implemented thin capitalisation rules based on the level of gearing of the subsidiary, calculated as book value o( debt lo book value of equity The cut-off point for gearing used by the tax authorities for a company to be thinly capitalised is 75%.
Which of the following statements is correct as at 31 December 20X1?

• A. Gearing is 250%. thin capitalisation rules are breached
• B. Gearing is 83.33%. thin capitalisation rules are not breached
• C. Gearing is 83.33%. thin capitalisation rules are breached
• D. Gearing Is 71.43%. thin capitalisation rules are not breached

Answer: C

NEW QUESTION # 132
A large, listed company in the food and household goods industry needs to raise $50 million for a period of up to 6 months.
It has an excellent credit rating and there is almost no risk of the company defaulting on the borrowings.
The company already has a commercial paper programme in place and has a good relationship with its bank.
Which of the following is likely to be the most cost effective method of borrowing the money?

• A. Treasury Bills
• B. Commercial paper
• C. 6 month term loan
• D. Bank overdraft

Answer: B

NEW QUESTION # 133
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 # 134
Company C invests heavily in Research and Development an need to raise $45 million to finance future projects. It has decided to use equity finance raised by a tender offer, The following tender offers have been received from potential investors:

Company C wishes to select an offer price that will project shareholders from a significant dilution of control but still raise the required amount of finance.
What offer price should Company C's select?

• A. $4.25
• B. $4.75
• C. $4.00
• D. $4.50

Answer: D

NEW QUESTION # 135
Which three of the following are most likely be primary objectives for a newly established, unincorporated entity in the service sector?

• A. Increasing Revenue
• B. Reaching an optimum capital structure
• C. Maintaining sufficient liquidity in the business to avoid overtrading
• D. Providing consistently high levels service quality
• E. Increasing the dividend payment year on year

Answer: A,B,C

NEW QUESTION # 136
......

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