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Updated Nov-2023 Exam F3 Dumps - Pass Your Certification Exam
CIMAPRA19-F03-1 exam is divided into three sections, namely, strategic financial management, risk management, and investment decision making. Each section of the exam is designed to test the candidate's ability to apply financial theories and models to real-world scenarios. F3 exam consists of multiple-choice questions, which require the candidate to analyze financial data and make sound financial decisions.
CIMA F3 is both for beginners and experienced individuals who want to pursue a career in financial management. F3 exam builds on the foundations of accounting and finance studies, but it requires a more strategic and managerial approach to financial decision-making. Therefore, it is essential to understand the key factors that make financial strategy a critical aspect of a business strategy.
NEW QUESTION # 128
A company plans to acquire new machinery.
It has two financing options; buy outright using a bank loan, or a finance lease.
Which of the following is an advantage of a finance lease compared with a bank loan?
- A. Tax depreciation allowances may be passed on to the company by the lessor.
- B. The lessor provides maintenance of the asset.
- C. It is "off-balance sheet" and will not affect the company's gearing.
- D. The interest rate offered might be more favourable because the lessor has the security of the asset.
Answer: D
NEW QUESTION # 129
Company A is unlisted and all-equity financed. It is trying to estimate its cost of equity.
The following information relates to another company, Company B, which operates in the same industry as Company A and has similar business risk:
Equity beta = 1.6
Debt:equity ratio 40:60
The rate of corporate income tax is 20%.
The expected premium on the market portfolio is 7% and the risk-free rate is 5%.
What is the estimated cost of equity for Company A?
Give your answer to one decimal place.
? %
Answer:
Explanation:
12.3, 12.30
NEW QUESTION # 130
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. $100,000
- B. $75,000
- C. $50,000
- D. $25,000
Answer: D
NEW QUESTION # 131
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 # 132
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 fall.
- B. Interest cover will fall; P/E ratio will rise.
- C. Interest cover will rise; P/E ratio will rise.
- D. Interest cover will rise; P/E ratio will fall.
Answer: B
NEW QUESTION # 133
The following information relates to Company A's current capital structure:
Company A is considering a change in the capital structure that will increase gearing to 30:70 (Debt:Equity).
The risk -free rate is 3% and the return on the market portfolio is expected to be 10%.
The rate of corporate tax is 25%
Using the Capital Asset Pricing Model, calculate the cost of equity resulting from the proposed change to the capital structure.
- A. 10.1%
- B. 9.3%
- C. 11.4%
- D. 12.3%
Answer: D
NEW QUESTION # 134
The value of a call option will increase because of:
- A. A decrease in the volatility of the share.
- B. A decrease in the market value of the share
- C. An increase in the strike price.
- D. An increase in the time to expiry.
Answer: D
NEW QUESTION # 135
A company is considering the issue of a convertible bond compared to a straight bond issue (non-convertible bond).
Director A is concerned that issuing a convertible bond will upset the shareholders for the following reasons:
* it will dilute their control
* the interest payments will be higher therefore reducing liquidity
* it will increase the gearing ratio therefore increasing financial risk
Director B disagrees, and is preparing a board paper to promote the issue of the convertible bond rather than a non-convertible.
Advise the Director B which THREE of the following statements should be included in his board paper to promote the issue of the convertible bond?
- A. The coupon rate on the convertible bond will be lower than that on a non-convertible bond.
- B. The convertible bond may not dilute control as the bond holder has an option to choose conversion.
- C. Issuing a convertible bond will have a more favourable impact on the gearing ratio than a non-convertible bond.
- D. When converted into shares, the company will receive a cash inflow which can be used for future investments.
- E. Over the life of the bond, a convertible will be more expensive than a non-convertible.
Answer: A,B,C
NEW QUESTION # 136
A listed company is planning to raise $21.6 million to finance a new project with a positive net present value of $5 million. The finance is to be raised via a rights issue at a 10% discount to the current share price. There are currently 100 million shares in issue, trading at $2.00 each.
Taking the new project into account, what would the theoretical ex-rights price be?
Give your answer to two decimal places.
$ ?
Answer:
Explanation:
2.02, 2.03
NEW QUESTION # 137
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 premium to the market value would be charged to the Income Statement.
- C. The total value of the equity in its Statement of Financial Position would remain unchanged.
- D. The share capital figure would reduce by the nominal value of the shares purchased.
Answer: D
NEW QUESTION # 138
JAG and ZEB are two listed companies. JAG is approximately 20 times the size of ZEB.
10 days ago JAG made a hostile bid for ZEB. offering a share exchange.
The bid price represents a 10% profit to the shareholders of ZEB at today's market prices to reflect the high levels of synergistic benefits that JAG expects to realise from the transaction.
Which of the following is the greatest future threat to the post-transaction value for JAG?
- A. Negative market response to the bid.
- B. New shareholders acquired from ZEB withdraw their investment by selling their shares within 12 months.
- C. New shareholders acquired from ZEB demand a higher dividend payout than JAG is used to.
- D. Forecast synergistic benefits are not realised.
Answer: D
NEW QUESTION # 139
The value of a call option will increase because of:
- A. A decrease in the volatility of the share.
- B. An increase in the time to expiry.
- C. An increase in the strike price.
- D. A decrease in the market value of the share
Answer: D
NEW QUESTION # 140
The Board of Directors of a small listed company engaged in exploration are currently considering the future dividend policy of the company. Exploration is considered a high-risk business and consequently the company has a low level of debt finance.
Forecasts indicate a period of profit fluctuation in the next few years as the company is planning to embark on a major capital investment project. Debt finance is unlikely to be available due to the project's high business risk.
Which THREE of the following are practical considerations when determining the company's dividend/retention policy?
- A. The general level of interest rates and the tax savings on interest costs relating to debt finance.
- B. The fluctuating nature of the projected future profits.
- C. The timing and size of the cash flow requirements for the new investment.
- D. The legislation and regulation governing distributable profits.
- E. The dividend policies of mature listed multinational companies in the exploration industry.
Answer: B,C,D
Explanation:
Discursive_F0
NEW QUESTION # 141
DFG is a successful company and its shares are listed on a recognised stock exchange. The company's gearing ratio is currently in line with the industry average and the directors of DFG do not want to increase the company's financial risk. The company does not carry a large cash balance and its shareholders are not expected to be willing to support a rights issue at this time LMB is a small services company owned and managed by a small board of directors who are going to retire within the next year DFG wishes to purchase LMB and has approached LMB's owners, who are broadly open to the proposal, to discuss the bid and the consideration to be offered by DFG. LMB's owners explain to DFG that they are also keen to defer any tax liabilities they would be subject to on receipt of the consideration.
Based on the information provided, which of the following types of consideration would be most suitable to finance the acquisition?
- A. DFG shares for a percentage of the current value of LMB plus a three year earn-out arrangement
- B. Cash for the current value of LMB
- C. Loan stock in DFG for the current value of LMB
- D. DFG shares for the current value of LMB
Answer: D
NEW QUESTION # 142
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. The senior management team decide to issue an unsecured bond rather than a secured bond
- B. Changing the term of the bond from 1 0 years to 5 years to match the expected life of the new equipment
- C. The announcement of a new contract for PYP that will increase operating profits by 5% over the next 5 years.
- D. The senior management team decide to issue a convertible bond rather than a conventional bond
Answer: B,D
NEW QUESTION # 143
The competition authorities are investigating the takeover of Company Z by a larger company, Company
Y.
Both companies are food retailers.
The takeover terms involve using a part cash, part share exchange means of payment.
Company Z is resisting the bid, arguing that it undervalues its business, while lobbying extensively among politicians to sway public opinion against the bidder.
Which of the following actions by Company Y is most likely to persuade the competition authorities to approve the acquisition?
- A. Company Y undertakes to pass on any cost savings to customers.
- B. Company Y agrees to dispose of specified outlets which geographically overlap those of Company Z.
- C. Company Y increases the cash element of its bid offer.
- D. Company Y guarantees to preserve employment at its cental distribution depot.
Answer: B
NEW QUESTION # 144
A company has a financial objective of maintaining a gearing ratio of between 30% and 40%, where gearing is defined as debt/equity at market values.
The company has been affected by a recent economic downturn leading to a shortage of liquidity and a fall in the share price during 20X1.
On 31 December 20X1 the company was funded by:
* Share capital of 4 million $1 shares trading at $4.0 per share.
* Debt of $7 million floating rate borrowings.
The directors plan to raise $2 million additional borrowings in order to improve liquidity.
They expect this to reassure investors about the company's liquidity position and result in a rise in the share price to $4.2 per share.
Is the planned increase in borrowings expected to help the company meet its gearing objective?
- A. No, gearing would increase but the gearing objective would be met both before and after the announcement.
- B. No, gearing would increase and the gearing objective would be met before the announcement but exceeded after the announcement.
- C. No, gearing would increase and the gearing objective would be exceeded both before and after the announcement.
- D. Yes, gearing would fall and the gearing objective would be exceeded before the announcement but met after the announcement.
Answer: C
NEW QUESTION # 145
......
CIMA F3 exam covers a range of topics such as financial strategy formulation, management of working capital, investment appraisal techniques, and risk management. F3 exam is divided into two sections – objective test and case study. The objective test consists of 60 multiple-choice questions that test the candidate's knowledge of the core financial management concepts. The case study section comprises a scenario-based question that requires the candidates to apply their knowledge and skills to solve a real-world financial problem. Passing the CIMA F3 exam is a significant milestone in the journey of becoming a CIMA qualified professional.
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