CIMA F3 Financial Strategy CIMAPRA19-F03-1 Dumps in PDF

Free CIMA CIMAPRA19-F03-1 Real Questions (page: 3)

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?

  1. It is "off-balance sheet" and will not affect the company's gearing.
  2. The interest rate offered might be more favourable because the lessor has the security of the asset.
  3. Tax depreciation allowances may be passed on to the company by the lessor.
  4. The lessor provides maintenance of the asset.

Answer(s): B



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?

  1. Retained earnings
  2. Private placement of a bond
  3. Rights issue
  4. Bank overdraft

Answer(s): C



Company A is a listed company that produces pottery goods which it sells throughout Europe. The pottery is then delivered to a network of self employed artists who are contracted to paint the pottery in their own homes. Finished goods are distributed by network of sales agents.The directors of Company A are now considering acquiring one or more smaller companies by means of vertical integration to improve profit margins.
Advise the Board of Company A which of the following acquisitions is most likely to achieve the stated aim of vertical integration?

  1. A company in a similar market to Company
  2. A pottery factory in the Middle East.
  3. A company that produces accessories.
  4. A listed international logistics firm.

Answer(s): D



A company has just received a hostile bid.  Which of the following response strategies could be considered?

  1. Revalue non-current assets
  2. Poison pill strategy
  3. Change the Articles of Association to amend voting rights
  4. Approach a White Knight 

Answer(s): D



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:

  1. accepted as there is $100 million of synergy which will all go to T's shareholders.
  2. accepted as there will be an increase in the value of the business of $1,500 million.
  3. rejected as T's shareholders will see a decrease in their wealth overall of $50 million.
  4. rejected as T's shareholders will not be willing to pay more than $1,500 million for V.

Answer(s): C



An unlisted company is attempting to value its equity using the dividend valuation model. Relevant information is as follows:   
* A dividend of $500,000 has just been paid.   
* Dividend growth of 8% is expected for the foreseeable future.   
* Earnings growth of 6% is expected for the foreseeable future.   
* The cost of equity of a proxy listed company is 15%.   
* The risk premium required due to the company being unlisted is 3%. The calculation that has been performed is as follows: Equity value = $540,000 / (0.18 - 0.08) = $5,400,000
What is the fault with the calculation that has been performed?

  1. The cost of equity used in the calculation should have been 12% (15% subtract 3%).
  2. The dividend cashflow used should have been $500,000 rather than $540,000.
  3. The dividend growth rate is unsuitable given that earning growth is lower than dividend growth.
  4. The cost of equity used in the calculation should have been 15%; no adjustment was necessary.

Answer(s): C



Company X is based in Country A, whose currency is the A$. It trades with customers in Country B, whose currency is the B$. Company X aims to maintain its revenue from exports to Country B at 25% of total revenue.
Company A has the following forecast revenue:

The forecast revenue from Country B has assumed an exchange rate of A$1/B$2, that is A$1 = B$2.
If the B$ depreciates against the A$ by 10%, the ratio of revenue generated from Country B as a percentage of total revenue will:

  1. fall to 23.3%.
  2. rise to 27.0%.
  3. rise to 30.3%.
  4. fall to 22.7%.

Answer(s): A



Company AB was established 6 years ago by two individuals who each own 50% of the shares. Each individual heads a separate division within the company, which now has annual turnover of GBP10 million and employs 40 people. Some of the employees are very highly paid as they are important contributors to the company's profitability. The owners of the company wish to realise the full value of their investment within the next 12 months.
Which TWO of the following options are most likely to be acceptable exit strategies to the two owners of the company?

  1. Initial Public Offering (IPO)
  2. Management Buyout
  3. Sale to a larger competitor
  4. Sale to a Private Equity Investor on an earn-out basis
  5. Spin off (or de-merger)

Answer(s): B,C



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