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

Free CIMA CIMAPRA19-F03-1 Real Questions (page: 7)

A venture capitalist has made an equity investment in a private company and is evaluating possible methods by which it can exit the investment over the next 3 years. The private company shareholders comprise the four original founders and the venture capitalist.   Advise the venture capitalist which THREE of the following methods will enable it to exit its equity investment?

  1. The private company buys back the equity shares.
  2. The private company undertakes a 1 for 4 rights issue.
  3. The private company obtains a stock market listing.
  4. The private company conducts a stock split of its share capital.
  5. Trade sale of shares to an external 3rd party.

Answer(s): A,C,E



Company F's current profit before interest and taxation is $5.0 million. It has a 10% long-term corporate bond in issue with a nominal value of $10 million. Corporate tax is paid at 25%. The industry average P/E multiple is 10. Company X has made an approach to acquire the entire share capital of Company F for $30 million. Company X has announced that anticipated synergies (after interest and taxation) arising from its acquisition of Company F will be $1 million each year in perpetuity. 
Advise the Board of Directors of Company F if the bid should be accepted, based on the above information?

  1. Accept the bid because Company F is potentially worth $30 million to Company X.
  2. Reject the bid because Company F is potentially worth $40 million to Company X.
  3. Reject the bid because Company F is potentially worth $50 million to Company X.
  4. Reject the bid because Company F is potentially worth $60 million to Company X.

Answer(s): B



Company U has made a bid for the entire share capital of Company B. Company U is offering the shareholders in Company B the option of either a share exchange or a cash alternative.
Advise the shareholders in Company B which THREE of the following would be considered disadvantages of accepting the cash consideration?

  1. Cash consideration is certain whereas Company U's future share price performance is uncertain.
  2. Interest rates on deposit accounts are currently at a historic low and are expected to remain low.
  3. Company U is not expected to change its dividend policy post-acquisition.
  4. Taxation is payable on realised capital gains.
  5. There will be no opportunity to participate in the future economic success of Company U.

Answer(s): B,D,E



The Board of Directors of a listed company have decided that it needs to increase its equity capital to ensure it is in a more stable financial position. The shareholder profile is a mix of institutional and individual small shareholders. The board is considering either:   
* A scrip dividend    
* A zero dividend
Which THREE of the following would be considered disadvantages of a scrip dividend compared to a zero dividend?

  1. A scrip dividend results in distributable reserves being moved to non-distributable reserves.
  2. A scrip dividend will dilute the control of current shareholders.
  3. A scrip dividend results in more shares in issue which will create an expectation for future dividends.
  4. There will be company secretarial and additional administration involved with a scrip dividend.
  5. A scrip issue may give shareholders the impression that they are receiving something of value.

Answer(s): A,C,D



A company has accumulated a significant amount of excess cash which is not required for investment for the foreseeable future. It is currently on deposit, earning negligible returns.
The Board of Directors is considering returning this excess cash to shareholders using a share repurchase programme. The majority of shareholders are individuals with small shareholdings.
Which THREE of the following are advantages of the company undertaking a share repurchase programme? 

  1. Individual shareholders can realise their investment if they wish.
  2. The earnings per share should increase for the shareholders who do not sell their shares.
  3. It reduces excess cash which might have been attractive to predators.
  4. It reduces the amount of cash for potential future investment opportunities. 
  5. Institutional investors generally prefer a constant predictable income in the form of dividends.

Answer(s): A,B,C



An unlisted company which is owned and managed by its original founders has accumulated excess cash following many years of profitable trading. The Board of Directors is comprised of the four original founders who each hold 25% of the equity share capital.
Which THREE of the following will be significant considerations when deciding on the company's dividend policy? 

  1. The adequacy of the pension funds of the original founders. 
  2. The impact of the dividend policy on the company's share price.
  3. The cash requirements of the shareholders in the foreseeable future.
  4. The dividend policy of listed companies in the same industry.
  5. Income tax rates and the personal tax liabilities of the shareholders.

Answer(s): A,C,E



Modigliani and Miller are the main proponents of the view that the dividend policy is irrelevant to the value of a company's shares. They argue that a company that continually reinvests its entire earnings would generate the same shareholder wealth if it engaged in a policy of high dividends and financed its expansion with funds obtained from rights issues.
Which THREE of the following statements are assumptions that are required in order to support this proposition?  

  1. There are no transaction costs involved in the issue of new shares (including rights issues).
  2. There is a multiplicity of corporate and personal income tax rates.
  3. Investors act in a rational manner.
  4. The capital markets are efficient markets.
  5. Investors do not always have access to perfect information.

Answer(s): A,C,D

Explanation:

Discursive_F0



A company based in Country D, whose currency is the D$, has an objective of maintaining an operating profit margin of at least 10% each year. 
Relevant data:   
* The company makes sales to Country E whose currency is the E$. It also makes sales to Country F whose currency is the F$.    
* All purchases are from Country G whose currency is the G$.   
* The settlement of all transactions is in the currency of the customer or supplier.
Which of the following changes would be most likely to help the company achieve its objective?

  1. The D$ strengthens against the E$ over time. 
  2. The F$ weakens against the D$ over time.
  3. The D$ strengthens against the G$ over time.
  4. The D$ weakens against the G$ over time.

Answer(s): C



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