CIMA F3 Financial Strategy CIMAPRA19-F03-1 Exam Questions in PDF

Free CIMA CIMAPRA19-F03-1 Dumps Questions (page: 8)

A company has a covenant on its 5% long-term bond, stipulating that its retained earnings must not fall below $2 million.

The company has 100 million shares in issue.

Its most recent dividend was $0.045 per share. It has committed to grow the dividend per share by 4% each year.

The nominal value of the bond is $60 million. It is currently trading at 80% of its nominal value.

Next year's earnings before interest and taxation are projected to be $11.25 million.

The rate of corporate tax is 20%.

If the company increases the dividend by 4%, advise the Board of Directors if the level of retained earnings will comply with the covenant?

  1. Covenant is not breached as retained earnings = $2.40 million.
  2. Covenant is not breached as retained earnings = $2.10 million.
  3. Covenant is breached as retained earnings = $1.92 million.
  4. The covenant is not breached as retained earnings = $4.68 million.

Answer(s): C



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 A has a cash surplus.

The discount rate used for a typical project is the company's weighted average cost of capital of 10%.

No investment projects will be available for at least 2 years.

Which of the following is currently most likely to increase shareholder wealth in respect of the surplus cash?

  1. Investing in a 2 year bond returning 5% each year.
  2. Investing in the local money market at 4% each year.
  3. Maintaining the cash in a current account.
  4. Paying the surplus cash as a dividend at the earliest opportunity.

Answer(s): D



Company P is a pharmaceutical company listed on an alternative investment market.

The company is developing a new drug which it hopes to market in approximately six years' time.

Company P is owned and managed by a group of doctors who wish to retain control of the company. The company operates from leased laboratories with minimal fixed assets.

Its value comes from the quality of its research staff and their research.

The company currently has one approved drug which generates sufficient cashflow to cover day to day operations but not sufficient for major new research and development.

Company P wish to raise debt finance to develop the new drug.

Recommend which of the following types of debt finance would be most appropriate for Company P to help finance the development of this new drug.

  1. 6% Eurobond repayable at par in 5 years' time.
  2. 5% Bond repayable at par in 7 years' time.
  3. 3% Commercial Paper.
  4. 4% Convertible bond with a conversion ratio of 350 ordinary shares per bond.

Answer(s): D



Company C has received an unwelcome takeover bid from Company P.

Company P is approximately twice the size of Company C based on market capitalisation.

Although the two companies have some common business interests, the main aim of the bid is diversification for Company P.

The offer from Company P is a share exchange of 2 shares in Company P for 3 shares in Company C.

There is a cash alternative of $5.50 for each Company C share.

Company C has substantial cash balances which the directors were planning to use to fund an acquisition.

These plans have not been announced to the market.

The following share price information is relevant. All prices are in $.


Which of the following would be the most appropriate action by Company C's directors following receipt of this hostile bid?

  1. Write to shareholders explaining fully why the company's share price is under valued.
  2. Change the Articles of Association to increase the percentage of shareholder votes required to approve a takeover.
  3. Pay a one-off special dividend.
  4. Refer the bid to the country's competition authorities.

Answer(s): A



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