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

Free CIMA CIMAPRA19-F03-1 Real Questions (page: 9)

A company has:   
* A price/earnings (P/E) ratio of 10.   
* Earnings of $10 million.   
* A market equity value of $100 million. The directors forecast that the company's P/E ratio will fall to 8 and earnings fall to $9 million.
Which of the following calculations gives the best estimate of new company equity value in $ million following such a change? A)

B)

C)

D)

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): A



A listed company has recently announced a profit warning.
The company's share price fell 20% on the day of the announcement but had been fairly static in the weeks leading up to the announcement.
Which form of efficient market is most likely to be indicated by this share price movement?

  1. Weak form
  2. Semi-strong form
  3. Strong form
  4. Random walk

Answer(s): B



Listed company R is in the process of making a cash offer for the equity of unlisted company S. 
Company R has a market capitalisation of $200 million and a price/earnings ratio of 10.
Company S has a market capitalisation of $50 million and earnings of $7 million.
Company R intends to offer $60 million and expects to be able to realise synergistic benefits of $20 million by combining the two businesses.  This estimate excludes the estimated $8 million cost of integrating the two businesses.
Which of the following figures need to be used when calculating the value of the combined entity in $ millions?

  1. 8, 20, 50, 60, 200 
  2. 8, 20, 50, 200
  3. 20, 50, 60, 200
  4. 7, 10, 20, 50, 200

Answer(s): A

Explanation:

Calculation_F0 Calc_Set1



A company's current earnings before interest and taxation are $5 million. These are expected to remain constant for the forseeable future. The company has 10 million shares in issue which currently trade at $3.60. It also has a $10 million long term floating rate loan. The current interest rate on this loan is 5%. The company pays tax at 20%. The company expects interest rates to increase next year to 6% and it's Price/Earnings (P/E) ratio to move to 9.5 times by the end of next year.
What percentage reduction in the share price will occur by the end of next year if the interest rate increase and the P/E movement both occur?

  1. Reduction of 7%
  2. Reduction of 5%
  3. Reduction of 1%
  4. Reduction of 0%

Answer(s): A



A company needs to raise $20 million to finance a project. It has decided on a rights issue at a discount of 20% to its current market share price. There are currently 20 million shares in issue with a nominal value of $1 and a market price of $5 per share.



Calculate the terms of the rights issue.

  1. 1 new share for every 4 existing shares
  2. 1 new share for every 20 existing shares
  3. 1 new share for every 5 existing shares
  4. 1 new share for every 25 existing shares

Answer(s): A



A company is based in Country Y whose functional currency is Y$. It has an investment in Country Z whose functional currency is Z$. This year the company expects to generate Z$ 10 million profit after tax. Tax Regime:   
* Corporate income tax rate in country Y is 50%   
* Corporate income tax rate in country Z is 20%   
* Full double tax relief is available Assume an exchange rate of Y$ 1 = Z$ 5.
What is the expected profit after tax in Y$ if the Z$ profit is remitted to Country Y?

  1. Y$ 1.25 million
  2. Y$ 1.00 million
  3. Y$ 31.25 million
  4. Y$ 4.00 million

Answer(s): A



A company plans to raise $12 million to finance an expansion project using a rights issue. Relevant data:
* Shares will be offered at a 20% discount to the present market price of $15.00 per share.
* There are currently 2 million shares in issue.
* The project is forecast to yield a positive NPV of $6 million.
What is the yield-adjusted Theoretical Ex-Rights Price following the announcement of the rights issue?

  1. $16.00
  2. $14.00
  3. $9.00
  4. $11.00

Answer(s): A

Explanation:

Calc_Set3



A listed company is planning a share repurchase. 
The following data applies:   
* There are 10 million shares in issue
  
* The  share repurchase will involve buying back 20% of the shares at a price of $0.75   
* The company is holding $2 million cash   
* Earnings for the current year ended are $2 million
The Directors are concerned about the impact that this repurchase programme will have on the company's cash balance and current year earnings per share (EPS) ratio.
Advise the directors which of the following statements is correct?

  1. The cash balance will decrease by 75% and EPS will decrease by 25%.
  2. The cash balance will decrease by 75% and EPS will increase by 25%.
  3. The cash balance will decrease by 20% and the EPS will decrease by 25%.
  4. The cash balance will decrease by 20% and the EPS will increase by 25%.

Answer(s): B



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