CIMA F3 Financial Strategy F3 Financial Strategy Exam Questions in PDF

A company has:

· 10 million $1 ordinary shares in issue

· A current share price of $5.00 a share

· A WACC of 15%

The company holds $10 million in cash. No interest is earned on this cash.

It will invest this in a project with an expected NPV of $4 million.

In a semi-strong efficient stock market, which of the following is the most likely share price immediately after the announcement of the new investment?

A company has in a 5% corporate bond in issue on which there are two loan covenants.

· Interest cover must not fall below 3 times

· Retained earnings for the year must not fall below $3.5 million

The Company has 200 million shares in issue.

The most recent dividend per share was $0.04.

The Company intends increasing dividends by 10% next year.

Financial projections for next year are as follows:

Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?

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 new company was set up two years ago using the personal financial resources of the founders.

These funds were used to acquire suitable premises.

The company has entered into a long-term lease on the premises which are not yet fully fitted out.

The founders are considering requesting loan finance from the company's bank to fund the purchase of custom-made advanced technology equipment.

No other companies are using this type of equipment.

The company expects to continue to be profitable for the forseeable future.

It re-invests some of its surplus cash in on-going essential research and development.

Which THREE of the following features are likely to be considered negatives by the bank when assessing the company's credit-worthiness?

Company Y plans to diversify into an activity where Company X has an equity beta of 1.6, a debt beta of zero and gearing of 50% (debt/debt plus equity).

The risk-free rate of return is 5% and the market portfolio is expected to return 10%.

The rate of corporate income tax is 30%.

What would be the risk-adjusted cost of equity if Company Y has 60% equity and 40% debt?