CIMA cimapra19-f03-1 online test

F3 Financial Strategy Exam

What students need to know about the cimapra19-f03-1 exam

  • Total 222 Questions & Answers

Question 1

A listed companyisplanning to raise $21.6 million to finance a new project with a positive
netpresentvalue of $5 million. The finance is to be raised viaarights issue at a 10% discount to the
current share price. There arecurrently 100million shares in issue, trading at $2.00 each.
Taking the new project into account, what would thetheoreticalex-rights price be?
Give your answer totwo decimal places.


2.02, 2.03


Question 2

Company A is planning to acquire Company B .
Company A's managers think they can improve the performance of Company B to the extent that its
own P/E ratio should be applied to Company B's earnings.
Relevant Data:
What is the expected synergy if the acquisition goes ahead?

Give your answer to the nearest $ million.
$? million


8, 8000000


Question 3

Which THREE of the following remain unchanged over the life of a 10 year fixed rate bond?

  • A. The coupon rate
  • B. The yield
  • C. The market value
  • D. The nominal value
  • E. The amount payable on maturity

A, D, E


Question 4

On 31 October 20X3:
Acompanyexpectedtoagreea foreign currencytransactioninJanuary20X4 for settlement on 31
March 20X4.

settlementon31March 20X4.
The transaction was correctly treated as a cash flow hedge in accordance with IAS 39 Financial
Instruments: Recognition and Measurement.
On 31 December 20X3, thefinancialyear end, thefair value of the forward contractwas$10,000
How shouldthe increase in the fair valueof the forward contractbe treated within the financial
statements for the year ended 31 December 20X3?

  • A. Not recognised in 20X3 as the forward contract is not settled until after the year end.
  • B. Not recognised in 20X3 as the gain will be offset by a loss on the hedged transaction.
  • C. A $10,000 profit will be recognised within the Income Statement.
  • D. A $10,000 profit will be recognised within other comprehensive income.



Question 5

A companyis funded by:
$40 million of debt (market value)
$60 million of equity (market value)
The company plans to:
Issuea bond and usethe funds raisedto buy back shares at their current market value.
Structure the deal so that the market value of debt becomes equal to the market value of equity.
According to Modigliani and Miller's theory with tax and assuming a corporate income tax rate of
20%, this plan would:

  • A. increase the company's asset beta.
  • B. decrease the company's equity beta.
  • C. increase shareholder wealth.
  • D. increase the market value of the company's equity.



Question 6

A company has 6 million shares in issue. Each share has a market value of $4.00.
$9 million is to be raised using a rights issue.
Two directors disagree on the discount to be offered when the new shares are issued.
Director A proposes adiscount of 25%
Director B proposes adiscount of 30%
Which THREE of the following statements are most likely to be correct?

  • A. The theoretical ex-rights price will be higher under Director B's proposal than under Director A's proposal.
  • B. More shares will be issued under Director B's proposal than under Director A's proposal.
  • C. The rights issue price will be $3.00 under Director A's proposal.
  • D. The terms of the rights issue will be one new share for every two existing shares under Director A's proposal.
  • E. Shareholder wealth will be higher under Director A's proposal than under Director B's proposal.

B, C, D


Question 7

Awholly equity financedcompany has the following objectives:
1. Increase inprofit before interest and tax by at least 10% per year.
2. Maintain a dividend payoutratio of40% of earningsper year.
Relevant data:
There are 2 million shares in issue.
Profit before interest and tax in the last financial year was$5million.
The corporateincometax rateis30%.
At the beginning of the current financial year, the company raised long term debt of $2 million at
10% interesteachyear.
Calculate the dividend per share that will be announced this year assuming the company achieves its
objective of increasing profit before interest and tax by 10%.

  • A. $0.74
  • B. $0.67
  • C. $1.11
  • D. $1.01



Question 8

When valuing an unlisted company, a P/E ratio for a similar listed company may be used but
adjustments to the P/E ratio may be necessary.
Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use? 

  • A. The relative lack of marketability of unlisted company shares.
  • B. A lower level of scrutiny and regulation for unlisted companies.
  • C. Unlisted companies being generally smaller and less established.
  • D. Control premium not being included within the proxy p/e ratio used.
  • E. The forecast earnings growth being relatively higher in the unlisted company.
  • F. A profit item within the unlisted company's latest earnings which will not reoccur.

A, B, C


Question 9

Company A, a listed company,plans to acquire Company T, which is also listed.
Additional information is:
Company Ahas100 million shares in issue, with market price currentlyat $8.00per share.
Company T has 90 million shares in issue,.with market price currentlyat $5.00 each share.
Synergies valued at $60 millionare expected to arise from the acquisition.
The terms ofthe offerwill be2shares in Afor 3 shares in B.
Assuming the offer is accepted and the synergies arerealised, what should thepost-acquisitionprice
of each of Company A's shares be?
Give your answer totwodecimal places.
$? .


8.19, 8.18


Question 10

A company is financed as follows:
400 million $1 shares quoted at $3.00 each.
$800million 5% bonds quoted at par.
The companyplansto raise$200 millionlong term debtto finance a project with anet present value
of $100million.
The bankthat is providing the debtis insisting on a maximum gearing level covenant.
Gearing will bebased on market values andcalculated as debt/(debt + equity).
What is the lowest figure for the gearing covenant that the bank could impose without the company
breaching the agreement?

  • A. 43%
  • B. 44%
  • C. 45%
  • D. 46%


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