New 2026 Guaranteed Success with TorrentValid CIMAPRA19-F03-1 Dumps CIMA PDF Questions
Exceptional Practice To F3 Financial Strategy Pass the First Time
CIMA F3 exam is an objective test that consists of 60 multiple-choice questions. CIMAPRA19-F03-1 exam is divided into two sections: Section A and Section B. Section A consists of 30 questions that cover financial strategy, risk management, and financial analysis. Section B consists of 30 questions that cover financial decision making, investment appraisal, and cost management.
NEW QUESTION # 218
Company XXY operates in country X with the X$ as its currency. It is looking to acquire company ZZY which operates in country Z with the Z$ as its currency.
The assistant accountant at Company XXY has started to prepare an initial valuation of Company ZZY's equity for the first 3 years, however their valuation is incomplete. TBC' in the table below indicates that her calculations have yet to be completed.
The following information is relevant:
What is the correct figure (to the nearest million S) to include in year 3 as the present value in X$ million?
- A. X$360 million
- B. X$401 million
- C. X$453 million
- D. X$504 million
Answer: A
NEW QUESTION # 219
A listed company is planning to raise $21.6 million to finance a new project with a positive net present value of $5 million. The finance is to be raised via a rights issue at a 10% discount to the current share price. There are currently 100 million shares in issue, trading at $2.00 each.
Taking the new project into account, what would the theoretical ex-rights price be?
Give your answer to two decimal places.
Answer:
Explanation:
$ ?
2.02, 2.03
NEW QUESTION # 220
A listed company follows a policy of paying a constant dividend. The following information is available:
* Issued share capital (nominal value $0.50) $60 million
* Current market capitalisation $480 million
The shareholders are requesting an increased dividend this year as earnings have been growing. However, the directors wish to retain as much cash as possible to fund new investments. They therefore plan to announce a
1-for-10 scrip dividend to replace the usual cash dividend.
Assuming no other influence on share price, what is the expected share price following the scrip dividend?
Give your answer to 2 decimal places.
$ ?
Answer:
Explanation:
3.64, 3.63, 3.65
NEW QUESTION # 221
A company is considering the issue of a convertible bond compared to a straight bond issue (non- convertible bond).
Director A is concerned that issuing a convertible bond will upset the shareholders for the following reasons:
* it will dilute their control
* the interest payments will be higher therefore reducing liquidity
* it will increase the gearing ratio therefore increasing financial risk Director B disagrees, and is preparing a board paper to promote the issue of the convertible bond rather than a non-convertible.
Advise the Director B which THREE of the following statements should be included in his board paper to promote the issue of the convertible bond?
- A. When converted into shares, the company will receive a cash inflow which can be used for future investments.
- B. Over the life of the bond, a convertible will be more expensive than a non-convertible.
- C. Issuing a convertible bond will have a more favourable impact on the gearing ratio than a non- convertible bond.
- D. The coupon rate on the convertible bond will be lower than that on a non-convertible bond.
- E. The convertible bond may not dilute control as the bond holder has an option to choose conversion.
Answer: C,D,E
NEW QUESTION # 222
The Treasurer of Z intends to use interest rate options to set an interest rate cap on Z's borrowings.
Which of the following statement is correct?
- A. The Treasurer will have to negotiate the options with Z's Dark
- B. The Treasurer should buy an interested rate floor and sell an interested cap ta the same time
- C. The cost of a collar is lower than the cost of a cap a one.
- D. The Treasurer will retain the benefit of movements in interest rates below the floor limit.
Answer: C
NEW QUESTION # 223
Company B is an all equity financed company with a cost of equity of 10%.
It is considering issuing bonds in order to achieve a gearing level of 20% debt and 80% equity.
These bonds will pay a coupon rate of 5% and have an interest yield of 6%.
Company B pays corporate tax at the rate of 25%.
According to Modigliani and Miller's theory of capital structure with tax, what will be Company B's new cost of equity?
A)
B)
C)
D)
- A. Option A
- B. Option B
- C. Option C
- D. Option D
Answer: B
NEW QUESTION # 224
Company C is a listed company. It is currently considering the acquisition of Company D. The original founder of Company C currently owns 52% of the shares.
Alternative forms of consideration for Company D being considered are as follows:
* Cash payment, financed by new borrowing
* issue of new shares in Company C
Which of the following is an advantage of a cash offer over a share-for exchange from the viewpoint of the original founder of Company C?
- A. A share-for-share exchange would require the approval shareholders in Company C but a cash offer would not.
- B. A share for share exchange would result in a significant change in control of Company C whereas a cash offer would not.
- C. A share-for-share exchange would require the approval of the Competition Authorities but a cash offer would not.
- D. A cash offer would result in a lower gearing ratio therefore reduce the weighted overage cost of capital whereas a cash offer would not.
Answer: B
NEW QUESTION # 225
Company B is an all equity financed company with a cost of equity of 10%.
It is considering issuing bonds in order to achieve a gearing level of 20% debt and 80% equity.
These bonds will pay a coupon rate of 5% and have an interest yield of 6%.
Company B pays corporate tax at the rate of 25%.
According to Modigliani and Miller's theory of capital structure with tax, what will be Company B's new cost of equity?
A)
B)
C)
D)
- A. Option A
- B. Option B
- C. Option C
- D. Option D
Answer: B
NEW QUESTION # 226
Company A is a large well-established listed entertainment company and Company B is a small unlisted company specializing in providing online media streaming.
Company A has a gearing ratio of 60% (using book values) and interest cover of 2.
Company A is considering making an offer for Company B, either a cash offer financial by raising additional debt finance or a share-for-share exchange.
Which of the following is most likely to occur if Company A offers a share-for exchange rather than offering cash finance by raising debt?
- A. There would be no dilution f of control.
- B. Earnings per share would be higher.
- C. Divided per share would be higher.
- D. Gearing would be lower.
Answer: D
NEW QUESTION # 227
RST wishes to raise at least $40 million of new equity by issuing up to 10 million new equity shares at a minimum price of $3.00 under an offer for sale by tender. It receives the following tender offers:
What is the maximum amount that RST can raise by this share issue?
(Give your answer to the nearest $ million).
Answer:
Explanation:
49
NEW QUESTION # 228
Company M's current profit before interest and taxation is $5.0 million.
It has a long-term 10% corporate bond in issue with a nominal value of $10 million.
The rate of corporate tax is 25%.
It plans to continue to pay out 50% of its earnings in dividends and earnings are expected to grow by 3% each year in perpetuity.
Its cost of equity is 10%.
Using the dividend growth model, advise the Board of Directors of Company M which of the following provide a reasonable valuation of Company M's equity?
- A. $44.1 million
- B. $50.1 million
- C. $22.1 million
- D. $73.6 million
Answer: C
NEW QUESTION # 229
Company ABE is an unlisted company that has been trading for 10 years. During this period, it has seen substantial growth in revenue and earnings. For the company to continue its growth it needs to raise new finance The directors are considering an initial public offering (IPO).
The following information is relevant to Company ABE:
A listed company of similar size and in the same industry as Company ABE had earnings per share in the last financial year of $1 80 Its shares are currently trading at a price / earnings ratio of 12.
The directors of Company ABE have asked for advice on what price they might expect if the company is listed on the stock exchange by means of an IPO.
Using the information provided what is an estimated issue price for each share in Company ABE?
Give your answer to 2 decimal places.
Answer:
Explanation:
Pending
NEW QUESTION # 230
Company B is an all equity financed company with a cost of equity of 10%.
It is considering issuing bonds in order to achieve a gearing level of 20% debt and 80% equity.
These bonds will pay a coupon rate of 5% and have an interest yield of 6%.
Company B pays corporate tax at the rate of 25%.
According to Modigliani and Miller's theory of capital structure with tax, what will be Company B's new cost of equity?
- A.
- B.
- C.
- D.
Answer: D
NEW QUESTION # 231
Which THREE of the following statements are correct?
- A. A beta of 1 indicates that the investment is risk free.
- B. The security market line (SML) shows the relationship between systematic risk and return.
- C. The beta of a company's shares reflects systematic risk.
- D. Systematic risk can be eliminated in a diversified portfolio.
- E. A portfolio can be diversified by increasing the number of securities in different industries held in the portfolio.
Answer: B,C,E
Explanation:
A). True - holding more securities across different industries reduces unsystematic risk.
B). False - systematic risk (market risk) cannot be diversified away.
C). True - beta measures an investment's systematic risk relative to the market.
D). False - beta of 1 means same risk as the market, not risk-free.
E). True - the Security Market Line (SML) plots expected return against beta (systematic risk).
So the correct three are A, C and E.
NEW QUESTION # 232
Which TWO of the following situations offer arbitrage opportunities?
- A.
- B.
- C.
- D.
Answer: B
NEW QUESTION # 233
Extracts from a company's profit forecast for the next financial year as follows:
Since preparing the forecast, the company has decided to return surplus cash to shareholders by a share repurchase arrangement.
The share repurchase would result in the company purchasing 20% of the 1,250 million ordinary shares currently in issue and canceling them.
Assuming the share repurchase went ahead, the impact on the company's forecast earnings per share will be an increase of:
- A. $0.100
- B. $0.175
- C. $0.125
- D. $0.200
Answer: A
Explanation:
Earnings attributable to ordinary shareholders = profit after preference dividend = $500m.
Current number of shares = 1,250m.
Current EPS = 500 / 1,250 = $0.40 per share.
Share repurchase: 20% of 1,250m = 250m shares bought back and cancelled.
New number of shares = 1,250m # 250m = 1,000m shares.
Assuming profit is unchanged:
New EPS = 500 / 1,000 = $0.50 per share.
Increase in EPS = 0.50 # 0.40 = $0.10 # $0.100.
NEW QUESTION # 234
Formed in 2010, the International Integrated Reporting Council <IIRC) brings together a cross-section of representatives from a wide variety of business sectors The primary purpose of the IIRC's framework is to help enable an organisation to communicate which of the following'?
- A. How it minimises the environmental impact of its business processes.
- B. How it ensures that the conflicting net sets of different stakeholder groups are met in an optimal manner.
- C. How it creates value in the short medium and long term.
- D. How it contributes positively to the economic wellbeing of the environment in which it operates.
Answer: C
NEW QUESTION # 235
An unlisted company wishes to obtain an estimated value for its shares in anticipation of a private sale of a large parcel of shares.
Relevant data for the unlisted company:
* It has a residual dividend policy.
* It has earnings that are highly sensitive to underlying economic conditions.
* It is a small business in a large industry where there are listed companies but there are none with a similar capital structure.
The company intends to base valuations on the cost of equity of a proxy company after adjusting for any differences in capital structure where appropriate.
Which of the following methods is likely to give the most accurate equity value for this unlisted company?
- A. P/E based valuation using the P/E of a similar listed company in the same industry.
- B. Dividend valuation model.
- C. Net asset valuation.
- D. Discounted cash flow analysis at WACC based on free cash flow to equity.
Answer: B
Explanation:
Residual dividend policy # dividends are not a good reflection of underlying performance # rules out A.
Highly cyclical earnings and capital structure not matched by listed peers make simple P/E comparison (D) unreliable.
Net asset value (C) rarely captures earnings potential for a going concern.
A discounted cash flow approach using free cash flows and a cost of equity derived from a proxy company (adjusted for gearing) is most appropriate.
NEW QUESTION # 236
RST wishes to raise at least $40 million of new equity by issuing up to 10 million new equity shares at a minimum price of $3.00 under an offer for sale by tender. It receives the following tender offers:
What is the maximum amount that RST can raise by this share issue?
(Give your answer to the nearest $ million).
Answer:
Explanation:
45MILION
At # $5.50 # 1m sharesAt # $5.00 # 1m + 3m = 4m sharesAt # $4.50 # 1m + 3m + 7m = 11m sharesAt # $4.00 # 1m + 3m + 7m + 9m = 20m sharesNow test each possible issue price:$5.50 # can sell 1m # proceeds = $5.5m (too low)$5.00 # can sell 4m # proceeds = $20m (too low)$4.50 # demand 11m but max issue is 10m # sell 10m # proceeds = 10m × 4.5 = $45m$4.00 # can sell 10m # proceeds = 10m × 4 =
$40mBoth $4.50 and $4.00 meet the "at least $40m" condition, but the maximum amount RST can raise is
$45 million at $4.50 per share.
NEW QUESTION # 237
BBA is a wholly owned subsidiary of AAB BBA operates in country B where the currency is the B$.
The following is an extract from BBA's financial statements at 31 December 20X1:
The following Information is relevant:
" The bonds were trading at $110 per $100 on 31 December 20X1. "Operating profit of BBA for the year ended 31 December 20X1 was S15 million
* The P/E ratio is 8
* Corporate income tax rate is 20%.
The tax authorities m country B Implemented thin capitalisation rules based on the level of gearing of the subsidiary, calculated as book value o( debt lo book value of equity The cut-off point for gearing used by the tax authorities for a company to be thinly capitalised is 75%.
Which of the following statements is correct as at 31 December 20X1?
- A. Gearing is 83.33%. thin capitalisation rules are breached
- B. Gearing is 83.33%. thin capitalisation rules are not breached
- C. Gearing is 250%. thin capitalisation rules are breached
- D. Gearing Is 71.43%. thin capitalisation rules are not breached
Answer: A
NEW QUESTION # 238
A listed company is financed by debt and equity.
If it increases the proportion of debt in its capital structure it would be in danger of breaching a debt covenant imposed by one of its lenders.
The following data is relevant:
The company now requires $800 million additional funding for a major expansion programme.
Which of the following is the most appropriate as a source of finance for this expansion programme?
- A. Rights issue
- B. Bank overdraft
- C. Retained earnings
- D. Private placement of a bond
Answer: A
NEW QUESTION # 239
A company's annual dividend has grown steadily at an annual rate of 3% for many years. It has a cost of equity of 11%. The share price is presently $64.38.
The company is about to announce its latest dividend, which is expected to be $5.00 per share.
The Board of Directors is considering an attractive investment opportunity that would have to be funded by reducing the dividend to $4.50 per share. The board expects the project to enable future dividends to grow by
5% every year and the cost of equity to remain unchanged.
Calculate the change in share price, assuming that the directors announce their intention to proceed with this investment opportunity.
Give your answer to 2 decimal places.
Answer:
Explanation:
$ ?
14.37
NEW QUESTION # 240
A listed company with a growing share price plans to finance a four-year research project with debt.
The main criterion for the finance is to minimise the annual cashflow payments on the debt.
The research will be sold at the end of the project.
Which of the following would be the most suitable financing method for the company?
- A. Standard bonds
- B. Bonds with warrants
- C. Bank loan
- D. Finance lease
Answer: B
Explanation:
The project lasts four years and will be sold at the end; the firm wants to minimise annual cashflow payments on the debt.
Bank loans and finance leases usually require amortising payments (interest + principal) # higher annual cashflows.
Standard bonds pay full coupon at market rate # higher annual interest than bonds with attached warrants.
Bonds with warrants allow investors extra value via the warrant, so the coupon can be set lower, cutting annual interest payments; principal is typically repaid at maturity, matching the project sale.
NEW QUESTION # 241
The Board of Directors of Company T is considering a rights issue to fund a new investment opportunity which has a zero NPV.
The Board of Directors wishes to explain to shareholders what the theoretical impact on their wealth will be as a result of different possible actions during the rights issue.
Which THREE of the following statements in respect of theoretical shareholder wealth are true?
- A. If shareholders exercise their full rights there will be no impact on their wealth.
- B. If the shareholders allow their rights to lapse (do nothing) there will be no impact on their wealth.
- C. If shareholders partially exercise their rights and sell the remaining rights entitlement there will be no impact on their wealth.
- D. If the shareholders only partially exercise their rights and allow the remainder to lapse there will be no impact on their wealth.
- E. If shareholders sell their entire rights entitlement there will be no impact on their wealth.
Answer: A,C,E
NEW QUESTION # 242
A company's latest accounts show profit after tax of $20.0 million, after deducting interest of $5.0 million. The company expects earnings to grow at 5% per annum indefinitely.
The company has estimated its cost of equity at 12%, which is included in the company WACC of 10%.
Assuming that profit after tax is equivalent to cash flows, what is the value of the equity capital?
Give your answer to the nearest $ million.
$ ? million
Answer:
Explanation:
300, 300000000
NEW QUESTION # 243
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