Updated Jul-2023 Exam F3 Dumps - Pass Your Certification Exam
Latest Real CIMA F3 Exam Dumps Questions
To be eligible to take the F3 Financial Strategy exam, candidates must have completed the CIMA Certificate in Business Accounting or an equivalent qualification. They must also have completed the CIMA Professional Qualification Operational Level and Management Level exams. F3 exam itself is a computer-based test that consists of 90 multiple-choice questions and lasts for three hours.
NEW QUESTION # 111
Which THREE of the following statements are correct?
- A. A portfolio can be diversified by increasing the number of securities in different industries held in the portfolio.
- B. The security market line (SML) shows the relationship between systematic risk and return.
- C. A beta of 1 indicates that the investment is risk free.
- D. The beta of a company's shares reflects systematic risk.
- E. Systematic risk can be eliminated in a diversified portfolio.
Answer: A,B,D
NEW QUESTION # 112
A company plans to cut its dividend but is concerned that the share price will fall.
This demonstrates the _____________ effect
Answer:
Explanation:
clientele
NEW QUESTION # 113
DFG is a successful company and its shares are listed on a recognised stock exchange. The company's gearing ratio is currently in line with the industry average and the directors of DFG do not want to increase the company's financial risk. The company does not carry a large cash balance and its shareholders are not expected to be willing to support a rights issue at this time LMB is a small services company owned and managed by a small board of directors who are going to retire within the next year DFG wishes to purchase LMB and has approached LMB's owners, who are broadly open to the proposal, to discuss the bid and the consideration to be offered by DFG. LMB's owners explain to DFG that they are also keen to defer any tax liabilities they would be subject to on receipt of the consideration.
Based on the information provided, which of the following types of consideration would be most suitable to finance the acquisition?
- A. DFG shares for the current value of LMB
- B. DFG shares for a percentage of the current value of LMB plus a three year earn-out arrangement
- C. Loan stock in DFG for the current value of LMB
- D. Cash for the current value of LMB
Answer: A
NEW QUESTION # 114
A UK company enters into a 5 year borrowing with bank P at a floating rate of GBP Libor plus 3%
It simultaneously enters into an interest rate swap with bank Q at 4.5% fixed against GBP Libor plus 1.5%
What is the hedged borrowing rate, taking the borrowing and swap into account?
Give your answer to 1 decimal place.
- A. 6.5%
- B. 7.5%
Answer: B
NEW QUESTION # 115
Which THREE of the following would be of most interest to lenders deciding whether to provide long-term debt to a company?
- A. interest cover on existing debt
- B. Quality of current management
- C. Dividend cover
- D. Earnings per share
- E. Current gearing ratio
Answer: A,B,E
NEW QUESTION # 116
A venture capitalist invests in a company by means of buying:
* 9 million shares for $2 a share and
* 8% bonds with a nominal value of $2 million, repayable at par in 3 years' time.
The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment.
The company has 10 million shares in issue.
What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?
Give your answer to the nearest $ million.
$ million.
Answer:
Explanation:
34, 35,
34000000, 35000000
NEW QUESTION # 117
A company wishes to raise new finance using a rights issue to invest in a new project offering an IRR of 10% The following data applies:
* There are currently 1 million shares in issue at a current market value of $4 each.
* The terms of the rights issue will be $3.50 for 1 new share for 5 existing shares.
* The company's WACC is currently 8%.
What is the yield-adjusted theoretical ex-rights price (TERP)?
Give your answer to 2 decimal places.
$ ?
Answer:
Explanation:
4.06, 4.060
NEW QUESTION # 118
The competition authorities are investigating the takeover of Company Z by a larger company, Company
Y.
Both companies are food retailers.
The takeover terms involve using a part cash, part share exchange means of payment.
Company Z is resisting the bid, arguing that it undervalues its business, while lobbying extensively among politicians to sway public opinion against the bidder.
Which of the following actions by Company Y is most likely to persuade the competition authorities to approve the acquisition?
- A. Company Y increases the cash element of its bid offer.
- B. Company Y agrees to dispose of specified outlets which geographically overlap those of Company Z.
- C. Company Y undertakes to pass on any cost savings to customers.
- D. Company Y guarantees to preserve employment at its cental distribution depot.
Answer: B
NEW QUESTION # 119
A product costs USD10 when purchased in the USA. The same product costs USD12 when it is purchased in the UK and the price in GBP is convened to USD.
Which of the following statement concerning purchasing power parity is correct?
- A. Economic forces will bring the prices in the USA and UK into line.
- B. This type of price deferential is a reliable baas for predicting currency movements
- C. The exchange rate between the USD and GBP will change so that tie price differential on this product (and at other products) is eliminated.
- D. Economic forces should eliminate the price difference. but there could be market imperfections that permit it to persist.
Answer: D
NEW QUESTION # 120
An analyst has valued a company using the free cash flow valuation model.
The analyst used the following data in determining the value:
* Estimated free cashflow in 1 year's time = $100,000
* Estimated growth in free cashflow after the first year = 5% each year indefinitely
* Appropriate cost of equity = 10%
The result produced by the analyst was as follows:
Value of equity = $100,000 (1+0.05)/0.10 = $1,050,000
The analyst made a number of errors in determining the value.
By how much has the analyst undervalued the company?
- A. $1,050,000
- B. $2,000,000
- C. $2,100,000
- D. $950,000
Answer: D
NEW QUESTION # 121
Which of the following is NOT an advantage of a share repurchase?
- A. To return surplus cash to shareholders by avoiding a one-off dividend
- B. To enable the company to retain cash in the business for reinvestment
- C. To reduce the cost of capital of a company by increasing the gearing level.
- D. To allow investors to sell shares if no active market currently exists
Answer: B
NEW QUESTION # 122
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?
- A. The cash balance will decrease by 20% and the EPS will increase by 25%.
- B. The cash balance will decrease by 20% and the EPS will decrease by 25%.
- C. The cash balance will decrease by 75% and EPS will increase by 25%.
- D. The cash balance will decrease by 75% and EPS will decrease by 25%.
Answer: C
NEW QUESTION # 123
A company has an opportunity to invest in a positive net present value project, but the project would require debt finance that would push the company's gearing ever a limit imposed by a debt covenant on an existing loan.
Which THREE of the following actions could be taken by the company?
- A. The project could be foregone if it cannot be funded without breaching the covenant
- B. The company could approach its existing Lenders to negotiate a relaxation of :he conditions imposed by the covenant.
- C. The directors could meet with key shareholder to discuss whether they wish the project proceed despite the breach of the covenant
- D. The directors could proceed will the project because their primary duly is maximise shared older wealth, even if that conflicts with lenders' interest.
- E. The project could proceed if the cash inflows from the project will enable some of the debt to be repaid before the end of the financial year and so the breach of covenant may never be detected
- F. The company could seek alternative sources of finding, such as a reduction in the annual dividend payment, to finance the project.
Answer: A,B,F
NEW QUESTION # 124
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 # 125
An all equity financed company reported earnings for the year ending 31 December 20X1 of $8 million.
One of its financial objectives is to increase earnings by 5% each year.
In the year ending 31 December 20X2 it financed a project by issuing a bond with a $1 million nominal value and a coupon rate of 4%.
The company pays corporate income tax at 20%.
If the company is to achieve its earnings target for the year ending 31 December 20X2, what is the minimum operating profit (profit before interest and tax) that it must achieve?
- A. $8.40 million
- B. $10.54 million
- C. $6.69 million
- D. $10.50 million
Answer: B
NEW QUESTION # 126
Providers of debt finance often insist on covenants being entered into when providing debt finance for companies.
Agreement and adherence to the specific covenants is often a condition of the loan provided by the lender.
Which THREE of the following statements are true in respect of covenants?
- A. Covenants are entered into to impose financial discipline on the company.
- B. Covenants enable the lender to demand immediate repayment or to renegotiate terms if it is breached.
- C. Covenants are entered into to give the lender added protection on the loan extended to the company.
- D. Covenants are entered into to penalise the company.
- E. Covenants are entered into to eliminate the tax liability of the company.
Answer: A,B,C
Explanation:
Explanation
Discursive_F0
NEW QUESTION # 127
A company's Board of Directors wishes to determine a range of values for its equity.
The following information is available:
Estimated net asset values (total asset less total liabilities including borrowings):
* Net book value = $20 million
* Net realisable value = $25 million
* Free cash flows to equity = $3.5 million each year indefinitely, post-tax.
* Cost of equity = 10%
* Weighted Average Cost of Capital = 7%
Advise the Board on reasonable minimum and maximum values for the equity.
- A. Minimum value = $25.0 million, and maximum value = $35.0 million
- B. Minimum value = $25.0 million, and maximum value = $50.0 million
- C. Minimum value = $20.0 million, and maximum value = $50.0 million
- D. Minimum value = $20.0 million, and maximum value = $35.0 million
Answer: A
NEW QUESTION # 128
A venture capitalist invests in a company by means of buying
* 6 million shares for $3 a share and
* 7% bonds with a nominal value of $2 million, repayable at par in 3 years' time
The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment
The company has 8 million shares in issue
What is the minimum total equity value for the company in 3 years' time required to satisfy the venture capitalist's expected return?
Give your answer to the nearest $ million
- A. 0
- B. 1
Answer: B
NEW QUESTION # 129
Z wishes to borrow at a floating rate and has been told that it can use swaps to reduce the effective interest rate it pays. Z can borrow floating at Libor ' 1, and fixed at 10%.
Which of the following companies would be the most appropriate for Z to enter into a swap with?
- A. Company E - it can borrow floating at L +1 1/2 and fixed at 12%
- B. Company A - it can borrow floating L +1 1/2 and fixed at 9.5%
- C. Company D - it can borrow at L +1 1/2 and fixed at 10.5%
- D. Company C - it can borrow at L +1 1/2 and fixed at 9%
Answer: D
NEW QUESTION # 130
A major energy company, GDE, generates and distributes electricity in country A.
The government of country A is concerned about rising inflation and has imposed price controls on GDE, limiting the price it can charge per unit of electricity sold to both domestic and commercial customers. It is likely that price controls will continue for the foreseeable future.
The introduction of price controls is likely to reduce the profit for the current year from $3 billion to $1 billion.
The company has:
* Distributable reserves of $2 billion.
* Surplus cash at the start of the year of $1 billion.
* Plans to pay a total dividend of $1.5 billion in respect of the current year, representing a small annual increase as in previous years. However, no dividends have yet been announced.
Which THREE of the following responses would be MOST appropriate for GDE following the imposition of price controls?
- A. Actively investigate potential new ways of generating revenue by the sale of related goods and services that are outside the scope of the price controls.
- B. Announce a reduction in the annual dividend to a more sustainable level given the new price controls regime.
- C. Actively look for a private equity investor to introduce new and innovative business and financial strategies to the business.
- D. Raise funds by means of a rights issue in order to maintain historical dividend levels.
- E. Carry out a wide-ranging review of costs and staffing levels to identify possible cost savings and redundancies.
Answer: A,B,E
NEW QUESTION # 131
The ex div share price of a company's shares is $2.20.
An investor in the company currently holds 1,000 shares.
The company plans to issue a scrip dividend of 1 new share for every 10 shares currently held.
After the scrip dividend, what will be the total wealth of the shareholder?
Give your answer to the nearest whole $.
$ ? .
Answer:
Explanation:
2200
NEW QUESTION # 132
The Board of Directors of a listed company wish to estimate a reasonable valuation of the entire share capital of the company in the event of a takeover bid.
The company's current profit before taxation is $4.0 million.
The rate of corporate tax is 25%.
The average P/E multiple of listed companies in the same industry is 8 times current earnings.
The P/E multiple of recent takeovers in the same industry have ranged from 9 times to 10 times current earnings.
The average P/E multiple of the top 100 companies on the stock market is 15 times current earnings.
Advise the Board of Directors which of the following is a reasonable estimate of a range of values of the entire share capital in the event of a bid being made for the whole company?
- A. Minimum = $32 million, and maximum = $60 million.
- B. Minimum = $24 million, and maximum = $45 million.
- C. Minimum = $27 million, and maximum = $30 million.
- D. Minimum = $36 million, and maximum = $40 million.
Answer: C
NEW QUESTION # 133
Company A is proposing a rights issue to finance a new investment. Its current debt to equity ratio is
10%.
Which TWO of the following statements are true?
- A. The actual ex-rights price may be higher than the theoretical ex-rights price due to the value created from the project.
- B. The issue price has to be at least 20% below the pre-rights share price.
- C. Company A's current low gearing ratio may require a rights issue rather than a debt issue to finance the new project.
- D. According to Modigliani and Miller's Theory of Capital Structure with tax, the rights issue will result in a lower cost of equity for Company A.
- E. The issue price of new shares should be set to guarantee the full take up of shares offered.
Answer: A,D
NEW QUESTION # 134
A company wishes to raise new finance using a rights issue. The following data applies:
* There are 10 million shares in issue with a market value of $4 each
* The terms of the rights will be 1 new share for 4 existing shares held
* After the rights issue, the theoretical ex-rights price (TERP) will be $3.80 Assuming all shareholders take up their rights, how much new finance will be raised ?
Give your answer to one decimal place.
Answer:
Explanation:
$ ? million
7.5, 7.50
NEW QUESTION # 135
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CIMA F3 exam is a challenging but rewarding experience that provides candidates with the tools and knowledge they need to excel in their careers as finance professionals. It is a critical step towards obtaining the CIMA professional qualification, which is recognized around the world as a mark of excellence in the field of finance and accounting.
CIMA F3 Exam is divided into two sections. The first section assesses the candidate's understanding of financial management concepts such as cost management, pricing strategies, and investment appraisal. The second section focuses on strategic financial management, including topics such as risk management, mergers and acquisitions, and corporate finance. F3 exam is designed to test a candidate's ability to apply these concepts in real-world scenarios, making it a challenging test of a candidate's financial management skills.
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