F3 Exam Preparation Material with New F3 Dumps Questions
F3 2024 Training With 435 QA's
CIMA F3 (Financial Strategy) exam is an essential exam for anyone pursuing a career in finance or accounting. It is a challenging exam that requires a deep understanding of financial management, business strategy, and risk management. Passing F3 exam demonstrates that the candidate has the knowledge, skills, and abilities to develop and implement effective financial strategies for organizations. Therefore, it is important to prepare adequately for the exam to increase the chances of passing it.
NEW QUESTION # 23
Company A is planning to acquire Company B by means of a cash offer. The directors of Company B are prepared to recommend acceptance if a bid price can be agreed. Estimates of the net present value (NPV) of future cash flows for the two companies and the combined group post acquisition have been prepared by Company A's accountant. There are as follows:
What is the maximum price that Company A should offer for the shares in Company B?
Give your answer to the nearest $ million
Answer:
Explanation:
150
NEW QUESTION # 24
CI IJ has decided to move its production plant to overseas country X.
This would make the product cheaper to produce. The technology used to make the product is very advanced and some of the skilled staff would have to move to country X.
The Production Director has identified that there are some political risks in moving to county X.
For each of the political risks of moving to country X shown below, select the correct method for reducing the risk.
Answer:
Explanation:
NEW QUESTION # 25
The long-term prospects for inflation in the UK and the USA are 1% and 4% per annum respectively.
The GBP/USD spot rate is currently GBP/USD1.40
Using purchasing power parity theory, what GBP/USD spot rate would you expect to see in six months' time?
- A. GBP/USD1.42
- B. GBP/USD1.44
- C. GBP/USD1.36
- D. GBP/USD1.38
Answer: A
NEW QUESTION # 26
Company A is planning to acquire Company B.
Both companies are listed and are of similar size based on market capitalisation No approach has yet been made to Company B's shareholders as the directors of Company A are undecided about the most suitable method of financing the offer Two methods are under consideration a share exchange or a cash offer financed by debt.
Company A currently has a gearing ratio (debt to debt plus equity) of 30% based on market values. The average gearing ratio (debt to debt plus equity) for the industry is 50% Although no formal offer has been made there have been market rumours of the proposed bid. which is seen as favorable to Company A.
As a consequence. Company As share price has risen over the past few weeks while Company B's share price has fallen.
Which THREE of the following statements are most likely to be correct?
- A. Based on current share price movements, a share exchange would mean Company A has to issue fewer shares to acquire Company B than it would have done a few weeks ago
- B. The method of finance chosen will not affect the post-acquisition earning per share of the combined business
- C. Company A's weighted average cost of capital will fall if financing is with debt
- D. Company B's shareholders will be able to participate in the future growth of the combined business if it is a share exchange
- E. Company A's gearing will increase following a share exchange.
Answer: A,C
NEW QUESTION # 27
Company A is a large listed company, with a wide range of both institutional and private shareholders.
It is planning a takeover offer for Company B.
Company A has relatively low cash reserves and its gearing ratio of 40% is higher than most similar companies in its industry.
Which TWO of the following would be the most feasible ways of Company A structuring an offer for Company B?
- A. Cash offer, funded by a rights issue.
- B. Debt for share exchange.
- C. Cash offer, funded from existing cash resources.
- D. Share for share exchange.
- E. Cash offer, funded by borrowings.
Answer: A,D
NEW QUESTION # 28
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 # 29
Which THREE of the following are considered in detail in IFRS 7 Financial Instruments: Disclosures?
- A. Market risk
- B. Credit risk
- C. Business risk
- D. Enterprise risk
- E. Liquidity risk
Answer: A,B,E
NEW QUESTION # 30
A UK based company is considering investing GBP1 ,000,003 in a project it the USA. It is anticipated that the project will yield net cash inflows of USD580.000 each year for the next three years. These surplus cash flows will be remitted to the UK at the end of each year.
Currently GBP1.00 is worth USD1.30.
The expected inflation rates in the two countries ever the next four years are 2% in the UK and 4% in the USA.
Applying the purchasing power parity theory, which of the following represents the expected remittance at the end of year three, in GBP whole the nearest whole GBP)?
- A. GBP568,846
- B. GBP472,916
- C. GBP450,906
- D. GBP546,547
Answer: C
NEW QUESTION # 31
The Government of Eastland is concerned that competition within its private healthcare industry is being distorted by the dominant position of the market leader, Delta Care. The Government has instructed the industry regulator to investigate whether the industry is operating fairly in the interests of patients.
Which of the following factors might the industry regulator review as part of their investigation?
Select ALL that apply.
- A. Industry entry barriers
- B. Each healthcare provider's market share
- C. Medical treatment efficacy rates
- D. Profits amongst healthcare providers
- E. Prices across the industry
Answer: B,C,D
NEW QUESTION # 32
PTT has a number of subsidiary companies around the world, including FTT based in Europe and CTT based in Indonesia
CTT purchases all of us raw materials from FTT CTT processes these materials and the resulting products are exported to several different countries CTT pays FTT in the Indonesian currency.
Indonesia's inflation is higher than that of FTTs home country
Which of the following statements are correct?
Select ALL that apply
- A. FTT will be exposed to transaction risk The Indonesian currency that it receives Is likely to decline over time because of anticipated inflation
- B. FTT could ask for ail payments to K to be made in its home currency, which would reduce exposure to currency risk
- C. FTT could investigate whether it could import anything from Indonesia in order to create a natural hedge.
- D. FTT will be exposed to transaction risks as the Indonesian currency will appreciate over time because of the expected inflation rates
- E. CTT will be exposed to translation risk because FTT will almost certainly have to reflect the changing prices in its selling price and it will be difficult for CTT to make a profit
Answer: A,B,D
NEW QUESTION # 33
A project requires an initial outlay of $2 million which can be financed with either a bank loan or finance lease.
The company will be responsible for annual maintenance under either option.
The tax regime is:
* Tax depreciation allowances can be claimed on purchased assets.
* If leased using a finance lease, tax relief can be claimed on the interest element of the lease payments and also on the accounting depreciation charge.
The trainee management accountant has begun evaluating the lease versus buy decision and has produced the following dat a. He is not confident that all this information is relevant to this decision.
Using only the relevant data, which of the following is correct?
- A. The bank loan is $120,000 LESS expensive than the finance lease.
- B. The bank loan is $20,000 LESS expensive than the finance lease.
- C. The bank loan is $30,000 MORE expensive than the finance lease.
- D. The bank loan is $70,000 LESS expensive than the finance lease.
Answer: D
NEW QUESTION # 34
Company BBB has prepared a valuation of a competitor company, Company BBD. Company BBB is intending to acquire a controlling interest in the equity of Company BBD and therefore wants to value only the equity of Company BBD.
The directors of Company BBB have prepared the following valuation of Company BBD:
Value of Equity = 4.63 + 5.14 + 5.56 = S15.33 million
Additional information on Company BBD:
Which THREE of the following are weaknesses of the above valuation?
- A. The valuation is overstated as the directors have failed to deduct tax from the free cash flows.
- B. The valuation is understated as the directors have failed to include a perpetuity factor in the calculations.
- C. The valuation is understated as forecast future growth has been ignored beyond year 3.
- D. The approach used calculates the value of the total entity not the value of equity.
- E. Free cash flows to all investors should be discounted at the cost of equity of 10% rather than WACC of 8%.
Answer: A,B,D
NEW QUESTION # 35
CI IJ has decided to move its production plant to overseas country X.
This would make the product cheaper to produce.
The technology used to make the product is very advanced and some of the skilled staff would have to move to country X.
The Production Director has identified that there are some political risks in moving to county X.
For each of the political risks of moving to country X shown below, select the correct method for reducing the risk.
Answer:
Explanation:
NEW QUESTION # 36
Company AAB is located in Country A with the A$ as its functional currency It plans to grow by acquisition and has identified Company BBA as a potential takeover candidate Company BBA is located in Country B with the BS as its functional currency.
The directors of Company AAB are concerned about foreign currency risk if the acquisition goes ahead Which of the following will be most effective in reducing Company AAB's exposure to translation risk if the acquisition is successful1?
- A. Financing the acquisition with borrowings in BS's
- B. Setting up a mufti-currency bank account to net-off receipts and payments
- C. Using forward contracts to fix the exchange rate between the AS and the B$
- D. Financing the acquisition with equity in A$'s.
Answer: C
NEW QUESTION # 37
A company is located in a single country. The company manufactures electrical goods for export and for sale in its home country. When exporting, it invoices in its customers' currency. What currency risks is the company exposed to?
- A. Transaction and economic risks
- B. Translation and economic risks.
- C. Transaction risk only
- D. Transaction, economic and translation risks.
Answer: D
NEW QUESTION # 38
A company with 4 million shares in issue wishes to raise $4 million by means of a rights issue
The share price prior to the rights issue is $5.00.
Under the rights issue, 1 million new shares will be issued at $4.00.
When the rights issue is announced it is expected that the Theoretical Ex-rights Price (TERP) will be $4.80
The directors of the company are considering offering any shareholder who does not wish to take up the rights the opportunity to sell the rights back to the company for $1.00.
Which of the following is the most likely consequence of the directors offer?
- A. The directors offer will increase demand for the shares and as a consequence the share price will rise above the theoretical ex-rights price.
- B. It will encourage more shareholders to sell their lights on the open market.
- C. It will have no effect on the take up of the rights because shareholder wealth will be the same whether the rights are taken up or sold back to the company
- D. It will result in fewer shareholders taking up the rights and as a consequence less cash will be raised from the rights issue
Answer: D
NEW QUESTION # 39
A company plans to cut its dividend but is concerned that the share price will fall. This demonstrates the _____________ effect
- A. B
- B. A
Answer: B
NEW QUESTION # 40
A company in country T is considering either exporting its product directly to customers in country P or establishing a manufacturing subsidiary in country P.
The corporate tax rate in country T is 20% and 25% tax depreciation allowances are available
Which TIIRCC of the following would be considered advantages of establishing a subsidiary in country T?
- A. The corporate tsx rate in country P is 40%.
- B. Year 1 tax depreciation allowances of 100% are available in country P.
- C. There are high customs cuties payable of products entering country P.
- D. There are restrictions on companies wishing to remit profit from country P
- E. There is a double tax treaty between country T and country P.
Answer: B,C,E
NEW QUESTION # 41
HHH Company has a fixed rate loan at 10.0%, but wishes to swap to variable. It can borrow at the risk-free rate +8%. The bank is currently quoting swap rates of 3.1% (bid) and 3.5% (ask). What net rate will HHH Company pay if it enters into the swap?
- A. Risk-free rate+3.1%
- B. Risk-free rate +6.5%
- C. Risk-free rate +8%
- D. Risk-free rate +6.9%
Answer: A
NEW QUESTION # 42
RR has agreed to sell goods to XX for S20.000 XX will pay when the goods are delivered in 6 months time.
RR's home currency is the £- The current exchange rate is 4.3 £/S. The projected inflation rate for the S is
2.8%, and for the E 4 6%.
When RR receives payment for its goods, what will the value be to the nearest pound?
- A. £87.506
- B. £86 760
- C. £84.520
- D. £85,243
Answer: A
NEW QUESTION # 43
A company is considering taking out $10.000,000 of floating rate bank borrowings to finance a new project. The current rate available to the company on floating rate barrowings is 8%. The borrowings contain a covenant based on an interested cover of 5 times.
The project is expected to generate the following results:
At what interest rate on the floating rate borrowings is the bank covenant first breached?
- A. 9.4%
- B. 10.0%
- C. 8.0%
- D. 11.0%
Answer: D
NEW QUESTION # 44
A company s about to announce a new project that has a positive NPV.
If the market is semi-strong form efficient, which of the following statements is most Likely to be true?
The value of the company will.
- A. Increase by the NPV of the project once the information has been announced
- B. increase only on completion of the project.
- C. already include the value of the project.
- D. only change to incorporate historical information.
Answer: A
NEW QUESTION # 45
BBA is a wholly owned subsidiary of AAB BBA operates in country B where the currency is the B$.
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 250%. thin capitalisation rules are breached
- C. Gearing is 83.33%. thin capitalisation rules are not breached
- D. Gearing Is 71.43%. thin capitalisation rules are not breached
Answer: A
NEW QUESTION # 46
Company A plans to acquire Company B in a 1-for-1 share exchange.
Pre-acquisition information is as follows:
Post-acquisition information is as follows:
* Annual earnings are expected to increase by $4 million.
* The P/E multiple of the combined company is expected to be 12 times.
If the acquisition proceeds, what is the expected percentage increase in the post acquisition share price of Company A?
- A. 50%
- B. 6%
- C. 8%
- D. 0%
Answer: D
NEW QUESTION # 47
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