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Format of the CIMA F3: Financial Strategy Exam

• Language: English
• Passing score: 70 percent
• Format: Numerous choices, multiple responses
• Length of Examination: 90 minutes
• Number of questions: 60

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How to book CIMA F3: Financial Strategy Exam

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CIMA F3 Financial Strategy Sample Questions (Q323-Q328):

NEW QUESTION # 323
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 C
• B. Option A
• C. Option B
• D. Option D

Answer: C
NEW QUESTION # 324
Company F's current profit before interest and taxation is $5.0 million.
It has a 10% long-term corporate bond in issue with a nominal value of $10 million.
Corporate tax is paid at 25%.
The industry average P/E multiple is 10.
Company X has made an approach to acquire the entire share capital of Company F for $30 million.
Company X has announced that anticipated synergies (after interest and taxation) arising from its acquisition of Company F will be $1 million each year in perpetuity.
Advise the Board of Directors of Company F if the bid should be accepted, based on the above information?

• A. Reject the bid because Company F is potentially worth $40 million to Company X.
• B. Reject the bid because Company F is potentially worth $50 million to Company X.
• C. Accept the bid because Company F is potentially worth $30 million to Company X.
• D. Reject the bid because Company F is potentially worth $60 million to Company X.

Answer: A
NEW QUESTION # 325
A listed publishing company owns a subsidiary company whose business activity is training.
It wishes to dispose of the subsidiary company.
The following information is available:
The board of the publishing company believe that the value of the subsidiary company, and hence the value of the equity invested in it, can be determined by calculating the present value of the subsidiary's free cashflows.
Which of the following is the most appropriate discount rate to use when determining the enterprise value of the company?

• A. A cost of equity that reflects the asset beta of a listed company that provides training activities.
• B. A WACC that reflects the gearing of the subsidiary company and the asset beta of a listed company that provides training activities.
• C. A WACC that the reflects the gearing of the publishing company and the equity beta factor of the publishing company.
• D. A WACC that reflects the gearing of the publishing company and the asset beta of a listed company that provides training activities.

Answer: D
NEW QUESTION # 326
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 enable the lender to demand immediate repayment or to renegotiate terms if it is breached.
• B. Covenants are entered into to impose financial discipline on the company.
• C. Covenants are entered into to penalise the company.
• D. Covenants are entered into to eliminate the tax liability of the company.
• E. Covenants are entered into to give the lender added protection on the loan extended to the company.

Answer: A,B,E Explanation:
Discursive_F0
NEW QUESTION # 327
A company is wholly equity funded. It has the following relevant data:
* Dividend just paid $4 million
* Dividend growth rate is constant at 5%
* The risk free rate is 4%
* The market premium is 7%
* The company's equity beta factor is 1.2
Calculate the value of the company using the Dividend Growth Model.
Give your answer in $ million to 2 decimal places.
$ ? million

• A. 56.76, 56.76
• B. 56.76, 56.75

Answer: B
NEW QUESTION # 328
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