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Salary of CIMA F3: Financial Strategy Exam
United States: 90,000 USD Europe: 77,500 Euro India: 6,750,000 INR England: 66,500 Pound
NEW QUESTION 73
Integrated reporting is designed to make visible the capitals on which the organisation depends, and how the organisation uses those capitals to create value in the short, medium and long term
Which THREE of the following capitals are specifically identified in the Integrated Reporting <IR> Framework?
- A. Financial
- B. Manufactured
- C. Research and Development
- D. Community
- E. Human
Answer: B,E
NEW QUESTION 74
The Board of Directors of a small listed company engaged in exploration are currently considering the future dividend policy of the company. Exploration is considered a high-risk business and consequently the company has a low level of debt finance.
Forecasts indicate a period of profit fluctuation in the next few years as the company is planning to embark on a major capital investment project. Debt finance is unlikely to be available due to the project's high business risk.
Which THREE of the following are practical considerations when determining the company's dividend/retention policy?
- A. The general level of interest rates and the tax savings on interest costs relating to debt finance.
- B. The timing and size of the cash flow requirements for the new investment.
- C. The fluctuating nature of the projected future profits.
- D. The dividend policies of mature listed multinational companies in the exploration industry.
- E. The legislation and regulation governing distributable profits.
Answer: B,C,E
Explanation:
Explanation
Discursive_F0
NEW QUESTION 75
Listed company R is in the process of making a cash offer for the equity of unlisted company S.
Company R has a market capitalisation of $200 million and a price/earnings ratio of 10.
Company S has a market capitalisation of $50 million and earnings of $7 million.
Company R intends to offer $60 million and expects to be able to realise synergistic benefits of $20 million by combining the two businesses. This estimate excludes the estimated $8 million cost of integrating the two businesses.
Which of the following figures need to be used when calculating the value of the combined entity in $ millions?
- A. 8, 20, 50, 200
- B. 20, 50, 60, 200
- C. 8, 20, 50, 60, 200
- D. 7, 10, 20, 50, 200
Answer: C
Explanation:
Calculation_F0
Calc_Set1
NEW QUESTION 76
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 decrease by 25%.
- B. The cash balance will decrease by 75% and EPS will increase by 25%.
- C. The cash balance will decrease by 75% and EPS will decrease by 25%.
- D. The cash balance will decrease by 20% and the EPS will increase by 25%.
Answer: B
NEW QUESTION 77
A company intends to sell one of its business units, Company R by a management buyout (MBO).
A selling price of $100 million has been agreed.
The managers are discussing with a bank and a venture capital company (VCC) the following financing proposal:
The VCC requires a minimum return on its equity investment in the MBO of 30% a year on a compound basis over 5 years.
What is the minimum TOTAL equity value of Company R in 5 years time in order to meet the VCC's required return?
Give your answer to one decimal place.
$ ? million
- A. 111.4, 111, 111.0, 111.1, 111.2, 111.3, 111.5, 111.6, 111.7
- B. 111.4, 111, 111.0, 111.1, 111.2, 111.3, 111.5, 111.6, 111.8
Answer: A
NEW QUESTION 78
An unlisted company which is owned and managed by its original founders has accumulated excess cash following many years of profitable trading.
The Board of Directors is comprised of the four original founders who each hold 25% of the equity share capital.
Which THREE of the following will be significant considerations when deciding on the company's dividend policy?
- A. Income tax rates and the personal tax liabilities of the shareholders.
- B. The impact of the dividend policy on the company's share price.
- C. The cash requirements of the shareholders in the foreseeable future.
- D. The dividend policy of listed companies in the same industry.
- E. The adequacy of the pension funds of the original founders.
Answer: A,C,E
NEW QUESTION 79
A company intends to sell one of its business units, Company R by a management buyout (MBO).
A selling price of $100 million has been agreed.
The managers are discussing with a bank and a venture capital company (VCC) the following financing proposal:
The VCC requires a minimum return on its equity investment in the MBO of 30% a year on a compound basis over 5 years.
What is the minimum TOTAL equity value of Company R in 5 years time in order to meet the VCC's required return?
Give your answer to one decimal place.
Answer:
Explanation:
$ ? million
111.4, 111, 111.0, 111.1, 111.2, 111.3, 111.5, 111.6, 111.7
NEW QUESTION 80
An all-equity financed company currently generates total revenue of $50 million.
Its current profit before interest and taxation (PBIT) is $10 million.
Due to difficult trading conditions, the company expects its total revenue to be constant next year, although some margins will reduce.
It forecasts next year's PBIT will fall to 18% on 40% of its revenue, but that the PBIT on the other 60% of its revenue will be unaffected.
The rate of corporate tax is 20%.
What is the forecast percentage reduction in next year's Earnings?
- A. Reduction of 0.8%
- B. Reduction of 0%
- C. Reduction of 4.0%
- D. Reduction of 2.0%
Answer: C
NEW QUESTION 81
Company HJK is planning to bid for listed company BNM
Financial data for BNM for the financial year ended 31 December 20X1:
HJK is not forecasting any growth in these figures for the foreseeable future Profit and cost data above should be assumed to be equivalent to cash flow data when answenng this question Which THREE of the following approaches would be most appropriate for HJK to use to value the equity of BNM?
- A. Cash flows of S14 million discounted at the cost of equity
- B. Share price x number of shares in issue plus retained profits
- C. Cash flows of S24 million discounted at the cost of equity
- D. Cash flows of $30 million (= S40 million net of tax at 25%) discounted at WACC minus the value of debt
- E. Share price x number of shares in issue
Answer: B,D,E
NEW QUESTION 82
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. The coupon rate on the convertible bond will be lower than that on a non-convertible bond.
- D. The convertible bond may not dilute control as the bond holder has an option to choose conversion.
- E. Issuing a convertible bond will have a more favourable impact on the gearing ratio than a non- convertible bond.
Answer: C,D,E
NEW QUESTION 83
A company has accumulated a significant amount of excess cash which is not required for investment for the foreseeable future.
It is currently on deposit, earning negligible returns.
The Board of Directors is considering returning this excess cash to shareholders using a share repurchase programme.
The majority of shareholders are individuals with small shareholdings.
Which THREE of the following are advantages of the company undertaking a share repurchase programme?
- A. Individual shareholders can realise their investment if they wish.
- B. The earnings per share should increase for the shareholders who do not sell their shares.
- C. It reduces the amount of cash for potential future investment opportunities.
- D. Institutional investors generally prefer a constant predictable income in the form of dividends.
- E. It reduces excess cash which might have been attractive to predators.
Answer: A,B,E
NEW QUESTION 84
An aerospace company is planning to diversify into car manufacturing.
Relevant data:
What is the the cost of equity to be used in the WACC for the project appraisal?
Give your answer in percentage, as a whole number.
- A. 19%
- B. 18%
Answer: A
NEW QUESTION 85
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
Answer:
Explanation:
8, 8000000
NEW QUESTION 86
Which THREE of the following statements are true of a money market hedge?
- A. They are easy to set up.
- B. They leave the company exposed to currency risks.
- C. They are more complex than forward contracts.
- D. They may be a little more flexible in comparison to a forward contract.
- E. They offer roughly the same outcome as a forward contract.
Answer: B,C,E
NEW QUESTION 87
B has a S3 million loan outstanding on which the interested rate is reset every 6 months for the following 6 month and the interested is payable at the end of that 6 month period. The next 6 monthly reset period starts in
3 months and the treasurer of B thinks interested rates are likely to raise between and then.
Current 6-month rates are 6.4% and the treasurer can get a rate of 6.9% for a 6-month forward rate agreement (FRA) starting in 3 months time. By transacting an TRA the treasurer can lock in a rate today of 6.9%.
If interested rates are 7.5% in 3 months' time, what will the net amount payable be?
Give your answer to the nearest thousand dollars.
Answer:
Explanation:
104
NEW QUESTION 88
A listed company in a high technology industry has decided to value its intellectual capital using the Calculated Intangible Value method (CIV).
Relevant data for the company:
* Pays corporate income tax at 30%
* Cost of equity is 9%, pre-tax cost of debt is 7% and the WACC is 8%
* The value spread has been calculated as $26 million
Calculate the CIV for the company.
- A. 228 million
- B. 289 million
- C. 325 million
- D. 531 million
Answer: A
NEW QUESTION 89
A company's gearing (measured as debt/(debt + equity)) is currently 60% and it is investigating whether an optimal gearing structure exists within the industry.
It has analysed the capital structure of similar companies in the industry and it would appear that there is evidence supporting the traditional theory of capital structure.
Companies with the lowest WACC in the industry have gearing of around 45% to 50%.
Which of the following actions would result in the company achieving a more optimal capital structure?
- A. Undertaking a rights issue of equity to repay some of its debt.
- B. Using retained cash to undertake a buyback of some of its equity.
- C. Increasing the level of dividend to return more cash to shareholders.
- D. Refinancing to replace some of its short term debt with long term debt.
Answer: A
NEW QUESTION 90
A company plans to cut its dividend but is concerned that the share price will fall. This demonstrates the _____________ effect
- A. B
- B. A
Answer: B
NEW QUESTION 91
A company aims to increase profit before interest and tax (PBIT) each year.
The company reports in A$ but has significant export sales priced in B$.
All other transactions are priced in A$.
In 20X1, the company reported:
In 20X2, the only changes expected are:
* An increase in export prices of 10%, but no change to units sold.
* A rise in the value of the B$ to A$/B$ 2.500 (that is, A$ 1 = B$ 2.5) Is it likely that the company would still meet its objective to grow PBIT between 20X1 and 20X2?
- A. No, PBIT would fall by A$ 150 million.
- B. Yes, PBIT would increase by A$ 150 million.
- C. Yes, PBIT would increase by A$ 48 million.
- D. No, PBIT would fall by A$ 48 million.
Answer: D
NEW QUESTION 92
Company C has received an unwelcome takeover bid from Company P.
Company P is approximately twice the size of Company C based on market capitalisation.
Although the two companies have some common business interests, the main aim of the bid is diversification for Company P.
The offer from Company P is a share exchange of 2 shares in Company P for 3 shares in Company C.
There is a cash alternative of $5.50 for each Company C share.
Company C has substantial cash balances which the directors were planning to use to fund an acquisition.
These plans have not been announced to the market.
The following share price information is relevant. All prices are in $.
Which of the following would be the most appropriate action by Company C's directors following receipt of this hostile bid?
- A. Change the Articles of Association to increase the percentage of shareholder votes required to approve a takeover.
- B. Refer the bid to the country's competition authorities.
- C. Pay a one-off special dividend.
- D. Write to shareholders explaining fully why the company's share price is under valued.
Answer: D
NEW QUESTION 93
Two listed companies in the same industry are joining together through a merger.
What are the likely outcomes that will occur after the merger has happened?
Select ALL that apply.
- A. Cost savings from synergistic benefits and economies of scale.
- B. Decrease in employee motivation due to internal changes.
- C. Competition authorities step in to stop a potential price monopoly.
- D. Increase in customer base.
- E. Changes to supplier relationships owing to internal changes.
Answer: A,B,D,E
NEW QUESTION 94
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