Latest Jan 01, 2024 Real CIMAPRA19-F03-1 Exam Dumps Questions Valid CIMAPRA19-F03-1 Dumps PDF
CIMA CIMAPRA19-F03-1 Exam Dumps - PDF Questions and Testing Engine
CIMA F3 Certification Exam aims to provide individuals with an in-depth understanding of financial strategy and its importance in business. It covers a range of topics, including financial analysis, risk management, investment analysis, and financial planning. CIMAPRA19-F03-1 exam is designed to test the candidate’s ability to analyze financial information and develop strategies that will help organizations achieve their financial goals.
NEW QUESTION # 80
A company is currently all-equity financed with a cost of equity of 9%.
It plans to raise debt with a pre-tax cost of 3% in order to buy back equity shares.
After the buy-back, the debt-to-equity ratio at market values will be 1 to 2.
The corporate income tax rate is 25%.
Which of the following represents the company's cost of equity after the buy-back according to Modigliani and Miller's Theory of Capital Structure with taxes?
- A. 90%
- B. 18%
- C. 11.5%
- D. 11.3%
Answer: C
NEW QUESTION # 81
VVV has a floating rate loan that it wishes to replace with a fixed rate. The cost of the existing loan is the risk-free rate + 3%. VW would have to pay a fixed rate of 7% on a fixed rate loan VVVs bank has found a potential counterparty for a swap arrangement.
The counterparty wishes to raise a variable rate loan It would pay the risk-free rate +1 % on a variable rate loan and 8% on a fixed rate.
The bank will require 10% of the savings from the swap and WV and the counterparty will share the remaining saving equally.
Calculate VWs effective rate of interest from this swap arrangement.
- A. VVV would pay 5.5%
- B. VVV would pay 5.65%
- C. VVV would pay 5.2%
- D. VVV would pay the risk-free rate + 1 %
Answer: B
NEW QUESTION # 82
Country X's short-term interest rates are slightly higher than its long-term rates. Which THREE of the following statements are correct?
- A. This difference may reverse.
- B. Country X's currency is expected to strengthen in the long-term.
- C. A long-term borrower would save by taking out a short-term loan and then refinancing
- D. Interest rates are expected to fall.
- E. Interest rates will definitely fall.
Answer: A,B,C
NEW QUESTION # 83
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. 325 million
- B. 228 million
- C. 531 million
- D. 289 million
Answer: B
NEW QUESTION # 84
A company needs to raise $20 million to finance a project.
It has decided on a rights issue at a discount of 20% to its current market share price.
There are currently 20 million shares in issue with a nominal value of $1 and a market price of $5 per share.
Calculate the terms of the rights issue.
- A. 1 new share for every 25 existing shares
- B. 1 new share for every 4 existing shares
- C. 1 new share for every 5 existing shares
- D. 1 new share for every 20 existing shares
Answer: B
Explanation:
Explanation
Calc_Set2
NEW QUESTION # 85
Which TIIRCC of the following are most likely to reduce the long term credit rating co a company?
- A. The issue of a new bond where the funds raised are invested in a project that has an NPV of nil.
- B. The issue of new shares where the funds raised are invested in a project that has an NPV of nil.
- C. Disposal of a loss-making division where the funds raised will be used to pay a special dividend to shareholders.
- D. The issue of new shares where the funds raised are invested in expanding into a new nigh risk market.
- E. Loss of a major customer that contributed 30% of sales revenue.
Answer: A,C,E
NEW QUESTION # 86
For which THREE of the following risk categories does IFRS 7 require sensitivity analysis?
- A. Commodity risk
- B. Liquidity risk
- C. Credit risk
- D. Currency risk
- E. Supply chain risk
- F. Interest rate risk
Answer: A,D,F
NEW QUESTION # 87
Modigliani and Miller are the main proponents of the view that the dividend policy is irrelevant to the value of a company's shares.
They argue that a company that continually reinvests its entire earnings would generate the same shareholder wealth if it engaged in a policy of high dividends and financed its expansion with funds obtained from rights issues.
Which THREE of the following statements are assumptions that are required in order to support this proposition?
- A. There is a multiplicity of corporate and personal income tax rates.
- B. Investors act in a rational manner.
- C. There are no transaction costs involved in the issue of new shares (including rights issues).
- D. Investors do not always have access to perfect information.
- E. The capital markets are efficient markets.
Answer: B,C,E
Explanation:
Explanation
Discursive_F0
NEW QUESTION # 88
An entity prepares financial statements to 31 December each year. The following data applies:
1 December 20X0
* The entity purchased some inventory for $400,000.
* In order to protect the inventory against adverse changes in fair value the entity entered into a futures contract to sell the inventory for a fixed price on 31 January 20X1.
* The entity designated this contract as a fair value hedge of the value of the inventory.
31 December 20X0
* The inventory had a fair value of $480,000 and the futures contract had a fair value of $75,000 (a financial liability).
What will be the impact on the statement of profit or loss and other comprehensive income for the year ended 31 December 20X0 in respect of the change in the value of the inventory and the futures contract?
- A. A loss of $75,000 will be recognised in other comprehensive income.
- B. A loss of $75,000 will be recognised in profit or loss.
- C. A net gain of $5,000 will be recognised in other comprehensive income.
- D. A net gain of $5,000 will be recognised in profit or loss.
Answer: D
NEW QUESTION # 89
A company is currently all-equity financed.
The directors are planning to raise long term debt to finance a new project.
The debt:equity ratio after the bond issue would be 40:60 based on estimated market values.
According to Modigliani and Miller's Theory of Capital Structure without tax, the company's cost of equity would:
- A. increase.
- B. decrease.
- C. increase or decrease depending on the bond's coupon rate.
- D. stay the same.
Answer: A
NEW QUESTION # 90
Company J is in negotiations to acquire Company K and believes it can turn around Company K's performance to match its own.
The following information is available for the two companies:
Select the maximum price for each share that Company J should place on Company K during negotiations.
- A. $3.2
- B. $2.0
- C. $3.0
- D. $1.7
Answer: C
NEW QUESTION # 91
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.
- A. 0
- B. 1
Answer: B
Explanation:
NEW QUESTION # 92
XYZ has a variable rate loan of $200 million on which it is paying interest of Liber ' 3%.
XYZ entered into a swap with AG bank to convert this to a fixed rate 8% loan. AB bank charges an annual commission of 0.4% for making this arrangement
Calculate the net payment from KYZ to AB bank at the end of the first year if Libor was 2% throughout the year.
Give your answer in $ million, to one decimal place.
- A. 22.8
- B. 22.9
Answer: A
Explanation:
NEW QUESTION # 93
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 B
- B. Option D
- C. Option A
- D. Option C
Answer: A
NEW QUESTION # 94
WW is a quoted manufacturing company. The Finance Director has addressed the shareholders during WW's annual general meeting-She has told the shareholders that WW raised equity during the year and used the funds to repay a large loan that was maturing, thereby reducing WW's gearing ratio
At the conclusion of the Finance Director's speech one of the shareholders complained that it had been foolish for WW to have used equity to repay debt The shareholder argued that the Modigliani and Miller model (with tax) offers proof that debt is cheaper than equity when companies pay tax on their profits.
Which THREE arguments could the Finance Director have used in response to the shareholder?
- A. Reducing the gearing ratio has reduced the financial risk of WW which will benefit shareholders
- B. The shareholder was confusing the cost of capital with shareholder wealth
- C. A lower gearing ratio will result in an increase in the value of the company
- D. The Modigliani and Miller model would only be valid in practice if WW's shareholders were aware of the model and believed in its validity
- E. WW was approaching a debt covenant limit and it was therefore important to reduce gearing.
- F. A lower gearing ratio creates greater flexibility for WW in the future
Answer: A,C,E
NEW QUESTION # 95
A company is deciding whether to offer a scrip dividend or a cash dividend to its shareholders.
Although the company has excellent long-term growth prospects, it is experiencing short-term profit and cash flow problems.
Which of the following statements is most likely to be a reason for choosing the scrip dividend?
- A. It is a way of raising additional finance to promote future growth.
- B. It is a way of increasing dividend per share.
- C. It is a way of encouraging shareholders to allow cash to be retained in the business.
- D. It is a way of increasing earnings per share.
Answer: C
NEW QUESTION # 96
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 = $20.0 million, and maximum value = $35.0 million
- B. Minimum value = $25.0 million, and maximum value = $35.0 million
- C. Minimum value = $25.0 million, and maximum value = $50.0 million
- D. Minimum value = $20.0 million, and maximum value = $50.0 million
Answer: B
NEW QUESTION # 97
An unlisted company.
* Is owned by the original founders and members of their families
* Pays annual dividends each year depending on the cash requirements of the dominant shareholders.
* Has earnings that are highly sensitive to underlying economic conditions.
* Is a small business in a large Industry where there are listed companies with comparable capital structures
Which of the following methods is likely to give the most accurate equity value for this unlisted company?
- A. Dividend valuation model.
- B. Net asset valuation
- C. P/E based valuation using the P/E of a similar company.
- D. Discounted cash flow analysis at WACC (based on cash flows after tax but before financing) plus the market value of debt.
Answer: A
NEW QUESTION # 98
Which THREE of the following long term changes are most likely to increase the credit rating of a company?
- A. A decrease in the (Net debt) / (Earnings before interest, tax, depreciation and amortisation) ratio.
- B. An increase in the free cashflow generated from operations.
- C. A decrease in the (Book value of debt) / (Book value of equity) ratio.
- D. An increase in the interest cover ratio.
- E. A decrease in the dividend cover ratio.
Answer: A,B,D
NEW QUESTION # 99
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. There are restrictions on companies wishing to remit profit from country P
- B. Year 1 tax depreciation allowances of 100% are available in country P.
- C. The corporate tsx rate in country P is 40%.
- D. There is a double tax treaty between country T and country P.
- E. There are high customs cuties payable of products entering country P.
Answer: B,D,E
NEW QUESTION # 100
A company generates operating profit of $17.2 million, and incurs finance costs of $5.7 million.
It plans to increase interest cover to a multiple of 5-to-1 by raising funds from shareholders to repay some existing debt. The pre-tax cost of debt is fixed at 5%, and the refinancing will not affect this.
Assuming no change in operating profit, what amount must be raised from shareholders?
Give your answer in $ millions to the nearest one decimal place.
$ ?
- A. 45.2
- B. 46.2
Answer: A
NEW QUESTION # 101
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 understated as the directors have failed to include a perpetuity factor in the calculations.
- B. The valuation is understated as forecast future growth has been ignored beyond year 3.
- C. Free cash flows to all investors should be discounted at the cost of equity of 10% rather than WACC of 8%.
- D. The valuation is overstated as the directors have failed to deduct tax from the free cash flows.
- E. The approach used calculates the value of the total entity not the value of equity.
Answer: A,D,E
NEW QUESTION # 102
A large, listed company in the food and household goods industry needs to raise $50 million for a period of up to 6 months.
It has an excellent credit rating and there is almost no risk of the company defaulting on the borrowings. The company already has a commercial paper programme in place and has a good relationship with its bank.
Which of the following is likely to be the most cost effective method of borrowing the money?
- A. Treasury Bills
- B. Commercial paper
- C. 6 month term loan
- D. Bank overdraft
Answer: B
NEW QUESTION # 103
Companies A, B, C and D:
* are based in a country that uses the K$ as its currency.
* have an objective to grow operating profit year on year.
* have the same total levels of revenue and cost.
* trade with companies or individuals in the eurozone. All import and export trade with companies or individuals in the eurozone is priced in EUR.
Typical import/export trade for each company in a year are as follows:
Which company's growth objective is most sensitive to a movement in the EUR/K$ exchange rate?
- A. Company B
- B. Company C
- C. Company A
- D. Company D
Answer: A
NEW QUESTION # 104
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The F3 exam also covers financial strategy implementation. Candidates are expected to demonstrate their knowledge of the different strategies that organizations can use to achieve their financial objectives. They are also expected to be able to develop and implement financial strategies that align with the overall strategic objectives of the organization. Overall, the F3 exam is an essential part of the CIMA qualification and prepares candidates for the challenges of financial management in today's business environment.
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