Free CIMA F3 Practice Exam with Questions & Answers | Set: 3

D has US$10 million to invest over 12 months in either USS or GBP Its options are to invest in USS at the present USS interest rate of 10 18%. or to convert the USS to GBP at the spot rate GBP1 =US$1 61 and invest in GBP at an interest rate of 6.4%.

According to the interest rate parity theory, what will the one year forward rate be?

Give your answer to three decimal places.

A company is planning to issue a 5 year $100 million bond at a fixed rate of 6%.

It is also considering whether or not to enter into a 10 year $100 million swap to receive 5% fixed and pay Libor + 1% once a year.

The company predicts that Libor will be 4% over the life of the 5 years.

What is the impact of the swap on the company's annual interest cost assuming that the Libor prediction is correct?  

The Treasurer of Z intends to use interest rate options to set an interest rate cap on Z’s borrowings.

Which of the following statement is correct?

A company has forecast the following results for the next financial year:

The following is also relevant:

   • Profit after tax for the year can be assumed to be equivalent to free cash flow for the year.

   • Debt finance comprises a $10 million floating rate loan which currently carries an interest rate of 5%.

   • $400,000 investment in non-current assets is required to achieve required growth, all of which is to financed from next year's free cash flow.

   • The company plans to pay a dividend of $150,000 next year, financed from next year's free cash flow.

The company is concerned that interest rates could rise next year to 6% which could then affect their investment plans.

If interest rates were to rise to 6% and the company wishes to maintain its dividend amount, the planned investment expenditure will decrease by:

Select the category of risk for each of the descriptions below:

On 1 January:

   • Company X has a value of $50 million

   • Company Y has a value of $20 million

   • Both companies are wholly equity financed

Company X plans to take over Company Y by means of a share exchange. Following the acquisition the post-tax cashflow of Company X for the foreseeable future is estimated to be $8 million each year. The post-acquisition cost of equity is expected to be 10%.

What is the best estimate of the value of the synergy that would arise from the acquisition? 

A large, listed company is planning a major project that should greatly improve its share price in the long term.

These plans require a significant capital cost that the company plans to finance by debt.

All of the debt options being considered are for the same duration of time.

Which of the following sources of debt finance is likely to be the most expensive for the company over the full term of the debt?

XYZ is a multi-national group with subsidiary AA in Country A and subsidiary BB in Country B. The capital structures of AA and BB are set up to take advantage of the lower tax rate in Country A Thin capitalisation rules in Country B will limit the ability for either AA or BB to claim tax relief on:

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.

Company X is based in Country A, whose currency is the A$.

It trades with customers in Country B, whose currency is the B$.

Company X aims to maintain its revenue from exports to Country B at 25% of total revenue.

Company A has the following forecast revenue:

The forecast revenue from Country B has assumed an exchange rate of A$1/B$2, that is A$1 = B$2.

If the B$ depreciates against the A$ by 10%, the ratio of revenue generated from Country B as a percentage of total revenue will: