Free CIMA F3 Practice Exam with Questions & Answers | Set: 5

For reviewing the effectiveness of hospital services, the focus is on quality of care and outcomes:

A. Proportion of surgical procedures successful – direct clinical effectiveness measure ✅

B. Average waiting times for treatment – key access and service delivery metric ✅

C. Patient satisfaction ratings – captures perceived quality and experience ✅

Options D (staff costs) and E (car park revenue) are financial/operational efficiency measures, not direct indicators of service effectiveness, so they are less relevant here.

Target earnings (after tax) with 5% growth:

5.0×1.05=5.25 million5.0 \times 1.05 = 5.25 \text{ million}5.0×1.05=5.25 million

Let required operating profit (PBIT) be XXX.

Interest on bond = 7% × 1m = 0.07m

Profit before tax = X−0.07X - 0.07X−0.07

Tax = 30%, so profit after tax:

Earnings=(X−0.07)×(1−0.30)=0.70(X−0.07)\text{Earnings} = (X - 0.07) \times (1 - 0.30) = 0.70(X - 0.07)Earnings=(X−0.07)×(1−0.30)=0.70(X−0.07)

Set equal to earnings target:

0.70(X−0.07)=5.250.70(X - 0.07) = 5.250.70(X−0.07)=5.25 X−0.07=5.250.70=7.50X - 0.07 = \frac{5.25}{0.70} = 7.50X−0.07=0.705.25​=7.50 X=7.50+0.07=7.57 millionX = 7.50 + 0.07 = 7.57 \text{ million}X=7.50+0.07=7.57 million

So the minimum required operating profit is $7.57m (C).

The pre-acquisition share prices are:

Company S: $5.00

Company T: $4.00

Shareholders in Company T want a 25% premium on the value of their shares, based on T’s current price:

Required value per T share=4.00×1.25=$5.00\text{Required value per T share} = 4.00 \times 1.25 = \$5.00Required value per T share=4.00×1.25=$5.00

Now value each offer using Company S’s pre-acquisition share price of $5:

A. 2 S shares for 1 T share

Value received = 2×5=$102 \times 5 = \$102×5=$10 → 150% premium (too high)

B. 1 S share for 1 T share

Value received = 1×5=$51 \times 5 = \$51×5=$5 →

Premium =5−44=25%= \frac{5 - 4}{4} = 25\%=45−4​=25% ✅

C. 1 S share for 2 T shares

That’s 0.5 S per T → 0.5×5=$2.500.5 \times 5 = \$2.500.5×5=$2.50 → actually a discount

D. 10 S shares for 4 T shares

That’s 2.5 S per T → 2.5×5=$12.502.5 \times 5 = \$12.502.5×5=$12.50 → huge premium (>200%)

Only offer B gives T’s shareholders exactly a 25% premium.

Correct answer: B – 1 share in Company S for 1 share in Company T.

Under traditional (pre–Modigliani & Miller) capital structure theory, there is an assumed inverse relationship between WACC and company value. The idea is:

As a firm moves towards its optimal capital structure, the WACC falls, and the total value of the firm (equity + debt) rises.

Beyond that optimal point, extra gearing increases financial risk, so the required return from both debt and equity goes up, causing WACC to rise and firm value to fall.

So, within this framework, if a company’s WACC increases, that means it has moved away from its optimal capital structure, and the value of the company will decrease.

Therefore, under traditional theory, an increase in WACC → decrease in company value, so the correct answer is B.

Current revenue = $300m at $2.00/kWh → units = 300/2 = 150m kWh

New price cap = $1.50; demand rises 10% → units = 150m × 1.10 = 165m kWh

New revenue = 165m × $1.50 = $247.5m

Costs remain $200m → new profit = 247.5 − 200 = $47.5m profit

✅ Answer: A. $47.5 million profit

Current profit after tax (PAT) = $750,000.

After sale, extra directors’ salaries (pre-tax) = $50,000.

Tax rate = 20% → tax saving on extra salaries = 50,000 × 20% = 10,000.

So reduction in PAT = 50,000 − 10,000 = $40,000.

Maintainable PAT = 750,000 − 40,000 = $710,000.

Using P/E of 7:

Value = 710,000 × 7 = $4,970,000.

✅ Answer: D. $4,970,000

A. “A bond issuer must appoint at least one market-maker…” – TRUE (in exam context)

On public bond markets, an issuer typically works with one or more banks/dealers as market-makers. Their role is to quote buy and sell prices and help ensure liquidity so investors can trade in and out. From an exam perspective, this is treated as a standard feature of traded corporate/government bonds.

B. “The redemption yield… can be determined by calculating the internal rate of return…” – TRUE

The redemption yield (yield to maturity) is exactly the IRR of the bond’s cash flows (all coupon payments plus redemption amount) based on the current market price. That’s standard CIMA F3 territory.

C. “Investors in traded bonds have an ownership stake…” – FALSE

Bondholders are creditors, not owners. They have a contractual right to interest and principal, but no equity participation, voting rights, or residual claim (except in liquidation after other priorities).

D. “A first-time bond issuer will find it easier to issue bonds than arrange a conventional term loan.” – FALSE

It’s usually the opposite. For a new issuer, arranging a bank term loan is typically quicker and simpler than accessing the bond market, which involves credit ratings, documentation, listing and investor marketing.

E. “Governments are the most frequent issuers of bonds…” – TRUE

Governments regularly issue sovereign bonds (treasuries, gilts, etc.) both to finance spending and to roll over existing national debt. This is exactly how public deficits are funded in practice and is a standard statement in financial strategy texts.

Hence: A, B and E.

A company with no projects for 2 years and a WACC of 10% should not lock surplus cash into investments earning less than 10%, as that destroys shareholder value. The best way to maximise shareholder wealth is to return the surplus so shareholders can invest at their own required return.

✅ Answer: D. Paying the surplus cash as a dividend at the earliest opportunity.

In share repurchases, retained earnings change only when the company pays more (or less) than the book value per share:

Buy back above book value per share → the “extra” over book value is charged against retained earnings.

Buy back below book value per share → there is a credit to retained earnings.

Buy back at book value per share → retained earnings are unchanged.

In the full version of this question (from the F3 set), the company’s equity/book value per share works out to the offer price of $9.00. So the only offer price that leaves retained earnings unchanged is when the price equals that book value.

Answer: B. $9.00

(With the snippet you posted, the book-value data aren’t visible, but in the original question that’s how $9.00 is identified.)