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Free CIMA F3 Practice Exam with Questions & Answers | Set: 7

Questions 61

A is a listed company. Its shares trade on a stock market exhibiting semi-strong form efficiency.

 

Which of the following is most likely to increase the wealth of A's shareholders?

Options:
A.

Announcing that a project will be undertaken generating a positive net present value.

B.

Announcing that the final dividend will remain unchanged from the previous 3 years.

C.

Announcing that a non-current asset will be revalued in the statement of financial position.

D.

Announcing that inventory will be impaired.

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Questions 62

Company WWW is considering making a takeover bid for Company KKA Company KKA's current share price is $5.00

Company WWW is considering either

" A cash payment of $5.75 for each share in Company KKA

" A 5 year corporate bond with a market value of $90 in exchange for 15 shares in Company KKA

Calculate the highest percentage premium which Company KKA shareholders will receive.

Options:
A.

Corporate bond premium = 80%

B.

Corporate bond premium = 20%

C.

Cash premium = 10%

D.

Cash premium = 15%

Questions 63

Under traditional theory, an increase in a company's WACC would cause the value of the company to:

Options:
A.

Increase

B.

Decrease

C.

Stay the same

D.

Either increase or decrease 

Questions 64

A project requires an initial outlay of $2 million which can be financed with either a bank loan or finance lease.

The company will be responsible for annual maintenance under either option.

 

The tax regime is:

   • Tax depreciation allowances can be claimed on purchased assets.

   • If leased using a finance lease, tax relief can be claimed on the interest element of the lease payments and also on the accounting depreciation charge.

The trainee management accountant has begun evaluating the lease versus buy decision and has produced the following data.  He is not confident that all this information is relevant to this decision.

  F3 Question 64

 

Using only the relevant data, which of the following is correct?

Options:
A.

The bank loan is $30,000 MORE expensive than the finance lease.

B.

The bank loan is $20,000 LESS expensive than the finance lease.

C.

The bank loan is $70,000 LESS expensive than the finance lease.

D.

The bank loan is $120,000 LESS expensive than the finance lease.

Questions 65

A national airline has made an offer to acquire a smaller airline in the same country.

 

Which of the following would be of most concern to the competition authorities?

Options:
A.

After the acquisition the board propose to reduce the number of  flight destinations from the country.

B.

The board informed a major institutional shareholder about the proposed acquisition before informing other shareholders.

C.

After the acquisition the board propose to increase prices significantly on routes where no other airlines operate.

D.

The acquisition is likely to result in significant redundancies of staff currently working for the smaller airline. 

Questions 66

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.

 

$ ?   

Options:
Questions 67

A private company manufactures goods for export, the goods are priced in foreign currency B$.  

The company is partly owned by members of the founding family and partly by a venture capitalist who is helping to grow the business rapidly in preparation for a planned listing in three years' time.  

The company therefore has significant long term exposure to the B$. 

This exposure is hedged up to 24 months into the future based on highly probable forecast future revenue streams.  

The company does not apply hedge accounting and this has led to high volatility in reported earnings. 

 

Which of the following best explains why external consultants have recently advised the company to apply hedge accounting?

Options:
A.

To provide a more appropriate earnings figure for use in calculating the annual dividend.

B.

To make it easier for the market to value the business when it is listed on the Stock Exchange.

C.

To ensure that the venture capitalist receives regular annual returns on its investment.

D.

To fully adopt IFRS in preparation for listing the company.

Questions 68

ZZZ wishes to borrow at a floating rate and has been told that it can use swaps to reduce the effective interest rate it pays. ZZZ can borrow floating at the risk-free rate + 1, and fixed at 10%.

Which of the following companies would be the most appropriate for ZZZ to enter into a swap with?

Options:
A.

Company DDA - it can borrow at risk-free rate + 1 Vz and fixed at 10.5%

B.

Company CCA - it can borrow at risk-free rate + Y% and fixed at 9%

C.

Company BBA - it can borrow floating at risk-free rate +VA and fixed at 12%

D.

Company AAB - it can borrow floating at risk-free rate + % and fixed at 9.5%

Questions 69

Two unlisted companies TTT and YYY are being valued. The companies have similar capital structures and risk profiles and operate in the same industry sector It is easier to value TTT than to value YYY because there have recently been several well-publicised private sales of TTT shares.

Relevant company data:

F3 Question 69

What is the best estimate of YYY's share price?

Options:
A.

$0.60

B.

$1.20

C.

$0.68

D.

$0.94

Questions 70

On 31 October 20X3:

   • A company expected to agree a foreign currency transaction in January 20X4 for settlement on 31 March 20X4.  

   • The company hedged the currency risk using a forward contract at nil cost for settlement on 31 March 20X4.

   • The transaction was correctly treated as a cash flow hedge in accordance with IAS 39 Financial Instruments: Recognition and Measurement.

On 31 December 20X3, the financial year end, the fair value of the forward contract was $10,000 (asset).

 

How should the increase in the fair value of the forward contract be treated within the financial statements for the year ended 31 December 20X3?

Options:
A.

Not recognised in 20X3 as the forward contract is not settled until after the year end.

B.

Not recognised in 20X3 as the gain will be offset by a loss on the hedged transaction.

C.

A $10,000 profit will be recognised within the Income Statement.

D.

A $10,000 profit will be recognised within other comprehensive income.