F3 dumps materials - exam dumps for F3: F3 Financial Strategy
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CIMA F3: F3 Financial Strategy exam is an important step for those who want to advance their careers in finance or accounting. It tests candidates' knowledge and skills in financial strategy, risk management, and financial decision making, and passing the exam is essential for gaining the CIMA Certificate in Business Accounting.
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CIMA F3 Financial Strategy Sample Questions (Q378-Q383):
NEW QUESTION # 378
A listed company plans to raise $350 million to finance a major expansion programme.
The cash flow projections for the programme are subject to considerable variability.
Brief details of the programme have been public knowledge for a few weeks.
The directors are considering two financing options, either a rights issue at a 20% discount to current share price or a long term bond.
The following data is relevant:
The company's share price has fallen by 5% over the past 3 months compared with a fall in the market of
3% over the same period.
The directors favour the bond option.
However, the Chief Accountant has provided arguments for a rights issue.
Which TWO of the following arguments in favour of a right issue are correct?
- A. The administrative costs of a rights issue will be lower.
- B. The issue of bonds might limit the availability of debt finance in the future.
- C. The recent fall in the share price makes a rights issue more attractive to the company.
- D. The WACC will decrease assuming Modigliani and Miller's Theory of Capital Structure without taxes applies.
- E. The rights issue will lead to less pressure on the operating cash flows of the programme.
Answer: B,E
NEW QUESTION # 379
Listed Company A has prepared a valuation of an unlisted company. Company B. to achieve vertical integration Company A is intending to acquire a controlling interest in the equity of Company B and therefore wants to value only the equity of Company B.
The assistant accountant of Company A has prepared the following valuation of Company B's equity using the dividend valuation model (DVM):
Where:
* S2 million is Company B's most recent dividend
* 5% is Company B's average dividend growth rate over the last 5 years
* 10% is a cost of equity calculated using the capital asset pricing model (CAPM), based on the industry average beta factor
Which THREE of the following are valid criticisms of the valuation of Company B's equity prepared by the assistant accountant?
- A. The beta factor used may not reflect Company B's financial risk.
- B. An unlisted company cannot use the capital asset pricing model to calculate its cost of equity
- C. It is better to use the present value of earnings rather than present value of dividends to value a controlling interest
- D. The DVM calculation should use Company A's cost of equity rather than Company B's cost of equity
- E. The 5% growth rate may not reflect the future growth of Company B.
Answer: A,C,E
Explanation:
B). Using present value of earnings (or free cash flows) is more appropriate when valuing a controlling interest, because the acquirer can change the dividend policy. #
C). A 5% historical dividend growth rate may not reflect future growth - assuming it will continue indefinitely is a big weakness. #
D). The industry average beta may not reflect Company B's specific financial (gearing) risk; it should ideally be adjusted to reflect B's capital structure. # The others:
A is incorrect - you should generally use the target's cost of equity (or project-specific) not Company A's.
E is incorrect - unlisted companies can use CAPM via proxy/industry betas.
NEW QUESTION # 380
PYP is a listed courier company. It is looking to raise new finance to fit each of its delivery vans with new equipment to allow improved parcel tracking for customers The senior management team of PYP have decided on a 10-year secured bond to finance this investment-
Which TWO of the following variables are most likely to decrease the yield to maturity of the bond?
- A. The senior management team decide to issue a convertible bond rather than a conventional bond
- B. Changing the term of the bond from 1 0 years to 5 years to match the expected life of the new equipment
- C. The announcement of a new contract for PYP that will increase operating profits by 5% over the next 5 years.
- D. The senior management team decide to issue an unsecured bond rather than a secured bond
Answer: A,B
NEW QUESTION # 381
A company's annual dividend has grown steadily at an annual rate of 3% for many years. It has a cost of equity of 11%. The share price is presently $64.38.
The company is about to announce its latest dividend, which is expected to be $5.00 per share.
The Board of Directors is considering an attractive investment opportunity that would have to be funded by reducing the dividend to $4.50 per share. The board expects the project to enable future dividends to grow by 5% every year and the cost of equity to remain unchanged.
Calculate the change in share price, assuming that the directors announce their intention to proceed with this investment opportunity.
Give your answer to 2 decimal places.
$ ?
- A. 14.38
- B. 14.37
Answer: B
NEW QUESTION # 382
The directors of a unlisted manufacturing company have prepared a valuation of their company using the price-earning method.
Their calculation is:
Value if the company's equity = $6 million x 10 =$60 million where.
* $6 million is the company's reported profit before interested and tax in the most recent accounting period and
* 10 is the average price-earnings ratio for all listed companies
Which THREE of the following are weakness of this valuation?
- A. The price-earnings ratio should have been an average for companies in the same industry sector rather than alI listed companies
- B. A forecast of sustainable profit should have been used instead of a historical figure
- C. Profit after tax should have been used in the calculation instead of profit before interest and tax.
- D. The price-earnings valuation method gives a value for the entire entity not Just a value of the equity.
- E. The equity result needs to be uplifted in recognition that this is an unlisted company.
Answer: A,B,C
NEW QUESTION # 383
......
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