[Jan-2024] Latest CIMA CIMAPRA19-F03-1 exam dumps and online Test Engine

CIMA CIMAPRA19-F03-1: Selling CIMA Strategic level Products and Solutions

One of the key benefits of earning the CIMA F3 certification is that it opens up a wide range of career opportunities. Candidates who pass the exam are highly sought after by employers in the finance industry, and can expect to earn a higher salary than their non-certified peers. In addition, the certification provides a strong foundation for further specialization in areas such as risk management, financial analysis, and corporate finance.

 

NEW QUESTION # 194
An all equity financed company reported earnings for the year ending 31 December 20X1 of $5 million.
One of its financial objectives is to increase earnings by 5% each year.
In the year ending 31 December 20X2 it financed a project by issuing a bond with a $1 million nominal value and a coupon rate of 7%.
The company pays corporate income tax at 30%.
If the company is to achieve its earnings target for the year ending 31 December 20X2, what is the minimum operating profit (profit before interest and tax) that it must achieve?

• A. $7.57 million
• B. $8.40 million
• C. $5.25 million
• D. $7.50 million

Answer: A

NEW QUESTION # 195
A company plans to cut its dividend but is concerned that the share price will fall. This demonstrates the
_____________ effect

Answer:

Explanation:
clientele

NEW QUESTION # 196
A geared and profitable company is evaluating the best method of financing the purchase of new machinery. It is considering either buying the machinery outright, financed by a secured bank borrowing and selling the machinery at the end of a fixed period of time or obtain the machinery under a lease for the same period of time.
Which is the correct discount rate to use when discounting the incremental cash flows of the lease against those of the buy and borrow alternative?

• A. The company's WACC.
• B. The post-tax cost of the bank borrowing
• C. The company's cost of equity
• D. The pre-tax cost of the bank borrowing

Answer: A

NEW QUESTION # 197
Company Z has identified four potential acquisition targets: companies A, B. C and D.
Company Z has a current equity market value of S590 million.
The price it would have to pay for the equity of each company is as follows:

Only one of the target companies can be acquired and the consideration will be paid in cash.
The following estimations of the new combined value of Company Z have been prepared for each acquisition before deduction of the cash consideration:

Ignoring any premium paid on acquisition, which acquisition should the directors pursue?

• A. A
• B. C
• C. D
• D. B

Answer: B

NEW QUESTION # 198
A company is currently all-equity financed with a cost of equity of 8%.
It plans to raise debt with a pre-tax cost of 4% 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 30%.
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. 8%
• B. 9.4%
• C. 13.6%
• D. 9.8%

Answer: B

NEW QUESTION # 199
Extracts from a company's profit forecast for the next financial year as follows:
Since preparing the forecast, the company has decided to return surplus cash to shareholders by a share repurchase arrangement.
The share repurchase would result in the company purchasing 20% of the 1,250 million ordinary shares currently in issue and canceling them.
Assuming the share repurchase went ahead, the impact on the company's forecast earnings per share will be an increase of:

• A. $0.200
• B. $0.100
• C. $0.125
• D. $0.175

Answer: B

NEW QUESTION # 200
A listed company in a high growth industry, where innovation is a key driver of success has always operated a residual dividend policy, resulting in volatility in dividends due to periodic significant investments in research and development.
The company has recently come under pressure from some investors to change its dividend policy so that shareholders receive a consistent growing dividend. In addition, they suggested that the company should use more debt finance.
If the suggested change is made to the financial policies, which THREE of the following statements are true?

• A. The company's financial risk will increase due to its increased use of debt finance.
• B. Retained earnings have a lower cost than debt finance.
• C. The directors will not have to take shareholder dividend preferences into consideration in future.
• D. There may be a change to the shareholder profile due to 'the clientele effect'.
• E. It may give a signal to the market that the company is entering a period of stable growth.

Answer: A,D,E

NEW QUESTION # 201
A company with 4 million shares in issue wishes to raise $4 million by means of a rights issue The share price prior to the rights issue is $5.00.
Under the rights issue, 1 million new shares will be issued at $4.00.
When the rights issue is announced it is expected that the Theoretical Ex-rights Price (TERP) will be $4.80 The directors of the company are considering offering any shareholder who does not wish to take up the rights the opportunity to sell the rights back to the company for $1.00.
Which of the following is the most likely consequence of the directors offer?

• A. It will result in fewer shareholders taking up the rights and as a consequence less cash will be raised from the rights issue
• B. It will encourage more shareholders to sell their lights on the open market.
• C. The directors offer will increase demand for the shares and as a consequence the share price will rise above the theoretical ex-rights price.
• D. It will have no effect on the take up of the rights because shareholder wealth will be the same whether the rights are taken up or sold back to the company

Answer: A

NEW QUESTION # 202
A listed company has recently announced a profit warning.
The company's share price fell 20% on the day of the announcement but had been fairly static in the weeks leading up to the announcement.
Which form of efficient market is most likely to be indicated by this share price movement?

• A. Strong form
• B. Weak form
• C. Semi-strong form
• D. Random walk

Answer: C

NEW QUESTION # 203
A company is financed as follows:
* 400 million $1 shares quoted at $3.00 each.
* $800 million 5% bonds quoted at par.
The company plans to raise $200 million long term debt to finance a project with a net present value of
$100 million.
The bank that is providing the debt is insisting on a maximum gearing level covenant.
Gearing will be based on market values and calculated as debt/(debt + equity).
What is the lowest figure for the gearing covenant that the bank could impose without the company breaching the agreement?

• A. 43%
• B. 45%
• C. 44%
• D. 46%

Answer: C

NEW QUESTION # 204
A company enters into a floating rate borrowing with interest due every 12 months over the five year life of the borrowing.
At the same time, the company arranges an interest rate swap to swap the interest profile on the borrowing from floating to fixed rate.
These transactions are designated as a hedge for hedge accounting purposes under IAS 39 Financial Instruments: Recognition and Measurement.
Assuming the hedge is considered to be effective, how would the swap be accounted for 12 months later?

• A. The swap would be shown at nominal value in the statement of financial position and the change in value posted to profit or loss.
• B. The swap would be shown at fair value the statement of financial position and the change in value posted to other comprehensive income.
• C. The swap would be shown at nominal value in the statement of financial position and the change in value posted to other comprehensive income.
• D. The swap would be shown at fair value the statement of financial position and the change in value posted to profit or loss.

Answer: B

NEW QUESTION # 205
A company's latest accounts show profit after tax of $20.0 million, after deducting interest of $5.0 million. The company expects earnings to grow at 5% per annum indefinitely.
The company has estimated its cost of equity at 12%, which is included in the company WACC of 10%.
Assuming that profit after tax is equivalent to cash flows, what is the value of the equity capital?
Give your answer to the nearest $ million.
$ ? million

• A. 100, 300000000
• B. 300, 300000000

Answer: B

NEW QUESTION # 206
RST wishes to raise at least $40 million of new equity by issuing up to 10 million new equity shares at a minimum price of $3.00 under an offer for sale by tender. It receives the following tender offers:

What is the maximum amount that RST can raise by this share issue?
(Give your answer to the nearest $ million).

Answer:

Explanation:
49

NEW QUESTION # 207
Extracts from a company's profit forecast for the next financial year as follows:

Since preparing the forecast, the company has decided to return surplus cash to shareholders by a share repurchase arrangement.
The share repurchase would result in the company purchasing 20% of the 1,250 million ordinary shares currently in issue and canceling them.
Assuming the share repurchase went ahead, the impact on the company's forecast earnings per share will be an increase of:

• A. $0.200
• B. $0.100
• C. $0.125
• D. $0.175

Answer: B

NEW QUESTION # 208
Which THREE of the following statements are disadvantages of the net asset basis of valuation?

• A. The net book value of assets can be obtained from the financial statements
• B. Intangible assets are often not shown in the company's financial statements.
• C. The net realisable value is usually different from the net book value shown in the financial statements
• D. The net book value of current assets is normally a reliable indicator of their realisable value
• E. The net book value of assets is merely a record of past transactions which complies with accounting conventions

Answer: B,C,E

NEW QUESTION # 209
A profitable company wishes to dispose of a loss-making division that generated negative free cashflow in the last financial year.
The division requires significant new investment to return it to profitability.
Which of the following valuation approaches is likely to be the most useful to the company when negotiating the sales price?

• A. Dividend growth model
• B. Discounted forecast free cashflow
• C. Asset basis
• D. P/E ratio applied to forecast earnings next year

Answer: B

NEW QUESTION # 210
A company generates and distributes electricity and gas to households and businesses.
Forecast results for the next financial year are as follows:

The Industry Regulator has announced a new price cap of $2.00 per Kilowatt.
The company expects this to cause consumption to rise by 15% but costs would remained unaltered.
The price cap is expected to cause the company's net profit to fall to:

• A. $126.50 million loss
• B. $164.00 million profit
• C. $8.75 million profit
• D. $43.00 million profit

Answer: B

NEW QUESTION # 211
A company has a covenant on its 5% long-term bond, stipulating that its retained earnings must not fall below
$2 million.
The company has 100 million shares in issue.
Its most recent dividend was $0.045 per share. It has committed to grow the dividend per share by 4% each year.
The nominal value of the bond is $60 million. It is currently trading at 80% of its nominal value.
Next year's earnings before interest and taxation are projected to be $11.25 million.
The rate of corporate tax is 20%.
If the company increases the dividend by 4%, advise the Board of Directors if the level of retained earnings will comply with the covenant?

• A. The covenant is not breached as retained earnings = $4.68 million.
• B. Covenant is not breached as retained earnings = $2.40 million.
• C. Covenant is not breached as retained earnings = $2.10 million.
• D. Covenant is breached as retained earnings = $1.92 million.

Answer: D

NEW QUESTION # 212
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