Prepare CIMAPRA19-F03-1 Question Answers - CIMAPRA19-F03-1 Exam Dumps
Real CIMA CIMAPRA19-F03-1 Exam Questions [Updated 2024]
NEW QUESTION # 150
The Senior Management Team of ABC, an owner-managed, capital intensive start-up engineering business, is considering the options for its dividend policy. It has so far been a successful business and is expanding quickly Once in place, the Senior Management Team anticipates that its current investment plans will yield returns for many years to come The first agenda item at every meeting currently concerns arranging and funding new equipment and premises.
Which of the following dividend policies is likely to be the most suitable?
- A. Residual policy.
- B. A constant pay-out ratio
- C. Zero dividend
- D. Constant growth
Answer: A
NEW QUESTION # 151
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. 44%
- B. 45%
- C. 43%
- D. 46%
Answer: A
NEW QUESTION # 152
Company A, a listed company, plans to acquire Company T, which is also listed.
Additional information is:
* Company A has 100 million shares in issue, with market price currently at $8.00 per share.
* Company T has 90 million shares in issue,. with market price currently at $5.00 each share.
* Synergies valued at $60 million are expected to arise from the acquisition.
* The terms of the offer will be 2 shares in A for 3 shares in B.
Assuming the offer is accepted and the synergies are realised, what should the post-acquisition price of each of Company A's shares be?
Give your answer to two decimal places.
$ ? .
- A. 8.19, 8.18
- B. 8.19, 6.18
Answer: A
NEW QUESTION # 153
A listed company is planning a share repurchase.
The following data applies
* There are 20 million shares in issue
* The share repurchase will involve buying back 10% of the shares at a price of $1.20
* The company is holding $4.8 million cash
* Earnings for the current year ended are $3.6 million
The Directors are concerned about the impact that this repurchase programme will have on the company's cash balance and current year earnings per share (EPS) ratio.
Advise the directors which of the following statements is correct?
- A. The cash balance will decrease by 10% and the EPS will increase by 11%.
- B. The cash balance will decrease by 50% and EPS will increase by 11%
- C. The cash balance will decrease by 10% and the EPS will decrease by 11%.
- D. The cash balance will decrease by 50% and EPS will decrease by11%
Answer: D
NEW QUESTION # 154
Company W is a manufacturing company with three divisions, all of which are making profits:
* Division A which manufactures cars
* Division B which manufactures trucks
* Division C which manufactures agricultural machinery
Company W is facing severe competitive pressure in all of its markets, and is currently operating with a high level of gearing Company W's latest forecasts suggest that it needs to raise cash to avoid breaching loan covenants on its existing debt finance in 6 months' time In a recent strategy review. Divisions A and B were identified as being the core divisions of Company W The management of Division C is known to be interested in the possibility of a management buy-out.
Company Z is known to be interested in making a takeover bid for Company W's truck manufacturing division A rival to Company W has recently successfully demerged its business, this was well received by the Financial markets Which of the following exit strategies will be most suitable for company W?
- A. Sale of Division B to Company Z
- B. Closure of Division
- C. Management buy-out of Division C
- D. Demerger of Division C
Answer: C
NEW QUESTION # 155
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 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
- B. It will result in fewer shareholders taking up the rights and as a consequence less cash will be raised from the rights issue
- C. It will encourage more shareholders to sell their lights on the open market.
- D. The directors offer will increase demand for the shares and as a consequence the share price will rise above the theoretical ex-rights price.
Answer: B
NEW QUESTION # 156
Company AD is planning to acquire Company DC. It is evaluating two methods of structuring the terms of the bid, which will be ether a debt-funded cash offer or a share exchange The following Information is relevant
* The two companies are of similar size and in related industries
* AB's gearing ratio measured as debt to debt plus equity, is currently 30% based on market values. This Is the company's optimum capital structure set to reflect the risk appetite of shareholders.
* The combined company is expected to generate savings and synergies
Which THREE of the following are advantages to AB's shareholders of a debt-funded cash offer compared with a share exchange?
- A. Shareholder control will remain with AB's current shareholders
- B. Gearing will increase.
- C. More of the synergistic benefits of the acquisition will accrue to AB's current shareholders.
- D. WACC will increase f credit worthless falls too low, further increasing the returns to shareholders.
- E. EPS Mil Increase
Answer: A,C,E
NEW QUESTION # 157
AA is considering changing its capital structure. The following information is currently relevant to AA:
The gearing rating raising the new debt finance will be 50%.
Which THREE of the following statement about the impact of AA's change in capital structure are true under Modigliani and Miler's capital structure theory with tax.
- A. The WACC increase above 7.6
- B. The cost of debt will increase above 4%
- C. The cost of debt remain unchanged at 4%
- D. The WACC will decrease below 7.6%
- E. The cost of equity will decrease below 10%
- F. The cost of equity will increase above 10%
Answer: A,C,D
NEW QUESTION # 158
TU has relatively few tangible assets and is dependent for profits and growth on the high-value individuals it employs. Which of the following statements best explains why the net asset valuator method's considered unstable for TU?
- A. TU accounts for its intangible assets at historical value.
- B. TU does not account for its tangible assets
- C. TU accounts for its intangible assets at net realisable value.
- D. TU does not account for its intangible assets.
Answer: D
NEW QUESTION # 159
A private company was formed five years ago and is currently owned and managed by its five founders. The founders, who each own the same number of shares have generally co-operated effectively but there have also been a number of areas where they have disagreed
The company has grown significantly over this period by re-investing its earnings into new investments which have produced excellent returns
The founders are now considering an Initial Public Offering by listing 70% of the shares on the local stock exchange
Which THREE of the following statements about the advantages of a listing are valid?
- A. Provides an exit route for the founders
- B. Increases the profile and reputation of the business.
- C. Reduces agency conflict
- D. Helps access to wider sources of finance.
- E. Increases dividend payouts
Answer: A,B,D
NEW QUESTION # 160
A company needs to raise $20 million to finance a project.
It has decided on a rights issue at a discount of 20% to its current market share price.
There are currently 20 million shares in issue with a nominal value of $1 and a market price of $5 per share.
Calculate the terms of the rights issue.
- A. 1 new share for every 5 existing shares
- B. 1 new share for every 4 existing shares
- C. 1 new share for every 20 existing shares
- D. 1 new share for every 25 existing shares
Answer: B
Explanation:
Explanation
Calc_Set2
NEW QUESTION # 161
A company wishes to raise new finance using a rights issue to invest in a new project offering an IRR of 10% The following data applies:
* There are currently 1 million shares in issue at a current market value of $4 each.
* The terms of the rights issue will be $3.50 for 1 new share for 5 existing shares.
* The company's WACC is currently 8%.
What is the yield-adjusted theoretical ex-rights price (TERP)?
Give your answer to 2 decimal places.
Answer:
Explanation:
$ ?
4.06, 4.060
NEW QUESTION # 162
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 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
- B. It will result in fewer shareholders taking up the rights and as a consequence less cash will be raised from the rights issue
- C. It will encourage more shareholders to sell their lights on the open market.
- D. The directors offer will increase demand for the shares and as a consequence the share price will rise above the theoretical ex-rights price.
Answer: B
NEW QUESTION # 163
TTT pic is a listed company. The following information is relevant:
TTT pic's board is considering issuing new 6% irredeemable debt to re-purchase equity. This is expected to change TTT pic's debt to equity mix to 40: 60 by market value. The corporate tax rate is 20%.
What will be TTT pic's WACC following this change in capital structure?
- A. 11.66%
- B. 11.09%
- C. 12.67%
- D. 13.43%
Answer: B
NEW QUESTION # 164
A company wishes to raise new finance using a rights issue. The following data applies:
* There are 10 million shares in issue with a market value of $4 each
* The terms of the rights will be 1 new share for 4 existing shares held
* After the rights issue, the theoretical ex-rights price (TERP) will be $3.80 Assuming all shareholders take up their rights, how much new finance will be raised ?
Give your answer to one decimal place.
Answer:
Explanation:
$ ? million
7.5, 7.50
NEW QUESTION # 165
KKL is a listed sports clothing company with three separate business units. KKL is seeking to sell TT', one of these business units
TTP cwns a new. brand of trail running shoes that have Droved hugely popular with lone distance runners. The management team of TTP are frustrated by the constraints imposes b/ KKL in managing tie brand and developing. the bus ness and they believe that TTF has huge growth potential.
The management team of TTP have approached KKL with a proposal to purchase 1~P through a management layout (MDO). KKL has accepted this proposal as TTP has not proved to be a good fit' with the rest of the business and has agreed on the selling price.
Which THREE of the following factors a-e mast Likely to affect the success of the MBO?
- A. The ability of the TTF management team to take over the head office functions successfully.
- B. The motivation of the TTP management team to invest in future growth.
- C. The constraints imposed by KKL managing TTF's brand.
- D. Searing sufficient. funding for the MBO.
- E. The ability the TTP management team to develop the brand and achieve the expected growth.
Answer: A,D,E
NEW QUESTION # 166
A company plans a four-year project which will be financed by either an operating lease or a bank loan.
Lease details:
* Four year lease contract.
* Annual lease rentals of $45,000, paid in advance on the 1st day of the year.
Other information:
* The interest rate payable on the bank borrowing is 10%.
* The capital cost of the project is $200,000 which would have to be paid at the beginning of the first year.
* A salvage or residual value of $100,000 is estimated at the end of the project's life.
* Purchased assets attract straight line tax depreciation allowances.
* Corporate income tax is 20% and is payable at the end of the year following the year to which it relates.
A lease-or-buy appraisal is shown below:
Which THREE of the following items are errors within the appraisal?
- A. The project's operating cashflows should be included
- B. Tax relief on lease payments have not been lagged correctly
- C. Using the 10% discount rate is incorrect
- D. The salvage value has been included within the lease option
- E. The bank loan repayments should be included
- F. Lease payments are timed incorrectly
Answer: B,C,D
NEW QUESTION # 167
Company C invests heavily in Research and Development an need to raise $45 million to finance future projects. It has decided to use equity finance raised by a tender offer, The following tender offers have been received from potential investors:
Company C wishes to select an offer price that will project shareholders from a significant dilution of control but still raise the required amount of finance.
What offer price should Company C's select?
- A. $4.50
- B. $4.75
- C. $4.25
- D. $4.00
Answer: A
NEW QUESTION # 168
A company currently has a 5.25% fixed rate loan but it wishes to change the interest style of the loan to variable by using an interest rate swap directly with the bank.
The bank has quoted the following swap rate:
* 4.50% - 455% in exchange for Libor
Libor is currently 4%.
If the company enters into the swap and Libor remains at 4%. what will the company's interest cost be?
- A. 4.70%
- B. 5.25%
- C. 4.75%
- D. 4.00%
Answer: D
NEW QUESTION # 169
Company E is a listed company. Its directors are valuing a smaller listed company, Company F, as a possible acquisition.
The two companies operate in the same markets and have the same business risk.
Relevant data on the two companies is as follows:
Both companies are wholly equity financed and both pay corporate tax at 30%.
The directors of Company E believe they can "bootstrap" Company F's earnings to improve performance.
Calculate the maximum price that Company E should offer to Company F's shareholders to acquire the company.
Give your answer to the nearest $million.
- A. 1,890
- B. 3,150
- C. 4,500
- D. 2,700
Answer: B
NEW QUESTION # 170
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CIMA CIMAPRA19-F03-1 (F3 Financial Strategy) Exam is a globally recognized certification that measures a candidate's ability to develop and implement financial strategies for organizations. CIMAPRA19-F03-1 exam is designed to test the candidate's knowledge and skills in financial strategy development, risk management, and investment decision making. It is a crucial certification for individuals who are looking to advance their careers in finance or accounting.
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