CIMA F3 Financial Strategy - CIMAPRA19-F03-1 FREE EXAM DUMPS QUESTIONS & ANSWERS
Using the CAPM, the expected return for a company is 10%. The market return is 7% and the risk free rate is
1%.
What does the beta factor used in this calculation indicate about the risk of the company?
1%.
What does the beta factor used in this calculation indicate about the risk of the company?
Correct Answer: A
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A company based in Country A with the A$ as its functional currency requires A$500 million 20-year debt finance to finance a long-term investment The company has a high credit rating, but has not previously issued corporate bonds which are listed on the stock exchange Which THREE of the following are advantages of issuing 20 year bonds compared with simply borrowing for a 20 year period?
Correct Answer: B,C,D
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Which TWO of the following situations offer arbitrage opportunities?
Correct Answer: C
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A profit-seeking company intends to acquire another company for a variety of reasons, primarily to enhance shareholder wealth.
Which THREE of the following offer the greatest potential for enhancing shareholder wealth?
Which THREE of the following offer the greatest potential for enhancing shareholder wealth?
Correct Answer: B,E,F
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A venture capitalist invests in a company by means of buying
* 6 million shares for $3 a share and
* 7% bonds with a nominal value of $2 million, repayable at par in 3 years' time The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment The company has 8 million shares in issue What is the minimum total equity value for the company in 3 years' time required to satisfy the venture capitalist's expected return?
* 6 million shares for $3 a share and
* 7% bonds with a nominal value of $2 million, repayable at par in 3 years' time The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment The company has 8 million shares in issue What is the minimum total equity value for the company in 3 years' time required to satisfy the venture capitalist's expected return?
Correct Answer:
Give your answer to the nearest $ million
31
31
A company is currently all-equity financed.
The directors are planning to raise long term debt to finance a new project.
The debt:equity ratio after the bond issue would be 30:60 based on estimated market values.
According to Modigliani and Miller's Theory of Capital Structure without tax, the company's cost of equity would:
The directors are planning to raise long term debt to finance a new project.
The debt:equity ratio after the bond issue would be 30:60 based on estimated market values.
According to Modigliani and Miller's Theory of Capital Structure without tax, the company's cost of equity would:
Correct Answer: B
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A company has in a 5% corporate bond in issue on which there are two loan covenants.
* Interest cover must not fall below 3 times
* Retained earnings for the year must not fall below $3.5 million
The Company has 200 million shares in issue.
The most recent dividend per share was $0.04.
The Company intends increasing dividends by 10% next year.
Financial projections for next year are as follows:
Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?
* Interest cover must not fall below 3 times
* Retained earnings for the year must not fall below $3.5 million
The Company has 200 million shares in issue.
The most recent dividend per share was $0.04.
The Company intends increasing dividends by 10% next year.
Financial projections for next year are as follows:
Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?
Correct Answer: D
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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?
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?
Correct Answer: A,C,D
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PPA owns $500,000 of shares in Company ABB.
Company ABB has a daily volatility of 2% of its share price Calculate the 12-day value at risk that shows the most PPA can expect to lose during a 12-day period (PPA wishes to be 90% certain that the actual loss in any month will be less than your predicted figure)
Give your answer to the nearest thousand dollars.
Company ABB has a daily volatility of 2% of its share price Calculate the 12-day value at risk that shows the most PPA can expect to lose during a 12-day period (PPA wishes to be 90% certain that the actual loss in any month will be less than your predicted figure)
Give your answer to the nearest thousand dollars.
Correct Answer:
Pending
A listed company is planning to raise $21.6 million to finance a new project with a positive net present value of $5 million. The finance is to be raised via a rights issue at a 10% discount to the current share price. There are currently 100 million shares in issue, trading at $2.00 each.
Taking the new project into account, what would the theoretical ex-rights price be?
Give your answer to two decimal places.
Taking the new project into account, what would the theoretical ex-rights price be?
Give your answer to two decimal places.
Correct Answer:
$ ?
2.02, 2.03
2.02, 2.03
An analyst has valued a company using the free cash flow valuation model.
The analyst used the following data in determining the value:
* Estimated free cashflow in 1 year's time = $100,000
* Estimated growth in free cashflow after the first year = 5% each year indefinitely
* Appropriate cost of equity = 10%
The result produced by the analyst was as follows:
Value of equity = $100,000 (1+0.05)/0.10 = $1,050,000
The analyst made a number of errors in determining the value.
By how much has the analyst undervalued the company?
The analyst used the following data in determining the value:
* Estimated free cashflow in 1 year's time = $100,000
* Estimated growth in free cashflow after the first year = 5% each year indefinitely
* Appropriate cost of equity = 10%
The result produced by the analyst was as follows:
Value of equity = $100,000 (1+0.05)/0.10 = $1,050,000
The analyst made a number of errors in determining the value.
By how much has the analyst undervalued the company?
Correct Answer: A
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