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F3 Sample Questions Answers

Questions 4

Which THREE of the following non-financial objectives would be most appropriate for a listed company in the food retailing industry?

Options:

A.

Reduce customer complaints

B.

Increase customer service quality

C.

Reduce production time

D.

Improve staff morale

E.

Reduce raw material wastage

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Questions 5

Which of the following statements about IFRS 7 Financial Instruments: Disclosures is true?

Options:

A.

IFRS 7 only applies to entities that are designated as financial institutions by a regulatory authority.

B.

IFRS 7 requires disclosures to be given for each separate class of financial instruments.

C.

The main requirement of IFRS 7 is for qualitative disclosures relating to financial instruments and market risks.

D.

IFRS 7 requires sensitivity analysis in relation to credit risk.

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Questions 6

A company has a financial objective of maintaining a gearing ratio of between 30% and 40%, where gearing is defined as debt/equity at market values. 

The company has been affected by a recent economic downturn leading to a shortage of liquidity and a fall in the share price during 20X1.

 

On 31 December 20X1 the company was funded by:

•    Share capital of 4 million $1 shares trading at $4.0 per share.

•    Debt of $7 million floating rate borrowings.

 

The directors plan to raise $2 million additional borrowings in order to improve liquidity.  

They expect this to reassure investors about the company's liquidity position and result in a rise in the share price to $4.2 per share.

 

Is the planned increase in borrowings expected to help the company meet its gearing objective?

Options:

A.

No, gearing would increase but the gearing objective would be met both before and after the announcement.

B.

No, gearing would increase and the gearing objective would be exceeded both before and after the announcement.

C.

No, gearing would increase and the gearing objective would be met before the announcement but exceeded after the announcement.

D.

Yes, gearing would fall and the gearing objective would be exceeded before the announcement but met after the announcement.

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Questions 7

On 1 January 20X1, a company had:

• Cost of equity of 10 0%.

• Cost of debt of 5.0%

• Debt of $100Mmilion

• 100 million $1 shares trading at $4.00 each.

On 1 February 20X1:

• The company's share police fell to $3.00.

• Debt and the cost of debt remained unchanged

The company does not pay tax.

Under Modigliani and Miller's theory without lax. what is the best estimate of the movement in the cost of equity as a result of the fall in ne share price?

Options:

A.

It will stay the same at 10.0%.

B.

It will rise to 10.3%.

C.

It will fall to 9.3%.

D.

It will rise to 11.2%.

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Questions 8

A Venture Capital Fund currently holds a significant  shareholding in a large private company as a result of funding a recent management buyout. It plans to exit this investment in 5 years time at a significant profit.

 

Which THREE of the following exit mechanisms are most likely to be preferred by the Venture Capital Fund?

Options:

A.

The management team agrees to buy back the Venture Capital Funds shareholding in 5 years time at its original cost.

B.

The private company obtains a stock market listing on a recognised exchange within the next 5 years.

C.

The Venture Capital Fund has an option to sell its shareholding to the company at twice its original cost which can be exercised in 5 years time.

D.

The Venture Capital Fund has a legal entitlement to sell its shareholding to any third party investor if the company has not obtained a stock market listing within 5 years.

E.

The management team has an option to buy the Venture Capital Fund's shares for their nominal value which can be exercised in 5 years time. 

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Questions 9

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:

Options:

A.

$8.75 million profit

B.

$164.00 million profit

C.

$43.00 million profit

D.

$126.50 million loss

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Questions 10

A company has borrowings of S5 million on which it pays interest at 8%. It has an operating profit margin of 20%.

The company plans to increase borrowings by S2 million Interest on additional borrowings would be 10% and the operating profit margin would remain unchanged

A debt covenant attached to the new borrowings requires interest cover to be at least 4 times throughout the period of the borrowing

Interest cover is defined in the loan documentation as being based on operating profit

What is the minimum sales value required each year to avoid a breach of the interest cover covenant'

Options:

A.

S12.00 million

B.

S3.00 million

C.

TS2.40 million

D.

S2.88 million

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Questions 11

An unlisted company is attempting to value its equity using the dividend valuation model.

Relevant information is as follows:

   • A dividend of $500,000 has just been paid.

   • Dividend growth of 8% is expected for the foreseeable future.

   • Earnings growth of 6% is expected for the foreseeable future.

   • The cost of equity of a proxy listed company is 15%.

   • The risk premium required due to the company being unlisted is 3%.

The calculation that has been performed is as follows:

Equity value = $540,000 / (0.18 - 0.08) = $5,400,000

What is the fault with the calculation that has been performed?

Options:

A.

The cost of equity used in the calculation should have been 12% (15% subtract 3%).

B.

The dividend cashflow used should have been $500,000 rather than $540,000.

C.

The dividend growth rate is unsuitable given that earning growth is lower than dividend growth.

D.

The cost of equity used in the calculation should have been 15%; no adjustment was necessary.

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Questions 12

Which THREE of the following long term changes are most likely to increase the credit rating of a company?

Options:

A.

An increase in the interest cover ratio.

B.

A decrease in the (Net debt) / (Earnings before interest, tax, depreciation and amortisation) ratio.

C.

An increase in the free cashflow generated from operations.

D.

A decrease in the (Book value of debt) / (Book value of equity) ratio.

E.

A decrease in the dividend cover ratio.

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Questions 13

An unlisted company which is owned and managed by its original founders has accumulated excess cash following many years of profitable trading.

The Board of Directors is comprised of the four original founders who each hold 25% of the equity share capital.

 

Which THREE of the following will be significant considerations when deciding on the company's dividend policy? 

Options:

A.

The adequacy of the pension funds of the original founders. 

B.

The impact of the dividend policy on the company's share price.

C.

The cash requirements of the shareholders in the foreseeable future.

D.

The dividend policy of listed companies in the same industry.

E.

Income tax rates and the personal tax liabilities of the shareholders.

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Questions 14

X exports goods to customers in a number of small countries Asia. At present, X invoices customers in X's home currency.

The Sales Director has proposed that X should begin to invoice in the customers currency, and the Treasurers considering the implications of the proposal.

Which TWO of the following statement are correct?

Options:

A.

X may be able to sell the receipts forward.

B.

If the proposal is adopted, X will have a lower effective sales price per unit due to exchange rate fluctuations.

C.

X will know advance the amount of home currency it will receive for the export sales.

D.

The overseas customers may have difficulty obtaining X's name currency with which to make the purchases, so the Sales Director’s proposal may increase sales.

E.

The customer will tear the foreign exchange risk and will only buy from X if they are prepared to accept this.

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Questions 15

A listed publishing company owns a subsidiary company whose business activity is training.

It wishes to dispose of the subsidiary company.

 

The following information is available:

  

The board of the publishing company believe that the value of the subsidiary company, and hence the value of the equity invested in it, can be determined by calculating the present value of the subsidiary's free cashflows.

 

Which of the following is the most appropriate discount rate to use when determining the enterprise value of the company?

Options:

A.

A WACC that reflects the gearing of the publishing company and the asset beta of a listed company that provides training activities.

B.

A cost of equity that reflects the asset beta of a listed company that provides training activities. 

C.

A WACC that reflects the gearing of the subsidiary company and the asset beta of a listed company that provides training activities.

D.

A WACC that the reflects the gearing of the publishing company and the equity beta factor of the publishing company. 

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Questions 16

A company has announced a rights issue of 1 new share for every 4 existing shares. 

 

Relevant data:

   • The current market price per share is $10.00.

   • Rights are to be issued at a 20% discount to the current price.

   • The rate of return on the new funds raised is expected to be 10%.

   • The rate of return on existing funds is 5%.

What is the yield-adjusted theoretical ex-rights price?

 

Give your answer to two decimal places.

 

$ ?  

Options:

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Questions 17

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?

Options:

A.

TU does not account for its tangible assets

B.

TU does not account for its intangible assets.

C.

TU accounts for its intangible assets at net realisable value.

D.

TU accounts for its intangible assets at historical value.

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Questions 18

Which THREE of the following are benefits of integrated reporting?

Options:

A.

Improve the quality of information available to the providers of financial capital.

B.

Promote an understanding of the interdependencies of capitals. 

C.

Reduce the amount of work that is required to produce the report and accounts.

D.

Improve short term decision making.

E.

Support integrated decision-making. 

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Questions 19

A consultancy company is dependent for profits and growth on the high value individuals it employs.

The company has relatively few tangible assets.

 

Select the most appropriate reason for the net asset valuation method being considered unsuitable for such a company.

Options:

A.

It does not account for the intangible assets.

B.

It accounts for the intangible assets at historical value.

C.

It accounts for intangible assets at net realisable value.

D.

It does not account for tangible assets.

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Questions 20

Company A plans to acquire Company B, an unlisted company which has been in business for 3 years.

It has incurred losses in its first 3 years but is expected to become highly profitable in the near future.

No listed companies in the country operate the same business field as Company B, a unique new high-risk business process.

The future success of the process and hence the future growth rate in earnings and dividends is difficult to determine.

Company A is assessing the validity of using the dividend growth method to value Company B.

 

Which THREE of the following are weaknesses of using the dividend growth model to value an unlisted company such as Company B?

Options:

A.

The company has been unprofitable to date and hence, there is no established dividend payment pattern.

B.

The future projected dividend stream is used as the basis for the valuation.

C.

The future growth rate in earnings and dividends will be difficult to accurately determine. 

D.

The dividend growth model does not take the time value of money into consideration.

E.

The cost of capital will be difficult to estimate. 

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Questions 21

Company M plans to bid for Company J. Company M has 20 million shares in issue and a current share price of $10.00 before publicly announcing the planned takeover. Company J has 10 million shares in issue and a current share price of $4.00.

The directors of Company M are considering an all-share bid of 1 Company M shares for 2 Company J shares.

Synergies worth $20m are expected from the acquisition.

 

What is the likely change in wealth for Company M's shareholders (in total) if the bid is accepted?

 

Give your answer to the nearest $ million.

 

$  ? million 

Options:

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Questions 22

A venture capitalist invests in a company by means of buying:

   • 9 million shares for $2 a share and

   • 8% 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 10 million shares in issue.

 

What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?

 

Give your answer to the nearest $ million.

 

$   million.   

 

Options:

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Questions 23

A company is based in Country Y whose functional currency is Y$. It has an investment in Country Z whose functional currency is Z$.

This year the company expects to generate Z$ 10 million profit after tax.

Tax Regime:

   • Corporate income tax rate in country Y is 50%

   • Corporate income tax rate in country Z is 20%

   • Full double tax relief is available

Assume an exchange rate of Y$ 1 = Z$ 5.

 

What is the expected profit after tax in Y$ if the Z$ profit is remitted to Country Y?

Options:

A.

Y$ 1.25 million

B.

Y$ 1.00 million

C.

Y$ 31.25 million

D.

Y$ 4.00 million

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Questions 24

A company has an opportunity to invest in a positive net present value project, but the project would require debt finance that would push the company's gearing ever a limit imposed by a debt covenant on an existing loan.

Which THREE of the following actions could be taken by the company?

Options:

A.

The company could approach its existing Lenders to negotiate a relaxation of :he conditions imposed by the covenant.

B.

The project could be foregone if it cannot be funded without breaching the covenant

C.

The project could proceed if the cash inflows from the project will enable some of the debt to be repaid before the end of the financial year and so the breach of covenant may never be detected

D.

The company could seek alternative sources of finding, such as a reduction in the annual dividend payment, to finance the project.

E.

The directors could meet with key shareholder to discuss whether they wish the project proceed despite the breach of the covenant

F.

The directors could proceed will the project because their primary duly is maximise shared older wealth, even if that conflicts with lenders' interest.

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Questions 25

An all-equity financed company currently generates total revenue of $50 million.

Its current profit before interest and taxation (PBIT) is $10 million. 

Due to difficult trading conditions, the company expects its total revenue to be constant next year, although some margins will reduce.

It forecasts next year's PBIT will fall to 18% on 40% of its revenue, but that the PBIT on the other 60% of its revenue will be unaffected.

The rate of corporate tax is 20%.

 

What is the forecast percentage reduction in next year's Earnings?

Options:

A.

Reduction of 0.8%

B.

Reduction of 2.0%

C.

Reduction of 4.0%

D.

Reduction of 0%

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Questions 26

A company has:

   • $7 million market value of equity

   • $5 million market value of debt 

   • WACC of 9.375%

   • Corporate income tax rate of 15%

According to Modigliani and Miller's theory of capital structure with tax, what is the ungeared cost of equity?

Options:

A.

10.00%

B.

8.79%

C.

14.52%

D.

10.27%

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Questions 27

Listed company R is in the process of making a cash offer for the equity of unlisted company S. 

 

Company R has a market capitalisation of $200 million and a price/earnings ratio of 10.

 

Company S has a market capitalisation of $50 million and earnings of $7 million.

 

Company R intends to offer $60 million and expects to be able to realise synergistic benefits of $20 million by combining the two businesses.  This estimate excludes the estimated $8 million cost of integrating the two businesses.

 

Which of the following figures need to be used when calculating the value of the combined entity in $ millions?

Options:

A.

8, 20, 50, 60, 200 

B.

8, 20, 50, 200

C.

20, 50, 60, 200

D.

7, 10, 20, 50, 200

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Questions 28

Select the category of risk for each of the descriptions below:

Options:

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Questions 29

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?

Options:

A.

4.70%

B.

4.75%

C.

5.25%

D.

4.00%

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Questions 30

A company based in Country D, whose currency is the D$, has an objective of maintaining an operating profit margin of at least 10% each year. 

 

Relevant data:

   • The company makes sales to Country E whose currency is the E$. It also makes sales to Country F whose currency is the F$. 

   • All purchases are from Country G whose currency is the G$.

   • The settlement of all transactions is in the currency of the customer or supplier.

 

Which of the following changes would be most likely to help the company achieve its objective?

Options:

A.

The D$ strengthens against the E$ over time. 

B.

The F$ weakens against the D$ over time.

C.

The D$ strengthens against the G$ over time.

D.

The D$ weakens against the G$ over time.

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Questions 31

A large, listed company in the food and household goods industry needs to raise $50 million for a period of up to 6 months.

It has an excellent credit rating and there is almost no risk of the company defaulting on the borrowings. The company already has a commercial paper programme in place and has a good relationship with its bank.

 

Which of the following is likely to be the most cost effective method of borrowing the money?

Options:

A.

Bank overdraft

B.

6 month term loan

C.

Treasury Bills

D.

Commercial paper

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Questions 32

Company AB was established 6 years ago by two individuals who each own 50% of the shares.

Each individual heads a separate division within the company, which now has annual turnover of GBP10 million and employs 40 people.

Some of the employees are very highly paid as they are important contributors to the company's profitability.

The owners of the company wish to realise the full value of their investment within the next 12 months.

 

Which TWO of the following options are most likely to be acceptable exit strategies to the two owners of the company?

Options:

A.

Initial Public Offering (IPO)

B.

Management Buyout

C.

Sale to a larger competitor

D.

Sale to a Private Equity Investor on an earn-out basis

E.

Spin off (or de-merger)

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Questions 33

Which of the following best explains why the interest rate parity model is highly effective in practice?

Options:

A.

Governments actively manage their exchange rates so that parity holds

B.

Divergence from parity is impossible because exchange rates drive interest rates

C.

Any divergence from parity can be observed by the market and corrected by arbitrage

D.

Speculative forces drive the interest rates and exchange rates together to achieve parity.

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Questions 34

H Company has a fixed rate load at 10.0%, but wishes to swap to variable. It can borrow at LIBOR 8%.

The bank is currently quoting swap rates of 3.1% (bid) and 3.5% (ask).

What net rate will H Company pay if it enters into the swap?

Options:

A.

LIBOR +6.5%

B.

LIBOR +8%

C.

LIBOR +6.9%

D.

LIBOR +3.1%

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Questions 35

A listed company is planning a share repurchase. 

 

The following data applies:

   • There are 10 million shares in issue

   • The  share repurchase will involve buying back 20% of the shares at a price of $0.75

   • The company is holding $2 million cash

   • Earnings for the current year ended are $2 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?

Options:

A.

The cash balance will decrease by 75% and EPS will decrease by 25%.

B.

The cash balance will decrease by 75% and EPS will increase by 25%.

C.

The cash balance will decrease by 20% and the EPS will decrease by 25%.

D.

The cash balance will decrease by 20% and the EPS will increase by 25%.

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Questions 36

A company aims to increase profit before interest and tax (PBIT) each year.

The company reports in A$ but has significant export sales priced in B$. 

All other transactions are priced in A$.

 

In 20X1, the company reported:

  

In 20X2, the only changes expected are:

   • An increase in export prices of 10%, but no change to units sold.

   • A rise in the value of the B$ to A$/B$ 2.500 (that is, A$ 1 = B$ 2.5)

 

Is it likely that the company would still meet its objective to grow PBIT between 20X1 and 20X2?

Options:

A.

Yes, PBIT would increase by A$ 48 million.

B.

No, PBIT would fall by A$ 48 million.

C.

Yes, PBIT would increase by A$ 150 million.

D.

No, PBIT would fall by A$ 150 million.

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Questions 37

An entity prepares financial statements to 30 June.

During the year ended 30 June 20X2 the following events occurred:

 

1 July 20X1

   • The entitiy borrowed $100 million at a variable rate of interest.

   • In order to protect itself against the variability of its interest cashflows, the entity entered into a pay-fixed-receive-variable interest swap with annual settlements.  The fair value of the swap on this date was zero.

30 June 20X2

   • The entity received a net settlement of $2 million under the swap. After this net settlement, the fair value of the swap was $5 million - a financial asset.

The entity decides to use hedge accounting for this arrangement and has designated it as a cash flow hedge.  The swap is a perfect hedge of the variability of the cash interest payments.

 

Which of the following describes the treatment of the settlement and the change in the fair value of the swap in the statement of profit or loss and other comprehensive income for the year ended 30 June 20X2?

Options:

A.

$7 million is recognised in profit or loss.

B.

$7 million is recognised in other comprehensive income.

C.

$2 million is recognised in profit or loss and $5 million is recognised in other comprehensive income.

D.

$5 million is recognised in profit or loss and $2 million is recognised in other comprehensive income.

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Questions 38

A consultancy company is dependent for profits and growth on the high value individuals it employs.

The company has relatively few tangible assets.

 

Select the most appropriate reason for the net asset valuation method being considered unsuitable for such a company.

Options:

A.

It does not account for the intangible assets.

B.

It accounts for the intangible assets at historical value.

C.

It accounts for intangible assets at net realisable value.

D.

It does not account for tangible assets.

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Questions 39

A company is in the process of issuing a 10 year $100 million bond and is considering using an interest rate swap to change the interest profile on some or all of the $100 million new finance.

 

The company has a target fixed versus floating rate debt profile of 1:1. Before issuing the bond its debt profile was as follows:

 

 

 

Which of the following is the most appropriate interest rate swap structure for the company? 

Options:

A.

Pay fixed receive floating interest rate swap for $100 million.

B.

Pay fixed receive floating interest rate swap for $50 million.

C.

Receive fixed pay floating interest rate swap for $100 million.

D.

Receive fixed pay floating interest rate swap for $50 million.

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Questions 40

A company's current earnings before interest and taxation are $5 million.

These are expected to remain constant for the forseeable future.

The company has 10 million shares in issue which currently trade at $3.60.

It also has a $10 million long term floating rate loan.

The current interest rate on this loan is 5%.

The company pays tax at 20%.

The company expects interest rates to increase next year to 6% and it's Price/Earnings (P/E) ratio to move to 9.5 times by the end of next year.

 

What percentage reduction in the share price will occur by the end of next year if the interest rate increase and the P/E movement both occur?

Options:

A.

Reduction of 7%

B.

Reduction of 5%

C.

Reduction of 1%

D.

Reduction of 0%

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Questions 41

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?

Options:

A.

43%

B.

44%

C.

45%

D.

46%

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Questions 42

Hospital X provides free healthcare to all members of the community, funded by the central Government.

Hospital Y provides healthcare which has to be paid for by the individual patients. It is a listed company, owned by a large number of shareholders.

 

In comparing the above two organisations and their objectives, which THREE of the following statements are correct?

Options:

A.

X is a not-for-profit organisation while Y is a for-profit organisation.

B.

X and Y have the same primary financial objective - to maximise shareholder wealth.

C.

The performance of X will be appraised primarily on the basis of value for money.

D.

Only Y is likely to have a mixture of financial and non-financial objectives.

E.

X and Y will have the same primary non financial objective - provision of quality of health care.

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Questions 43

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?

Options:

A.

9.4%

B.

8%

C.

13.6%

D.

9.8%

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Questions 44

Company M is a listed company in a highly technical service industry.

The directors are considering making a cash offer for the shares in Company Q, an unquoted company in the same industry.

 

Relevant data about Company Q:

   • The company has seen consistent growth in earnings each year since it was founded 10 years ago.

   • It has relatively few non-current assets.

   • Many of the employees are leading experts in their field. A recent exercise suggested that the value of the company's human capital exceeded the value of its tangible assets.

The directors and major shareholders of Company Q have indicated willingness to sell the company.

Before negotiations become too advanced, the directors of Company M are considering the benefits to their company that would follow the acquisition.

 

Which THREE of the following are the most likely benefits of the acquisition to Company M's shareholders?

Options:

A.

Access to technical expertise.

B.

Reduction of risk through diversification.

C.

Improved asset backing for borrowing due to the acquisition of intangible assets.

D.

Gain economies of scale.

E.

Improve earnings per share (EPS).

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Questions 45

A listed company follows a policy of paying a constant dividend.  The following information is available:

   • Issued share capital (nominal value $0.50) $60 million

   • Current market capitalisation $480 million

The shareholders are requesting an increased dividend this year as earnings have been growing.  However, the directors wish to retain as much cash as possible to fund new investments. They therefore plan to announce a 1-for-10 scrip dividend to replace the usual cash dividend.

 

Assuming no other influence on share price, what is the expected share price following the scrip dividend?

 

Give your answer to 2 decimal places.

 

$ ?  

Options:

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Questions 46

Company A has a cash surplus.

The discount rate used for a typical project is the company's weighted average cost of capital of 10%.

No investment projects will be available for at least 2 years.

 

Which of the following is currently most likely to increase shareholder wealth in respect of the surplus cash?

Options:

A.

Investing in a 2 year bond returning 5% each year.

B.

Investing in the local money market at 4% each year.

C.

Maintaining the cash in a current account.

D.

Paying the surplus cash as a dividend at the earliest opportunity.

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Questions 47

Using the CAPM, the expected return for a company is 11%. The market return is 8% and the risk free rate is 2%.

 

What does the beta factor used in this calculation indicate about the risk of the company?

Options:

A.

It has greater risk than the average market risk.

B.

It has lower risk than the average market risk.

C.

It has the same risk as the average market risk.

D.

It is not possible to tell from CAPM.

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Questions 48

A company raised fixed rate bank finance together with an interest rate swap for the same term and same principal value to pay floating receive fixed rate interest on an annual basis.

 

Which THREE of the following statements are correct?

Options:

A.

The company has effectively obtained floating rate debt.

B.

On the first day of this arrangement, the company receives the principal borrowed from the bank and pays this across to the swap counterparty.

C.

LIBID (London Interbank Bid Rate) is normally used as the reference rate for determining interest due under the swap.

D.

Under the swap, interest is exchanged every year.

E.

The swap contract is normally a contract between a company and a bank.

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Questions 49

An aerospace company is planning to diversify into car manufacturing. 

 

Relevant data:

  

What is the the cost of equity to be used in the WACC for the project appraisal?

 

Give your answer in percentage, as a whole number.

 

Options:

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Questions 50

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).

Options:

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Exam Code: F3
Exam Name: Financial Strategy
Last Update: Jan 20, 2022
Questions: 338
$112.05  $249
$101.25  $225
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