[2021] F3 Answers F3 Free Demo Are Based On The Real Exam
F3 [Dec-2021 Newly Released] Exam Questions For You To Pass
NEW QUESTION 132
Select the category of risk for each of the descriptions below:
Answer:
Explanation:
NEW QUESTION 133
A company is considering taking out $10.000,000 of floating rate bank borrowings to finance a new project.
The current rate available to the company on floating rate barrowings is 8%. The borrowings contain a covenant based on an interested cover of 5 times.
The project is expected to generate the following results:
At what interest rate on the floating rate borrowings is the bank covenant first breached?
- A. 8.0%
- B. 11.0%
- C. 9.4%
- D. 10.0%
Answer: B
NEW QUESTION 134
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 $1.50 per Kilowatt.
The company expects this to cause consumption to rise by 10% but costs would remained unaltered.
The price cap is expected to cause the company's net profit to fall to:
- A. $20.0 million profit
- B. $27.5 million profit
- C. $47.5 million profit
- D. $35.0 million loss
Answer: C
NEW QUESTION 135
A listed company is financed by debt and equity.
If it increases the proportion of debt in its capital structure it would be in danger of breaching a debt covenant imposed by one of its lenders.
The following data is relevant:
The company now requires $800 million additional funding for a major expansion programme.
Which of the following is the most appropriate as a source of finance for this expansion programme?
- A. Private placement of a bond
- B. Rights issue
- C. Retained earnings
- D. Bank overdraft
Answer: B
NEW QUESTION 136
When valuing an unlisted company, a P/E ratio for a similar listed company may be used but adjustments to the P/E ratio may be necessary.
Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use?
- A. The relative lack of marketability of unlisted company shares.
- B. The forecast earnings growth being relatively higher in the unlisted company.
- C. Control premium not being included within the proxy p/e ratio used.
- D. A lower level of scrutiny and regulation for unlisted companies.
- E. A profit item within the unlisted company's latest earnings which will not reoccur.
- F. Unlisted companies being generally smaller and less established.
Answer: A,D,F
NEW QUESTION 137
Company W has received an unwelcome takeover bid from Company B.
The offer is a share exchange of 3 shares in Company B for 5 shares in Company W or a cash alternative of $5.70 for each Company W share.
Company B is approximately twice the size of Company W based on market capitalisation. Although the two companies have some common business interested the main aim of the bid is diversification for Company B.
Company W has substantial cash balances which the directors were planning to use to fund an acquisition.
These plans have not been announced to the market.
The following share price information is relevant.
Which of the following would be the most appropriate action by Company W's directors following receipt of this hostile bid?
- A. Write to shareholders explaining fully why the company's share price is under valued.
- B. Pay a one-off special dividend.
- C. Refer the bid to the country's competition authorities.
- D. Change the Articles of Association to increase the percentage of shareholder votes required to approve a takeover.
Answer: A
NEW QUESTION 138
A company is deciding whether to offer a scrip dividend or a cash dividend to its shareholders.
Although the company has excellent long-term growth prospects, it is experiencing short-term profit and cash flow problems.
Which of the following statements is most likely to be a reason for choosing the scrip dividend?
- A. It is a way of increasing earnings per share.
- B. It is a way of raising additional finance to promote future growth.
- C. It is a way of encouraging shareholders to allow cash to be retained in the business.
- D. It is a way of increasing dividend per share.
Answer: C
NEW QUESTION 139
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?
- A. $7 million is recognised in other comprehensive income.
- B. $5 million is recognised in profit or loss and $2 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. $7 million is recognised in profit or loss.
Answer: C
NEW QUESTION 140
Company R is a well-established, unlisted, road freight company.
In recent years R has come under pressure to improve its customer service and has had some cusses in doing this However, the cost of improved service levels has resulted In it marketing small losses in its latest financial year. This is the forest time R has not been profitable.
R uses a' residual divided policy ad has paid dividends twice in the last 10 years.
Which of the following methods would be most appropriate for valuating R?
- A. The earnings yield method, adjusting the earnings yield of a listed company downloads to reflect R's unlisted status.
- B. The divided valuation mode.
- C. Valuing the tangible assets and intangible assets of R.D. The P/E method, adjusting the P/E of a listed company downwards to reflect R's unlisted status.
Answer: C
NEW QUESTION 141
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. 45%
- B. 46%
- C. 43%
- D. 44%
Answer: D
NEW QUESTION 142
A company has a cash surplus which it wishes to distribute to shareholders by a share repurchase rather than paying a special dividend.
Which THREE of the following statements are correct?
- A. The share repurchase, if approved by the shareholders, will be binding on all of the company's shareholders.
- B. The payment of a special dividend could raise shareholders' expectations of similar distributions in the future, unlike a share repurchase.
- C. Determination of the repurchase price will be easy as shareholders will insist on receiving the open market price.
- D. Different tax regimes could result in shareholders having a preference for a share repurchase due to the often more preferential tax treatment of capital gains.
- E. The share repurchase could send a negative signal to shareholders as it could be interpreted as a failure of management to find suitable investment opportunities.
Answer: B,D,E
NEW QUESTION 143
A company is considering taking out $10.000,000 of floating rate bank borrowings to finance a new project.
The current rate available to the company on floating rate barrowings is 8%. The borrowings contain a covenant based on an interested cover of 5 times.
The project is expected to generate the following results:
At what interest rate on the floating rate borrowings is the bank covenant first breached?
- A. 8.0%
- B. 11.0%
- C. 9.4%
- D. 10.0%
Answer: B
NEW QUESTION 144
A company has accumulated a significant amount of excess cash which is not required for investment for the foreseeable future.
It is currently on deposit, earning negligible returns.
The Board of Directors is considering returning this excess cash to shareholders using a share repurchase programme.
The majority of shareholders are individuals with small shareholdings.
Which THREE of the following are advantages of the company undertaking a share repurchase programme?
- A. The earnings per share should increase for the shareholders who do not sell their shares.
- B. Institutional investors generally prefer a constant predictable income in the form of dividends.
- C. Individual shareholders can realise their investment if they wish.
- D. It reduces excess cash which might have been attractive to predators.
- E. It reduces the amount of cash for potential future investment opportunities.
Answer: A,C,D
NEW QUESTION 145
Company A is subject to a takeover bid from Company B, both companies operate in the same industry and each of them demand a significant market share Company B h3S made an of an of $5 per share to the shareholders of Company A.
The directors of Company A do not believe the takeover would be h the best interests of the stakeholders and other stakeholders of Company A due to the following reruns
1. Company B has recently taken ever several ether companies resulting in them breaking up the company and se ling on the assets.
2 The directors of Company A believe the offer of $5 per snare undervalues tie company The directors of Company A are therefore keen to prevent the bid from going ahead Which THREE of the following defence strategies could be used by the directors of Company Air this situation?
- A. Refer the bid to the Competition Authorizes because of the risk of a large number of employee redundancies if Company B's Did were to be successful
- B. Inform shareholders of the potential current value of the non-current assets including intangibles, to show that their true value is higher than the bid value.
- C. Appeal to their own shareholders that the company should not be broken up because i: has strong growth prospects.
- D. Offer the company to an alternative While Knight bidder.
- E. Give existing shareholders the right to buy bonds in the future.
Answer: A,C,D
NEW QUESTION 146
ADC is planning to acquire DEF in order to benefit from the expertise of DEF's owner 'managers Both are Listed companies. ADC is trying to decide whether to offer cash or shares in consideration for DEF's shares.
Which THREE of the following are advantages to ABC of offering shares to acquire CEF?
- A. It shares tie benefits of future growth with the DCT shareholder.
- B. It dilutes ownership in ABC.
- C. The risk of poor future performance of the acquisition is shared with the DEF company shareholder.
- D. It results in a tax saving for ABC.
- E. It preserves liquidity
- F. It incentivises DEF to continue creating value for the combined group
Answer: A,C,F
NEW QUESTION 147
A company's Board of Directors is considering raising a long-term bank loan incorporating a number of covenants.
The Board members are unsure what loan covenants involve.
Which THREE of the following statements regarding loan covenants are true?
- A. A financial covenant usually requires the company to adhere to specific financial conditions or targets.
- B. A restrictive covenant prohibits the company from conducting certain actions without the approval of the lending institution.
- C. A positive loan covenant would require the company to undertake specific actions.
- D. A loan covenant has no contractually binding obligations.
- E. A covenant gives the financial institution the right but not the obligation to convert debt into equity in a case of non-compliance.
Answer: A,B,C
NEW QUESTION 148
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 149
Two companies that operate in the same industry have different Price/Earnings (P/E) ratios as follows:
Which of the following is the most likely explanation of the different P/E ratios?
- A. Company B has higher gearing than Company A.
- B. Company B has higher business risk than Company A.
- C. Company B has a greater profit this year than Company A.
- D. Company B has higher expected future growth than Company A.
Answer: D
NEW QUESTION 150
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.
Answer:
Explanation:
$ ?
11.20, 11.2
NEW QUESTION 151
A company plans to acquire new machinery.
It has two financing options; buy outright using a bank loan, or a finance lease.
Which of the following is an advantage of a finance lease compared with a bank loan?
- A. Tax depreciation allowances may be passed on to the company by the lessor.
- B. It is "off-balance sheet" and will not affect the company's gearing.
- C. The interest rate offered might be more favourable because the lessor has the security of the asset.
- D. The lessor provides maintenance of the asset.
Answer: C
NEW QUESTION 152
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
Answer:
Explanation:
300,
300000000
NEW QUESTION 153
B has a S3 million loan outstanding on which the interested rate is reset every 6 months for the following 6 month and the interested is payable at the end of that 6 month period. The next 6 monthly reset period starts in
3 months and the treasurer of B thinks interested rates are likely to raise between and then.
Current 6-month rates are 6.4% and the treasurer can get a rate of 6.9% for a 6-month forward rate agreement (FRA) starting in 3 months time. By transacting an TRA the treasurer can lock in a rate today of 6.9%.
If interested rates are 7.5% in 3 months' time, what will the net amount payable be?
Give your answer to the nearest thousand dollars.
Answer:
Explanation:
104
NEW QUESTION 154
Company F's current profit before interest and taxation is $5.0 million.
It has a 10% long-term corporate bond in issue with a nominal value of $10 million.
Corporate tax is paid at 25%.
The industry average P/E multiple is 10.
Company X has made an approach to acquire the entire share capital of Company F for $30 million.
Company X has announced that anticipated synergies (after interest and taxation) arising from its acquisition of Company F will be $1 million each year in perpetuity.
Advise the Board of Directors of Company F if the bid should be accepted, based on the above information?
- A. Reject the bid because Company F is potentially worth $40 million to Company X.
- B. Reject the bid because Company F is potentially worth $50 million to Company X.
- C. Reject the bid because Company F is potentially worth $60 million to Company X.
- D. Accept the bid because Company F is potentially worth $30 million to Company X.
Answer: A
NEW QUESTION 155
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. 4,500
- B. 3,150
- C. 1,890
- D. 2,700
Answer: B
NEW QUESTION 156
Under traditional theory, an increase in a company's WACC would cause the value of the company to:
- A. Stay the same
- B. Either increase or decrease
- C. Increase
- D. Decrease
Answer: D
NEW QUESTION 157
......
New 2021 Realistic Free CIMA F3 Exam Dump Questions & Answer: https://www.passtestking.com/CIMA/F3-practice-exam-dumps.html
CIMA F3 Exam: Basic Questions With Answers: https://drive.google.com/open?id=1B0kJMSrN5Ua91oXLaYd3FL-91nU8uFj_