CIMA CIMAPRA19-F03-1 F3 Financial Strategy Exam Exam Practice Test Questions

• Question 1

  Company A has a cash surplus.The discount rate used fora typical project is the company's weighted average cost of capital of 10%.No investment projects willbeavailablefor at least 2 years.Which of the following is currentlymost likely to increase shareholder wealth in respect of the surplus cash?

  • Investing in a 2 year bond returning 5% each year.
  • Investing in the local money market at 4% each year.
  • Maintaining the cash in a current account.
  • Paying the surplus cash as a dividend at the earliest opportunity.

  Show Answer Answer: D Next

• Question 2

  Acompanyispreparing anintegrated report according to the International <IR> Framework as issued by the International Integrated Reporting Council.Which THREE of the following should be included in the report?

  • An explanation of how the organisation's governance structure supports its ability to create value in the short, medium and long term.
  • A detailed analysis of the organisation's business model.
  • The challenges and uncertainties that the organisation is likely to encounter in pursuing its strategy.
  • A comparison of the key elements of its financial statements with those of its main competitor.
  • A summary of the key issues discussed by directors in main board meetings.

  Show Answer Answer: A, B, C Next

• Question 3

  A company plans to raise $12 millionto finance an expansion project using a rights issue.Relevant data:* Shares will be offered at a 20% discountto the present market price of $15.00 per share.* There are currently 2 million shares in issue.* The project is forecast to yield a positive NPV of $6 million.What is the yield-adjusted Theoretical Ex-Rights Price following the announcement of the rights issue?

  • $16.00
  • $14.00
  • $9.00
  • $11.00

  Show Answer Answer: A Next

• Question 4

  CompanyA has made an offer to acquire CompanyZ.Both companies are quoted and their current market share prices are:* CompanyA- $4* CompanyZ- $5Shareholders in companyZhave been given three alternative offers:* Cash of $5.50 per share* Shareforshareexchangeonthebasisof3for2* 10.5% longdatedbondforevery20sharesThe bond is has a nominal value of $100 and the expected yield on bonds of similar risk is 10%.You are advising a CompanyZshareholder on the three offers.She requires a 15% premium if she is to accept the offer.In providing your advice, whichof the following statements is correct?

  • The bond offer is only worth $100 which represents a zero premium and should be rejected.
  • The bond offer is above the minimum threshold and should be accepted.
  • The share for share exchange is the only offer which is above the acceptance threshold.
  • The value of the consideration given by the cash and bond offers is certain, unlike the share offer.

  Show Answer Answer: C Next

• Question 5

  Which THREE of the following statements are correct?

  • A portfolio can be diversified by increasing the number of securities in different industries held in the portfolio.
  • Systematic risk can be eliminated in a diversified portfolio.
  • The beta of a company's shares reflects systematic risk.
  • A beta of 1 indicates that the investment is risk free.
  • The security market line (SML) shows the relationship between systematic risk and return.

  Show Answer Answer: A, C, E Next