Free F3 Financial Strategy Exam CIMAPRA19-F03-1 Exam Practice Test

A company has:* 10 million $1 ordinary shares in issue* A current share price of$5.00 a share* A WACC of 15%The company holds $10 million in cash. No interest is earned on this cash.It will invest this in a projectwith an expected NPV of $4 million.In a semi-strong efficientstock market, which of the following is the most likely share price immediately after the announcement of the new investment?

• $5.40
• $6.40
• $6.80
• $5.30

Which THREE of the following are considered in detail in IFRS 7 Financial Instruments: Disclosures?

• Credit risk
• Business risk
• Market risk
• Enterprise risk
• Liquidity risk

A company has undertaken a transaction with its shareholders which has hadthe following impact on its financial statements:* Retained earnings has decreased* Share capital has increased* Earnings per share has decreased* The book value of equity isunchangedThe company has undertaken a:

• share repurchase.
• scrip dividend.
• rights issue.
• cash dividend.

Company A, a listed company,plans to acquire Company T, which is also listed.Additional information is:* Company Ahas100 million shares in issue, with market price currentlyat $8.00per share.* Company T has 90 million shares in issue,.with market price currentlyat $5.00 each share.* Synergies valued at $60 millionare expected to arise from the acquisition.* The terms ofthe offerwill be2shares in Afor 3 shares in B.Assuming the offer is accepted and the synergies arerealised, what should thepost-acquisitionprice of each of Company A's shares be?Give your answer totwodecimal places.$? .

A listed company with a growing share priceplans to finance a four-yearresearchprojectwith debt.The main criterion for the finance is to minimise the annual cashflow payments on the debt.The research will be sold at the end of the project.Which of the following would be the most suitable financing method for the company?

• Bonds with warrants
• Finance lease
• Standard bonds
• Bank loan

A companyproposes to value itself based on the net present value of estimated future cash flows.Relevant data:* The cash flow for the next three years is expected to be 100 million each year* The cash flow after year 3 will grow at 2% to perpetuity* The cost of capital is 12%The value of the companyto the nearest $ million is:

• $966 million
• $1,260 million
• $889 million
• $834 million

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?

• Bank overdraft
• 6 month term loan
• Treasury Bills
• Commercial paper

A venture capitalist invests in a company by means of buying:* 9million shares for$2 a share and* 8% bonds with anominalvalue of $2 million, repayableat par in 3 years' time.The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment.The company has 10 million shares in issue.What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?Give your answer to the nearest$million.$ million.

When valuing an unlisted company, aP/Eratio for a similar listed company may be used but adjustments to theP/Eratio may be necessary.Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use?

• The relative lack of marketability of unlisted company shares.
• A lower level of scrutiny and regulation for unlisted companies.
• Unlisted companies being generally smaller and less established.
• Control premium not being included within the proxy p/e ratio used.
• The forecast earnings growth being relatively higher in the unlisted company.
• A profit item within the unlisted company's latest earnings which will not reoccur.

A listed company plans to raise $350 million to finance a major expansion programme.The cash flow projections for the programme are subject to considerable variability.Brief details of the programme have been public knowledge for a few weeks.The directors are considering two financing options, either a rights issue at a 20% discount to current share price or a long term bond.The following data is relevant:The company's share price has fallen by 5% over the past 3 months compared with a fall in the market of 3% over the same period.The directors favour the bond option.However, the Chief Accountant has provided arguments for a rights issue.Which TWO of the following arguments in favour of a right issue are correct?

• The issue of bonds might limit the availability of debt finance in the future.
• The recent fall in the share price makes a rights issue more attractive to the company.
• The rights issue will lead to less pressure on the operating cash flows of the programme.
• The WACC will decrease assuming Modigliani and Miller's Theory of Capital Structure without taxes applies.
• The administrative costs of a rights issue will be lower.