2024 Correct Practice Tests of CIMAPRA19-F03-1 Dumps with Practice Exam
Certification Sample Questions of CIMAPRA19-F03-1 Dumps With 100% Exam Passing Guarantee
NEW QUESTION # 29
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.
Answer:
Explanation:
$ million.
34, 35, 34000000, 35000000
NEW QUESTION # 30
A company is owned by its five directors who want to sell the business.
Current profit after tax is $750,000.
The directors are currently paid minimal salaries, taking most of their incomes as dividends.
After the company is sold, directors' salaries will need to be increased by $50,000 each year in total.
A suitable Price/Earnings (P/E) ratio is 7, and the rate of corporate tax is 20%.
What is the value of the company using a P/E valuation?
- A. $5,530,000
- B. $4,970,000
- C. $4,900,000
- D. $5,250,000
Answer: B
NEW QUESTION # 31
Listed Company A has prepared a valuation of an unlisted company. Company B. to achieve vertical integration Company A is intending to acquire a controlling interest in the equity of Company B and therefore wants to value only the equity of Company B.
The assistant accountant of Company A has prepared the following valuation of Company B's equity using the dividend valuation model (DVM):
Where:
* S2 million is Company B's most recent dividend
* 5% is Company B's average dividend growth rate over the last 5 years
* 10% is a cost of equity calculated using the capital asset pricing model (CAPM), based on the industry average beta factor
Which THREE of the following are valid criticisms of the valuation of Company B's equity prepared by the assistant accountant?
- A. It is better to use the present value of earnings rather than present value of dividends to value a controlling interest
- B. The DVM calculation should use Company A's cost of equity rather than Company B's cost of equity
- C. An unlisted company cannot use the capital asset pricing model to calculate its cost of equity
- D. The beta factor used may not reflect Company B's financial risk.
- E. The 5% growth rate may not reflect the future growth of Company B.
Answer: B,D,E
NEW QUESTION # 32
A company plans to raise finance for a new project.
It is considering either the issue of a redeemable cumulative preference share or a Eurobond.
Advise the directors which of the following statements would justify the issue of preference shares over a bond?
- A. The issue of the preference share would reduce the company's gearing - however, the Eurobond would increase it.
- B. The company can claim tax relief on the dividend paid on the preference share at a higher rate than the interest paid on the Eurobond.
- C. If profits are poor, dividends do not have to be paid on the preference share - however, interest would need to be paid on the Eurobond.
- D. Preference shares are not secured against the assets of the business - however, the Eurobond would be.
Answer: C
NEW QUESTION # 33
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. $27.5 million profit
- B. $47.5 million profit
- C. $35.0 million loss
- D. $20.0 million profit
Answer: B
NEW QUESTION # 34
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?
- A. The management team agrees to buy back the Venture Capital Funds shareholding in 5 years time at its original cost.
- B. 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.
- C. The private company obtains a stock market listing on a recognised exchange within the next 5 years.
- 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.
Answer: B,C,D
NEW QUESTION # 35
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.
$ ?
- A. 2.02, 1.03
- B. 2.02, 2.03
Answer: B
NEW QUESTION # 36
Which of the following would be a reason for a company to adopt a low dividend pay-out policy?
- A. A lack of alternative sources of finance
- B. A lack of investment opportunities
- C. High profitability
- D. Using dividends to give a signal to the stock market
Answer: D
NEW QUESTION # 37
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.
Answer:
Explanation:
Pending
NEW QUESTION # 38
Company W is a manufacturing company with three divisions, all of which are making profits:
* Division A which manufactures cars
* Division B which manufactures trucks
* Division C which manufactures agricultural machinery
Company W is facing severe competitive pressure in all of its markets, and is currently operating with a high level of gearing Company W's latest forecasts suggest that it needs to raise cash to avoid breaching loan covenants on its existing debt finance in 6 months' time In a recent strategy review. Divisions A and B were identified as being the core divisions of Company W The management of Division C is known to be interested in the possibility of a management buy-out.
Company Z is known to be interested in making a takeover bid for Company W's truck manufacturing division A rival to Company W has recently successfully demerged its business, this was well received by the Financial markets Which of the following exit strategies will be most suitable for company W?
- A. Demerger of Division C
- B. Sale of Division B to Company Z
- C. Closure of Division
- D. Management buy-out of Division C
Answer: D
NEW QUESTION # 39
A company has:
* A price/earnings (P/E) ratio of 10.
* Earnings of $10 million.
* A market equity value of $100 million.
The directors forecast that the company's P/E ratio will fall to 8 and earnings fall to $9 million.
Which of the following calculations gives the best estimate of new company equity value in $ million following such a change?
A)
B)
C)
D)
- A. Option A
- B. Option B
- C. Option C
- D. Option D
Answer: A
NEW QUESTION # 40
AA is considering changing its capital structure. The following information is currently relevant to AA:
The gearing rating raising the new debt finance will be 50%.
Which THREE of the following statement about the impact of AA's change in capital structure are true under Modigliani and Miler's capital structure theory with tax.
- A. The WACC will decrease below 7.6%
- B. The cost of debt will increase above 4%
- C. The WACC increase above 7.6
- D. The cost of equity will decrease below 10%
- E. The cost of debt remain unchanged at 4%
- F. The cost of equity will increase above 10%
Answer: A,C
NEW QUESTION # 41
MAN is a manufacturing company that is based in country M and sells almost exclusively to customers in country M, priced in the local currency, M$.
MAN wishes to expand the business by acquiring a company that manufactures similar products but has a more global customer base. It is particularly interested in selling to customers in country P, which uses currency P$ but recognises that the P$ is generally quite volatile against the M$.
Country P uses the same language as country M, has free entry of labour from country M, no exchange controls or withholding tax and a favourable double tax treaty.
Which of the following companies would be most suitable takeover candidates for MAN to investigate further?
- A. A company based in country M with a global customer base including country P.
- B. A company based in country P with a large proportion of customers in country M.
- C. A company based in country M with a shared interest in selling in country P.
- D. A company based in country P with a global customer base including country P.
Answer: D
NEW QUESTION # 42
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 # 43
Two unlisted companies TTT and YYY are being valued. The companies have similar capital structures and risk profiles and operate in the same industry sector It is easier to value TTT than to value YYY because there have recently been several well-publicised private sales of TTT shares.
Relevant company data:
What is the best estimate of YYY's share price?
- A. $0.68
- B. $0.60
- C. $1.20
- D. $0.94
Answer: C
NEW QUESTION # 44
A company's annual dividend has grown steadily at an annual rate of 3% for many years. It has a cost of equity of 11%. The share price is presently $64.38.
The company is about to announce its latest dividend, which is expected to be $5.00 per share.
The Board of Directors is considering an attractive investment opportunity that would have to be funded by reducing the dividend to $4.50 per share. The board expects the project to enable future dividends to grow by 5% every year and the cost of equity to remain unchanged.
Calculate the change in share price, assuming that the directors announce their intention to proceed with this investment opportunity.
Give your answer to 2 decimal places.
$ ?
- A. 14.37
- B. 14.38
Answer: A
NEW QUESTION # 45
Which THREE of the following would be most important if a hospital wishes to review the effectiveness of its services?
- A. Staff costs compared to previous years.
- B. Revenue generated from car park charges.
- C. Patient satisfaction ratings.
- D. The proportion of surgical procedures that are deemed to be successful.
- E. Average waiting times for treatment.
Answer: C,D,E
NEW QUESTION # 46
Which THREE of the following are likely to be strategic reasons for a horizontal acquisition?
- A. To secure key parts of the value chain
- B. Reduction of risk by building a larger portfolio
- C. Reduction of competition
- D. Acquisition of an undervalued company
- E. To achieve economies of scale
Answer: C,D,E
NEW QUESTION # 47
Company A, a listed company, plans to acquire Company T, which is also listed.
Additional information is:
* Company A has 150 million shares in issue, with market price currently at $7.00 per share.
* Company T has 120 million shares in issue,. with market price currently at $6.00 each share.
* Synergies valued at $50 million are expected to arise from the acquisition.
* The terms of the offer will be 2 shares in A for 3 shares in T.
Assuming the offer is accepted and the synergies are realised, what should the post-acquisition price of each of Company A's shares be?
Give your answer to two decimal places.
Answer:
Explanation:
8.24
NEW QUESTION # 48
A publicly funded school is focused on providing Value for Money
It pays its leaching staff less than other schools, because class sizes are generally smaller than elsewhere Despite some staff demotivation from low pay, exam pass rates are high given the close one-to-one attention many pupils receive.
On which aspect of Value for Money is the school underperforming?
- A. Economy
- B. Environmental
- C. Effectiveness
- D. Efficiency
Answer: A
NEW QUESTION # 49
A company plans to cut its dividend but is concerned that the share price will fall. This demonstrates the _____________ effect
- A. B
- B. A
Answer: B
NEW QUESTION # 50
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. 9.4%
- B. 10.0%
- C. 11.0%
- D. 8.0%
Answer: C
NEW QUESTION # 51
A company which is forecast to experience a strong growth in its profitability is evaluating a potential bond issue.
Which of the following changes in corporate income tax and in bond yields would make the bond issue more attractive to the company?
- A. An increase in corporate tax and an increase in bond yields.
- B. A decrease in corporate tax and a decrease in bond yields.
- C. A decrease in corporate tax and an increase in bond yields.
- D. An increase in corporate tax and a decrease in bond yields.
Answer: C
NEW QUESTION # 52
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:
- A. decrease.
- B. stay the same.
- C. increase.
- D. increase or decrease depending on the bond's coupon rate.
Answer: C
NEW QUESTION # 53
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?
- A. Receive fixed pay floating interest rate swap for $50 million.
- B. Pay fixed receive floating interest rate swap for $100 million.
- C. Receive fixed pay floating interest rate swap for $100 million.
- D. Pay fixed receive floating interest rate swap for $50 million.
Answer: A
NEW QUESTION # 54
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CIMA F3: Financial Strategy is an essential exam for those seeking to attain the prestigious CIMA professional qualification. CIMAPRA19-F03-1 exam builds on your knowledge of financial management and focuses on developing strategies for effective financial planning and decision-making. It is an advanced level exam that tests your ability to analyze financial data and make informed recommendations.
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