Practice CIMAPRO19-F03-1-ENG Exam Online

Question 1

Company A is planning to acquire Company B at a price of $ 65 million by means of a cash bid.

Company A is confident that the merged entity can achieve the same price earnings ratio as that of Company

A.

What does Company A expect the value of the merged entity to be post acquisition?

A : $122.5 million

B : $156.0 million

C : $187.5 million

D : $207.0 million

Answer: A

Question 2

The Board of Directors of a listed company is considering the company's dividend/retentions policy.

The inflation rate in the economy is currently high and is expected to remain so for the foreseeable future.

The board are unsure what impact the high level of inflation might have on the dividend policy.

Which THREE of the following statements are true?

A : The high inflation rate does not need to be considered when determining the dividend policy.

B : Consideration should be given to the fact that shareholders will have a desire for real growth in dividend.

C : Retained earnings for reinvestment will have to earn a return in excess of the inflation level.

D : The impact of inflation on the cash flows should be considered when formulating the dividend policy.

E : In periods of high inflation 100% of earnings should always be paid out as dividends so that shareholders can protect their wealth against the impact of inflation.

Answer: B,C,D

Question 3

A company is preparing an integrated 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?

A : An explanation of how the organisation's governance structure supports its ability to create value in the short, medium and long term.

B : A detailed analysis of the organisation's business model.

C : The challenges and uncertainties that the organisation is likely to encounter in pursuing its strategy.

D : A comparison of the key elements of its financial statements with those of its main competitor.

E : A summary of the key issues discussed by directors in main board meetings.

Answer: A,B,C

Question 4

A company has:

• $6 million market value of equity

• $4 million market value of debt

• WACC of 11.04%

• Corporate income tax rate of 20%

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

A : 12.00%

B : 10.16%

C : 16.24%

D : 12.54%

Answer: A

Question 5

A company financed by equity and debt can be valued by discounting:

A : free cash flow before interest at WACC.

B : free cash flow before interest at the cost of equity.

C : free cash flow after interest at WACC.

D : free cash flow after interest at the cost of equity.

Answer: A

Name:	F3 Financial Strategy
Exam Code:	CIMAPRO19-F03-1-ENG
Certification:	CIMA Professional Qualification
Vendor:	CIMA
Total Questions:	305
Last Updated:	Apr 24, 2024

CIMA CIMAPRO19-F03-1-ENG