CIMAPRO19-F03-1-ENG Practice Online

Question 1

Company J is in negotiations to acquire Company K and believes it can turn around Company K's

performance to match its own.

The following information is available for the two companies:

Select the maximum price for each share that Company J should place on Company K during negotiations.

A : $1.7

B : $2.0

C : $3.0

D : $3.2

Answer: C

Question 2

A company is planning to issue a 5 year $100 million bond at a fixed rate of 6%.

It is also considering whether or not to enter into a 10 year $100 million swap to receive 5% fixed and pay

Libor + 1% once a year.

The company predicts that Libor will be 4% over the life of the 5 years.

What is the impact of the swap on the company's annual interest cost assuming that

the Libor prediction is correct?

A : Increase by 1%.

B : Fall by 1%.

C : Remain the same.

D : Fall by 2%.

Answer: C

Question 3

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 4

A company is concerned that a high proportion of its debt portfolio consists of variable rate finance with an

interest rate of LIBOR ' 1 .0%.

It is considering using an interest rate swap to reduce interest rate risk out is concerned about additional

finance cost this might create.

A bank has quoted swap rates of 3% 3.5% against LIBOR.

Is an interest rate swap likely to be beneficial to the company at current LIBOR rates?

A : No, because it would be cheaper to repay variable rate finance aid enter into new fixed rate finance than to enter into an interest rate swap

B : Yes, because it will have lower interest rate risk and interest cost remains the same.

C : Yes, because interest cost will decrease with the interest rate swap in place.

D : No, because interest cost will increase with the interest rate swap in place.

Answer: B

Question 5

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 : It is "off-balance sheet" and will not affect the company's gearing.

B : The interest rate offered might be more favourable because the lessor has the security of the asset.

C : Tax depreciation allowances may be passed on to the company by the lessor.

D : The lessor provides maintenance of the asset.

Answer: B

Name:	F3 Financial Strategy
Exam Code:	CIMAPRO19-F03-1-ENG
Certification:	CIMA Professional Qualification
Vendor:	CIMA
Total Questions:	305
Last Updated:	May 13, 2024

Download Demo CIMAPRO19-F03-1-ENG Dumps

Create Account

Password Recovery

CIMAPRO19-F03-1-ENG Practice Online

Download Demo CIMAPRO19-F03-1-ENG Dumps

Member Login

Create Account

Password Recovery

CIMAPRO19-F03-1-ENG Practice Online