Test CIMA F3 Questions, Authorized F3 Pdf

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CIMA CIMAPRA19-F03-1 exam for F3 Financial Strategy requires a thorough understanding of the concepts presented, a firm grasp of the language used, and the ability to apply those concepts to real-life financial scenarios. F3 exam is comprehensive, comprising of a blend of multiple-choice and long-form questions. Passing the F3 Financial Strategy paper requires significant time, effort, and dedication during the exam preparations. Hence, students are advised to devote ample time for study and review while taking advantage of reputable CIMA online resources to enhance their chances of success.
CIMA F3 Exam is a computer-based test that consists of objective questions. F3 exam is designed to be challenging, and candidates are required to demonstrate a high level of knowledge and understanding of financial management and strategy. F3 exam is also timed, with candidates having three hours to complete the test. Candidates who do not pass the exam on their first attempt can retake the exam at a later date.

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CIMA F3 Financial Strategy Sample Questions (Q119-Q124):NEW QUESTION # 119
A company is funded by:
* $40 million of debt (market value)
* $60 million of equity (market value)
The company plans to:
* Issue a bond and use the funds raised to buy back shares at their current market value.
* Structure the deal so that the market value of debt becomes equal to the market value of equity.
According to Modigliani and Miller's theory with tax and assuming a corporate income tax rate of 20%, this plan would:

• A. increase the market value of the company's equity.
• B. decrease the company's equity beta.
• C. increase the company's asset beta.
• D. increase shareholder wealth.
  

Answer: D
Explanation:
According to Modigliani and Miller with tax, the value of a levered firm is:
VL=VU+Tc×DV_L = V_U + T_c         imes DVL=VU+Tc×D
where TcT_cTc is the corporate tax rate and DDD is the market value of debt. With corporate income tax, interest is tax-deductible, so increasing debt creates a tax shield and increases total firm value.
Initially:
Debt = 40
Equity = 60
Total value = 100
Tax rate = 20%.
If the company increases debt and uses the proceeds to buy back shares until debt equals equity, then:
New structure: D=ED = ED=E
Total firm value rises because Tc×DT_c         imes DTc×D increases.
The extra value (PV of the additional tax shield) accrues to shareholders, even though the accounting market value of equity after the buyback may fall in absolute terms; shareholders have also received cash from the buyback, so their total wealth increases.
Business risk (and therefore asset beta) is unchanged; however equity beta would rise, not fall, because of higher financial leverage. Therefore the only correct statement is that the plan would increase shareholder wealth - answer C.

NEW QUESTION # 120
Company ADE is an unlisted company; it needs to raise a significant amount of finance to fund future expansion. The directors are considering listing the company on the local stock exchange The following discussions have taken place between some of the directors:
Director A - We consider a public issue of bonds in the capital markets, we don't need to list to issue the bonds which will save time and money.
Director B - We should list on the Alternative Investment Market (AIM) and not the main market to avoid any regulatory requirements Director C - We should remain unlisted; we can access an unlimited amount of equity finance through a rights issue Director D - Listing will increase Company ADE's ability to raise new equity and debt finance in the future.
Director E - If we list, Company ADE will be a more likely target for a takeover than if we remain unlisted.
Which TWO of the directors' statements are correct?

• A. Director E
• B. Director A
• C. Director C
• D. Director B
• E. Director D
  

Answer: A,E
Explanation:
Director A - You can issue bonds without having listed equity, but a "public issue" of bonds still involves heavy regulation and doesn't remove the need for disclosure. This is not what the question is really getting at
# treat as not correct.
Director B - AIM still has regulatory requirements; they are lighter, not non-existent # incorrect.
Director C - Rights issues are for existing shareholders of (normally) listed companies; an unlisted company cannot raise unlimited equity this way # incorrect.
Director D - Listing improves marketability and visibility and generally increases the ability to raise both equity and debt # correct.
Director E - Listed status makes shares more easily tradable and the company more visible, so it becomes a more likely takeover target # correct.

NEW QUESTION # 121
Which THREE of the following methods of business valuation would give a valuation of the equity of an entity, rather than the value of the whole entity?

• A. Total earnings x appropriate price-earnings ratio.
• B. Expected dividend in one year's time / (cost of equity - growth rate).
• C. Forecast future cash flows to equity, discounted at the cost of equity.
• D. Forecast future cash flows to all Investors, discounted at the weighted average cost of capital.
• E. Non-current assets, plus current assets, minus current liabilities
  

Answer: A,B,C
Explanation:
We want methods that give the value of equity, not the value of the whole entity.
A). D# / (k# - g) # Gordon growth dividend model = value of equity (share value). #
B). Total earnings × P/E # market capitalisation = equity value. #
C). Free cash flows to all investors discounted at WACC # enterprise / firm value (equity + debt). #
D). Free cash flows to equity discounted at cost of equity # equity value. #
E). NCA + CA # CL # value of net assets before deducting long-term debt, i.e. value of the business to all capital providers, not just equity. # So correct choices: A, B, D.

NEW QUESTION # 122
A company proposes 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 company to the nearest $ million is:

• A. $889 million
• B. $1,260 million
• C. $966 million
• D. $834 million
  

Answer: C
Explanation:
Cash flows:
Years 1-3: 100, 100, 100
From year 4: grow at 2% forever. Cost of capital = 12%.
PV of years 1-3:
PV1#3=1001.12+1001.122+1001.123#240        ext{PV}_{1-3} = rac{100}{1.12} + rac{100}{1.12
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