CIMA CIMAPRA19-F03-1 Exam Practice Test Instant Access

Question 1

G purchased a put option that grants the right to cap the interest on a loan at 10.0%. Simultaneously, G sold a call option that grants the holder the benefits of any decrease if interest rates fall below 8.5%.

Which THREE possible s would be consistent with G's behavior?

AG is willing to risk the loss of savings from a fall in interest rates if that offsets the cost of limiting the cost of rises.

BG's strategy is to ensure that its interest rates lie between 8.5% and 10.0%.

CG is concerned that interest rates may rise above 10.0%.

DG is concerned that interest rates may rise above 8.5%.

EG is concerned that interest rates may fall below 10%.

Answer : A, B, C

Question 2

Company ACC. an ungeared car manufacturer has launched a takeover bid of Company BDD. a key competitor operating in the same industry Company BDD has high gearing Company ACC has a large surplus cash balance and believes that the acquisition is an opportunity to enhance shareholder wealth through the realisation of synergistic benefits. Which THREE of the following would most likely be synergistic benefits to Company ACC of purchasing Company BDD9 I

AReduction in staff costs due to the removal of duplicated roles.

BDecreased cost of debt

CEnhanced profit due to reduced competition

DReduction in financial risk due to diversification

ECost savings in production due to economies of scale

Answer : A, B, E

Question 3

Company ABC's management has noticed that Company BCD has quickly built up a 20% stake by buying shares in Company ABC and are concerned that this is the start of a hostile bid.

This build-up of shares triggers the poison pill provision which automatically converts the rights to buy future preference shares previously issued to existing shareholders in Company ABC to full ordinary shares

What is the most likely impact of the triggering of a poison pill strategy at this stage in the bidding process?

AIt is too late for a poison pill strategy to have any impact on a hostile takeover because Company BCD has already built up a significant stake in Company ABC.

BCompany BCD loses value on its shareholding and has to sell at a loss before losing more value

CCompany ABC becomes less attractive due to a fall in value of the shares as a result of the discount.

DThe threat of a hostile takeover is reduced because Company ABC becomes more expensive to buy.

Answer : D

Question 4

A company with 4 million shares in issue wishes to raise $4 million by means of a rights issue

The share price prior to the rights issue is $5.00.

Under the rights issue, 1 million new shares will be issued at $4.00.

When the rights issue is announced it is expected that the Theoretical Ex-rights Price (TERP) will be $4.80

The directors of the company are considering offering any shareholder who does not wish to take up the rights the opportunity to sell the rights back to the company for $1.00.

Which of the following is the most likely consequence of the directors offer?

AIt will have no effect on the take up of the rights because shareholder wealth will be the same whether the rights are taken up or sold back to the company

BThe directors offer will increase demand for the shares and as a consequence the share price will rise above the theoretical ex-rights price.

CIt will encourage more shareholders to sell their lights on the open market.

DIt will result in fewer shareholders taking up the rights and as a consequence less cash will be raised from the rights issue

Answer : D

Question 5

Company AAB is located in country A whose currency is the AS It has a subsidiary, BBA, located m country B that has the BS as its currency AAB has asked BBA to pay BS40 million surplus funds to AAB to assist with a planned new capital investment in country A The exchange rate today is AS1 = BS3

Tax regimes

* Company BBA pays withholding tax of 25% on all cash remitted to the parent company

* Company AAB pays tax of 10% on at cash received from its subsidiary

How much will company AAB have available for investment after receiving the surplus funds from BBA?

AA$ 12 million

BA$ 9 million

CA$ 81 million

DA$ 27 million

Answer : B

Question 6

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?

AEffectiveness

BEnvironmental

CEconomy

DEfficiency

Answer : C

Question 7

Company AAB is located in Country A with the A$ as its functional currency It plans to grow by acquisition and has identified Company BBA as a potential takeover candidate Company BBA is located in Country B with the BS as its functional currency.

The directors of Company AAB are concerned about foreign currency risk if the acquisition goes ahead

Which of the following will be most effective in reducing Company AAB's exposure to translation risk if the acquisition is successful1?

AFinancing the acquisition with equity in A$'s.

BSetting up a mufti-currency bank account to net-off receipts and payments

CFinancing the acquisition with borrowings in BS's

DUsing forward contracts to fix the exchange rate between the AS and the B$

Answer : D

CIMAPRA19-F03-1 F3 Financial Strategy Exam Practice Test