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| Certification Vendor: | CIMA (Chartered Institute of Management Accountants) |
|---|---|
| Exam Name: | F3 Financial Strategy |
| Exam Number: | CIMAPRA19-F03-1 |
| Available Languages: | English |
| Real Exam Qty: | 60 |
| Passing Score: | 100/150 (scaled score) |
| Exam Format: | Hot Spot, Number Entry, Multiple Response, Multiple Choice, Computer-Based Objective Test, Drag and Drop |
| Exam Duration: | 90 minutes |
| Related Certifications: | Strategic Case Study (SCS) CIMA Professional Qualification Strategic Level CGMA (Chartered Global Management Accountant) |
| Sample Questions: | CIMA CIMAPRA19-F03-1 Sample Questions |
| Exam Way: | On-demand computer-based exam delivered through Pearson VUE test centers and online remote proctoring where available. |
| Pre Condition: | Typically undertaken after completing the Management Level (E2, P2, F2 and Management Case Study) or through approved exemptions. |
| Official Syllabus URL: | https://hub.cimaglobal.com/proqual/2019/strategic/F3 |
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CIMA F3 Exam is divided into two sections. The first section assesses the candidate's understanding of financial management concepts such as cost management, pricing strategies, and investment appraisal. The second section focuses on strategic financial management, including topics such as risk management, mergers and acquisitions, and corporate finance. CIMAPRA19-F03-1 Exam is designed to test a candidate's ability to apply these concepts in real-world scenarios, making it a challenging test of a candidate's financial management skills.
NEW QUESTION # 344
A company is considering whether to lease or buy an asset.
The following data applies:
* The bank will charge interest at 7.14% per annum
* The asset will cost $1 million
* Tax-allowable depreciation is available on a straight line basis over 5 years
* There is no residual value
* Corporate tax is paid at 30% in the year when the profit is earned
What is the NPV of the buy option?
Give your answer to the nearest $000.
Answer:
Explanation:
$ ?
$740,000 (negative NPV of buy option)Under CIMA F3's lease-or-buy framework, the buy option is evaluated by discounting the after-tax cash flows associated with owning the asset. When an asset is purchased, the immediate cash outflow is the purchase price, but ownership provides a benefit through tax- allowable depreciation, which creates an annual tax shield (a reduction in tax payable). Because corporate tax is paid in the same year that profit is earned, the depreciation tax shield arises each year from Year 1 to Year 5.
Step 1: Initial cost (Year 0 outflow)Asset cost = $1,000,000 (cash outflow at time 0).Step 2: Annual tax depreciation and tax shieldStraight-line over 5 years, no residual value:Depreciation = 1,000,000/5=200,0001
{,}000{,}000 / 5 = 200{,}0001,000,000/5=200,000 per year.Tax shield each year = 200,000×30%=60,000200
{,}000 \times 30\% = 60{,}000200,000×30%=60,000.Step 3: Discount rateCIMA F3 applies the after-tax cost of debt when valuing tax-deductible flows funded by borrowing:After-tax discount rate = 7.14%×(1#0.30)=4.
998%#5%7.14\% \times (1 - 0.30) = 4.998\% \approx 5\%7.14%×(1#0.30)=4.998%#5%.Step 4: Present value of tax shields (5-year annuity at 5%)Annuity factor = 1#(1.05)#50.05=4.32948\frac{1 - (1.05)
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