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Candidates who crack the F3 examination of the CIMA F3 certification validate their worth in the sector of information technology. The CIMA F3 credential is evidence of their talent. Reputed firms hire these talented people for high-paying jobs. To get the F3 Financial Strategy (F3) certification, it is essential to clear the F3 Financial Strategy (F3) test. For this task, you need to update F3 Financial Strategy (F3) preparation material to get success.
| Section | Objectives |
|---|---|
| Topic 1: Mergers, Acquisitions and Corporate Restructuring | - Synergies and takeover strategies - Valuation principles |
| Topic 2: Sources of Long-Term Finance | - Equity and debt financing - Hybrid financial instruments |
| Topic 3: Financial Strategy Formulation | - Strategic financial objectives - Corporate financial planning |
| Topic 4: Dividend Policy | - Dividend theories - Dividend decisions and shareholder value |
| Topic 5: Financial Risk Management | - Foreign exchange risk - Interest rate risk |
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NEW QUESTION # 322
A large, quoted company that is all-equity financed is planning to acquire a smaller unquoted company that is also all-equity financed.
The acquiring company's directors are using the dividend valuation model to value the target company before making an offer.
Relevant data for the target company:
* Dividends paid in the last financial year $2 million
* Book value of net assets $15 million
* Shares in issue 1 million
The acquiring company's cost of capital is 10%.
Its directors believe they can improve the target company's performance in the long term.
They estimate there will be no growth in the first year of the acquisition but from year 2 onwards there will be a 4% growth each year in perpetuity.
What is the maximum price the acquiring company should offer for each of the shares in the target company?
Answer: C
Explanation:
We use the Dividend Valuation Model (DVM) with a one-year zero-growth period followed by constant growth:
Last year's dividend = $2m # with 1m shares, DPS# = $2.00.
No growth in year 1 # D# = $2.00.
From year 2, dividends grow at 4% in perpetuity #
D# = 2.00 ร 1.04 = $2.08
Using the Gordon growth model from year 2 onwards:
P1=D2ke#g=2.080.10#0.04=2.080.06#34.67P_1 = \frac{D_2}{k_e - g} = \frac{2.08}{0.10 - 0.04} = \frac{2.08}{0.06} # 34.67P1=ke#gD2=0.10#0.042.08=0.062.08#34.67
Now discount D# and P# back to today at 10%:
P0=D11.10+P11.10=2.001.10+34.671.10#1.82+31.52#33.34P_0 = \frac{D_1}{1.10} + \frac{P_1}{1.10} = \frac{2.00}{1.10} + \frac{34.67}{1.10} # 1.82 + 31.52 # 33.34P0=1.10D1+1.10P1=1.102.00+1.1034.67#1.
82+31.52#33.34
Rounded: $33.33 per share # Option A.
NEW QUESTION # 323
Company F's current profit before interest and taxation is $5.0 million.
It has a 10% long-term corporate bond in issue with a nominal value of $10 million.
Corporate tax is paid at 25%.
The industry average P/E multiple is 10.
Company X has made an approach to acquire the entire share capital of Company F for $30 million.
Company X has announced that anticipated synergies (after interest and taxation) arising from its acquisition of Company F will be $1 million each year in perpetuity.
Advise the Board of Directors of Company F if the bid should be accepted, based on the above information?
Answer: C
Explanation:
EBIT = 5m
Interest = 10% ร 10m = 1m # PBT = 4m
Tax @25% = 1m # Earnings = 3m
Stand-alone equity value using industry P/E 10 = 3m ร 10 = 30m
Synergies after tax = 1m p.a. in perpetuity # value (using same multiple) = 1m ร 10 = 10m Value of F to X = 30m + 10m = 40m Offer of 30m is below this, so Board should reject on that basis.
NEW QUESTION # 324
Company A plans to acquire Company B, an unlisted company which has been in business for 3 years.
It has incurred losses in its first 3 years but is expected to become highly profitable in the near future.
No listed companies in the country operate the same business field as Company B, a unique new high-risk business process.
The future success of the process and hence the future growth rate in earnings and dividends is difficult to determine.
Company A is assessing the validity of using the dividend growth method to value Company B.
Which THREE of the following are weaknesses of using the dividend growth model to value an unlisted company such as Company HHG?
Answer: A,B,D
NEW QUESTION # 325
Company Z has just completed the all-cash acquisition of Company A.
Both companies operate in the advertising industry.
The market considered the acquisition a positive strategic move by Company Z.
Which THREE of the following will the shareholders of Company Z expect the company's directors to prioritise following the acquisition?
Answer: B,D,E
Explanation:
Reasoning:
After an all-cash acquisition which the market views positively, shareholders in Company Z will mainly focus on value delivery from the deal:
A). Realisation of anticipated synergies - core reason for doing the deal.
C). Integration and retention of key employees - critical in an advertising business where human capital and client relationships are key.
E). Retention of key customers of the acquired company - losing major clients would quickly destroy acquisition value.
B is not a priority: target company shareholders have already been paid out in cash.
D is irrelevant now: the acquisition has already been completed, so regulatory approval is in the past.
NEW QUESTION # 326
Using the CAPM, the expected return for a company is 11%. The market return is 8% and the risk free rate is 2%.
What does the beta factor used in this calculation indicate about the risk of the company?
Answer: B
NEW QUESTION # 327
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