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CIMA F3 Exam Syllabus Topics:

Section	Weight	Objectives
Business valuation	40%	- Corporate finance and valuation 1. Valuation methods (DCF, Multiples, Asset-based) 2. Mergers, acquisitions, and divestments 3. Cost of capital (WACC, CAPM) 4. Corporate restructuring and reconstructions
Financial policy decisions	15%	- Formulation of financial strategy 1. Financial management policies 2. Evaluating strategic objectives 3. Sustainability reporting
Sources of long-term funds	25%	- Financing and dividend decisions 1. Relationship between investment, financing, and dividends 2. External factors influencing financial strategy 3. Capital structure decisions
Financial risks	20%	- Managing financial risks 1. Counterparty risk 2. Hedging and derivatives 3. Currency and interest rate risks

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CIMA F3 Financial Strategy Sample Questions (Q27-Q32):

NEW QUESTION # 27
Two companies that operate in the same industry have different Price/Earnings (P/E) ratios as follows:

Which of the following is the most likely of the different P/E ratios?

A. Company B has higher expected future growth than Company A.
B. Company B has higher gearing than Company A.
C. Company B has a greater profit this year than Company A.
D. Company B has higher business risk than Company A.

Answer: A

NEW QUESTION # 28
PTT has a number of subsidiary companies around the world, including FTT based in Europe and CTT based in Indonesia
CTT purchases all of us raw materials from FTT CTT processes these materials and the resulting products are exported to several different countries CTT pays FTT in the Indonesian currency.
Indonesia's inflation is higher than that of FTTs home country
Which of the following statements are correct?
Select ALL that apply

A. CTT will be exposed to translation risk because FTT will almost certainly have to reflect the changing prices in its selling price and it will be difficult for CTT to make a profit
B. FTT could ask for ail payments to K to be made in its home currency, which would reduce exposure to currency risk
C. FTT will be exposed to transaction risks as the Indonesian currency will appreciate over time because of the expected inflation rates
D. FTT could investigate whether it could import anything from Indonesia in order to create a natural hedge.
E. FTT will be exposed to transaction risk The Indonesian currency that it receives Is likely to decline over time because of anticipated inflation

Answer: B,C,E

NEW QUESTION # 29
An all-equity financed company currently generates total revenue of $50 million.
Its current profit before interest and taxation (PBIT) is $10 million.
Due to difficult trading conditions, the company expects its total revenue to be constant next year, although some margins will reduce.
It forecasts next year's PBIT will fall to 18% on 40% of its revenue, but that the PBIT on the other 60% of its revenue will be unaffected.
The rate of corporate tax is 20%.
What is the forecast percentage reduction in next year's Earnings?

A. Reduction of 4.0%
B. Reduction of 0.8%
C. Reduction of 0%
D. Reduction of 2.0%

Answer: A

Explanation:
Current year:
Revenue = $50m
PBIT = $10m # margin = 10/50 = 20%
Tax = 20%
Earnings = 10 × (1 # 0.20) = $8m
Next year:
Revenue still $50m
40% of revenue = $20m # margin falls to 18%
PBIT on this part=20×18%=3.6\text{PBIT on this part} = 20 \times 18\% = 3.6PBIT on this part=20×18%=3.
6
60% of revenue = $30m # margin stays 20%
PBIT on this part=30×20%=6.0\text{PBIT on this part} = 30 \times 20\% = 6.0PBIT on this part=30×20%=6.
0
Total PBIT next year:
3.6+6.0=9.6 million3.6 + 6.0 = 9.6\ \text{million}3.6+6.0=9.6 million
Earnings after tax next year:
9.6×(1#0.20)=9.6×0.8=7.68 million9.6 \times (1 - 0.20) = 9.6 \times 0.8 = 7.68\ \text{million}9.6×(1#0.20)=9.
6×0.8=7.68 million
Percentage reduction in earnings:
8.00#7.688.00=0.328=0.04=4%\frac{8.00 - 7.68}{8.00} = \frac{0.32}{8} = 0.04 = 4\%8.008.00#7.68=80.
32=0.04=4%
Correct option:
C). Reduction of 4.0%\boxed{\text{C. Reduction of 4.0\%}}C. Reduction of 4.0%

NEW QUESTION # 30
A company is considering either exporting its product directly to customers in a foreign country or establishing a manufacturing subsidiary in that country.
The corporate tax rate in the company's own country is 20% and 25% tax depreciation allowances are available.
Which THREE of the following would be considered advantages of establishing the subsidiary in the foreign country?

A. Year 1 tax depreciation allowances of 100% are available in the foreign country.
B. The corporate tax rate in the foreign country is 40%.
C. There are high customs duties payable on products entering the foreign country.
D. There are restrictions on companies wishing to remit profit from the foreign country.
E. There is a double tax treaty between the company's domestic country and the foreign country.

Answer: A,C,E

Explanation:
Consider each statement:
A). Foreign tax rate 40% - higher than home 20% # disadvantage.
B). Double tax treaty - avoids double taxation on profits remitted # advantage.
C). 100% Year-1 tax depreciation in foreign country - big early tax shield # advantage.
D). High customs duties on imports into foreign country - makes exporting costly; local production via subsidiary avoids duties # advantage.
E). Restrictions on remitting profits - makes getting cash out difficult # disadvantage.

NEW QUESTION # 31
Using the CAPM, the expected return for a company is 10%. The market return is 7% and the risk free rate is
1%.
What does the beta factor used in this calculation indicate about the risk of the company?

A. It has greater risk than the average market risk.
B. It has lower risk than the average market risk.
C. It is not possible to tell from CAPM.
D. It has the same risk as the average market risk.

Answer: A

Explanation:
Use CAPM:
10%=1%+#(7%#1%)#0.10=0.01+0.06###=0.09/0.06=1.510\% = 1\% + \beta(7\% - 1\%) \Rightarrow 0.10 =
0.01 + 0.06\beta \Rightarrow \beta = 0.09/0.06 = 1.510%=1%+#(7%#1%)#0.10=0.01+0.06###=0.09/0.06=1.5.
Beta > 1 # higher risk than the market.

NEW QUESTION # 32
......

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