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CIMA CIMAPRA19-F03-1 Exam Syllabus Topics:

Section	Weight	Objectives
Topic 1: Financial Strategy Framework	25%	- Financial objectives and stakeholder value 1. Corporate objectives and value creation 2. Stakeholder management and agency theory
Topic 2: Investment Appraisal and Decisions	25%	- Investment evaluation techniques 1. Risk and uncertainty in investment appraisal 2. Net present value (NPV) and IRR
Topic 3: Financial Risk Management and Treasury	10%	- Risk management techniques 1. Foreign exchange risk management 2. Interest rate risk and hedging instruments
Topic 4: Corporate Finance	30%	- Financing decisions 1. Capital structure and cost of capital 2. Sources of finance and financial markets
Topic 5: Mergers, Acquisitions and Business Valuation	10%	- Valuation and deal structure 1. Synergies and acquisition analysis 2. Business valuation methods

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CIMA F3 Financial Strategy Sample Questions (Q20-Q25):

NEW QUESTION # 20
Company B is an all equity financed company with a cost of equity of 10%.
It is considering issuing bonds in order to achieve a gearing level of 20% debt and 80% equity.
These bonds will pay a coupon rate of 5% and have an interest yield of 6%.
Company B pays corporate tax at the rate of 25%.
According to Modigliani and Miller's theory of capital structure with tax, what will be Company B's new cost of equity?
A)

B)

C)

D)

A. Option B
B. Option C
C. Option A
D. Option D

Answer: A

NEW QUESTION # 21
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?

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

Answer: A

Explanation:
Likely outcomes after two listed companies in the same industry merge:
A). Increase in customer base - yes, customers of both firms now belong to the combined entity.
B). Competition authorities step in to stop... - that usually happens before or to prevent the merger, not "after it has happened", so not chosen.
C). Decrease in employee motivation due to internal changes - very common effect of mergers (uncertainty, restructuring).
D). Changes to supplier relationships owing to internal changes - the merged firm will have different bargaining power and processes; very likely.
E). Cost savings from synergistic benefits and economies of scale - one of the main motives for merger.

NEW QUESTION # 22
G pic wishes to borrow $5 million in 6 months, for a period of 3 months. A bank has quoted the following Forward Rate Agreement (FRA) rales:
3 v 9 6.55%-6.70% 6v9 6.70%-6 90%.
G pic can borrow at 0 75% above base rate, and the base rate is currently 6.25% Concerned that base rates may rise, G pic decides that it will hedge using an FRA At the settlement date for the FRA, the base rate has risen to 7.50% What is the effective interest rate paid by G pic for its borrowing?

A. 7.45
B. 7.65
C. 8.25
D. 7.30

Answer: B

NEW QUESTION # 23
A company is concerned about the interest rate that it will be required to pay on a planned bond issue.
It is considering issuing bonds with warrants attached.
Advise the directors which of the following statements about warrants is NOT correct?

A. Warrants can be sold back to the issuing company for the nominal value of the share if no longer required by the bond holder.
B. Warrants can potentially be very expensive because they can involve the issue of shares at a discount in the future if exercised.
C. Warrants are a debt sweetener attached to the bond to drive down the interest rate payable on the bond.
D. Warrants give the holder the right to buy ordinary shares in the company at a fixed price at a future date.

Answer: A

Explanation:
Comprehensive and Detailed Step by Step Explanation with all CIMA F3: Financial Strategy documents: = CIMA F3 explains warrants as equity-linked sweeteners often attached to debt issues (such as bonds) to make them more attractive, allowing the issuer to reduce the coupon rate. This aligns directly with statement A, which is therefore correct: warrants are indeed used to "sweeten" a bond and drive down the interest rate.
Statement B is also correct: a warrant gives the holder the right, but not the obligation, to subscribe for a company's ordinary shares at a fixed exercise price on or before a specified future date. This is a core definition in the F3 syllabus under hybrid and derivative instruments.
Statement D reflects the idea that warrants can be costly to existing shareholders. If the share price in future is well above the exercise price, new shares will be issued at what is effectively a discount, diluting existing shareholders' value. This is a recognised downside in CIMA discussions of equity-linked incentives.
Statement C is the incorrect one. Warrants are typically detachable and tradeable, but they are not normally redeemable by the issuer at nominal share value at the discretion of the holder. They're exercised into shares or sold in the market, not "sold back" to the company for par. Hence C is NOT correct.
Questions no: 199044

NEW QUESTION # 24
A company's Board of Directors is assessing the likely impact of financing new projects by using either debt or equity finance.
The impact of using debt or equity finance on some key variables is uncertain.
Which THREE of the following statements are true?

A. The use of equity finance will create pressure for increases in dividend per share in the future.
B. The use of equity finance reduces the company's overall financial risk.
C. The use of debt finance will always result in an increase in earnings per share.
D. The use of debt finance is always preferable to equity finance.
E. Retained earnings is the cheapest form of equity finance.
F. The use of debt finance increases the cost of equity.

Answer: A,B,F

NEW QUESTION # 25
......

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