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CIMA F3 Exam Syllabus Topics:

SectionWeightObjectives
Business valuation40%- Corporate finance and valuation
  • 1. Valuation methods (DCF, Multiples, Asset-based)
  • 2. Corporate restructuring and reconstructions
  • 3. Cost of capital (WACC, CAPM)
  • 4. Mergers, acquisitions, and divestments
Financial policy decisions15%- Formulation of financial strategy
  • 1. Financial management policies
  • 2. Evaluating strategic objectives
  • 3. Sustainability reporting
Financial risks20%- Managing financial risks
  • 1. Currency and interest rate risks
  • 2. Counterparty risk
  • 3. Hedging and derivatives
Sources of long-term funds25%- Financing and dividend decisions
  • 1. Capital structure decisions
  • 2. External factors influencing financial strategy
  • 3. Relationship between investment, financing, and dividends

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CIMA F3 Financial Strategy Sample Questions (Q253-Q258):

NEW QUESTION # 253
A company is currently all-equity financed with a cost of equity of 9%.
It plans to raise debt with a pre-tax cost of 3% in order to buy back equity shares.
After the buy-back, the debt-to-equity ratio at market values will be 1 to 2.
The corporate income tax rate is 25%.
Which of the following represents the company's cost of equity after the buy-back according to Modigliani and Miller's Theory of Capital Structure with taxes?

Answer: C


NEW QUESTION # 254
STU has relatively few tangible assets and is dependent for profits and growth on the high-value individuals it employs. Which of the following statements best explains why the net asset valuator method's considered unstable for TU?

Answer: A

Explanation:
STU's value is mainly in its people (human capital) and has few tangible assets. Net asset valuation relies on balance sheet assets, but internally generated intangibles like human capital are not recognised under normal accounting rules. So the accounts understate the real value of the business.


NEW QUESTION # 255
A large, listed company is planning a major project that should greatly improve its share price in the long term.
These plans require a significant capital cost that the company plans to finance by debt.
All of the debt options being considered are for the same duration of time.
Which of the following sources of debt finance is likely to be the most expensive for the company over the full term of the debt?

Answer: D

Explanation:
All the options are debt with the same maturity, but convertible bonds include an equity conversion option for investors. Because of that option, the coupon rate at issue is usually lower than on straight bonds or bank loans. However, CIMA F3 emphasises that if the company's share price is expected to rise significantly (as in this question, where the project should greatly improve the share price), holders are very likely to convert.
When conversion happens, the company settles the debt by issuing shares that, at that point, are worth much more than the original debt value. The effective total cost of finance (interest paid plus the value of equity given up) can end up higher than for ordinary bonds, leases, or bank loans over the full term.
Therefore, given the expectation of a strong future share price, the source of debt finance likely to be most expensive over the full term is:


NEW QUESTION # 256
Three companies are quoted on the New York Stock Exchange. The following data applies:

Which of the following statements is TRUE?

Answer: A


NEW QUESTION # 257
RST wishes to raise at least $40 million of new equity by issuing up to 10 million new equity shares at a minimum price of $3.00 under an offer for sale by tender. It receives the following tender offers:

What is the maximum amount that RST can raise by this share issue?
(Give your answer to the nearest $ million).

Answer:

Explanation:
45MILION
At # $5.50 # 1m sharesAt # $5.00 # 1m + 3m = 4m sharesAt # $4.50 # 1m + 3m + 7m = 11m sharesAt # $4.00 # 1m + 3m + 7m + 9m = 20m sharesNow test each possible issue price:$5.50 # can sell 1m # proceeds = $5.5m (too low)$5.00 # can sell 4m # proceeds = $20m (too low)$4.50 # demand 11m but max issue is 10m # sell 10m # proceeds = 10m ร— 4.5 = $45m$4.00 # can sell 10m # proceeds = 10m ร— 4 =
$40mBoth $4.50 and $4.00 meet the "at least $40m" condition, but the maximum amount RST can raise is
$45 million at $4.50 per share.


NEW QUESTION # 258
......

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