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CIMA CIMAPRA19-F03-1 Exam Syllabus Topics:

SectionWeightObjectives
Topic 1: Financial Risks20%- Interest Rate Risk Management
  • 1. Interest rate derivatives
  • 2. Interest rate exposure
  • 3. Forward rate agreements
- Currency Risk Management
  • 1. Hedging techniques
  • 2. Translation exposure
  • 3. Transaction exposure
- Risk Identification and Assessment
  • 1. Market risk
  • 2. Credit risk
  • 3. Liquidity risk
Topic 2: Sources of Long-Term Funds25%- Capital Structure and Dividend Policy
  • 1. Cost of capital
  • 2. Dividend policy theories
  • 3. Capital structure theories
- Debt Finance
  • 1. Bank borrowing
  • 2. Loan notes and bonds
  • 3. Lease finance
- Equity Finance
  • 1. Private placements
  • 2. Rights issues
  • 3. Ordinary shares
Topic 3: Business Valuation40%- Post-Transaction Issues
  • 1. Integration planning
  • 2. Performance monitoring
  • 3. Value realization
- Business Valuation Techniques
  • 1. Asset-based valuation
  • 2. Discounted cash flow valuation
  • 3. Earnings and market-based valuation
- Mergers and Acquisitions
  • 1. Acquisition financing
  • 2. Strategic rationale
  • 3. Financial implications
Topic 4: Financial Policy Decisions15%- Development of Financial Strategy
  • 1. Investment decisions
  • 2. Financing decisions
  • 3. Dividend decisions
- Strategic Financial Objectives
  • 1. Financial and non-financial objectives
  • 2. Stakeholder objectives
  • 3. Shareholder wealth maximization

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CIMA F3 Financial Strategy Sample Questions (Q156-Q161):

NEW QUESTION # 156
Extracts from a company's profit forecast for the next financial year as follows:

Since preparing the forecast, the company has decided to return surplus cash to shareholders by a share repurchase arrangement.
The share repurchase would result in the company purchasing 20% of the 1,250 million ordinary shares currently in issue and canceling them.
Assuming the share repurchase went ahead, the impact on the company's forecast earnings per share will be an increase of:

Answer: D

Explanation:
Earnings attributable to ordinary shareholders = profit after preference dividend = $500m.
Current number of shares = 1,250m.
Current EPS = 500 / 1,250 = $0.40 per share.
Share repurchase: 20% of 1,250m = 250m shares bought back and cancelled.
New number of shares = 1,250m # 250m = 1,000m shares.
Assuming profit is unchanged:
New EPS = 500 / 1,000 = $0.50 per share.
Increase in EPS = 0.50 # 0.40 = $0.10 # $0.100.


NEW QUESTION # 157
M is an accountant who wishes to take out a forward rate agreement as a hedging instrument but the company treasurer has advised that a short-term interest rate future would be a better option.
Which of the following is true of a short-term interest rate future?

Answer: B


NEW QUESTION # 158
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?

Answer: A,C,D

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 # 159
Company P is a large unlisted food-processing company.
Its current profit before interest and taxation is $4 million, which it expects to be maintainable in the future.
It has a $10 million long-term loan on which it pays interest of 10%.
Corporate tax is paid at the rate of 20%.
The following information on P/E multiples is available:

Which of the following is the best indication of the equity value of Company P?

Answer: A

Explanation:
PBIT = $4m
Interest on loan = 10% × $10m = $1m
Profit before tax = $3m
Tax at 20% # earnings after tax = $3m × 0.8 = $2.4m
Use the P/E multiple for the food-processing sector (10x), as this best reflects the business risk and industry.
Equity value = $2.4m × 10 = $24m


NEW QUESTION # 160
Modigliani and Miller are the main proponents of the view that the dividend policy is irrelevant to the value of a company's shares.
They argue that a company that continually reinvests its entire earnings would generate the same shareholder wealth if it engaged in a policy of high dividends and financed its expansion with funds obtained from rights issues.
Which THREE of the following statements are assumptions that are required in order to support this proposition?

Answer: C,D,E

Explanation:
Discursive_F0


NEW QUESTION # 161
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