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CIMA CIMAPRA19-F03-1 Exam Syllabus Topics:

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

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CIMA CIMAPRA19-F03-1 preparation labs - Pass4sure CIMAPRA19-F03-1 exam cram

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CIMA F3 Financial Strategy Sample Questions (Q83-Q88):

NEW QUESTION # 83
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: C

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 # 84
Company Z wishes to borrow $50 million for 10 years at a fixed rate of interest.
Two alternative approaches are being considered:
1. Issue a 10 year bond at a fixed rate of 6%, or
2. Borrow from the bank at Libor +2.5% for a 10 year period and simultaneously enter into a 10 year interest rate swap.
Current 10 year swap rates against Libor are 4.0% - 4.2%.
What is the difference in the net interest cost between the two alternative approaches?

Answer: A


NEW QUESTION # 85
Company A has a cash surplus.
The discount rate used for a typical project is the company's weighted average cost of capital of 10%.
No investment projects will be available for at least 2 years.
Which of the following is currently most likely to increase shareholder wealth in respect of the surplus cash?

Answer: B

Explanation:
A company with no projects for 2 years and a WACC of 10% should not lock surplus cash into investments earning less than 10%, as that destroys shareholder value. The best way to maximise shareholder wealth is to return the surplus so shareholders can invest at their own required return.


NEW QUESTION # 86
Company H is considering the valuation of an unlisted company which it hopes to acquire.
It has obtained the target company's financial statements.
Company H has been advised that the book value of net assets as shown in the financial statements of the target company does not provide a reliable indicator of their true value.
Advise the Board of Directors which of the following THREE statements are disadvantages of the net asset basis of valuation?

Answer: B,D,E


NEW QUESTION # 87
PYP is a listed courier company. It is looking to raise new finance to fit each of its delivery vans with new equipment to allow improved parcel tracking for customers The senior management team of PYP have decided on a 10-year secured bond to finance this investment- Which TWO of the following variables are most likely to decrease the yield to maturity of the bond?

Answer: A,B

Explanation:
B). New profitable contract improves the company's credit quality # lower default risk # investors accept a lower yield.
C). Convertible bond gives investors equity upside # they are willing to accept a lower coupon / YTM than on an equivalent straight bond.
A (shorter term) might affect yield, but the effect depends on the yield curve, so it's less clear-cut.
D (unsecured instead of secured) increases risk, so yield would rise, not fall.


NEW QUESTION # 88
......

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