CIMA F3 Certified | F3 Latest Exam Dumps

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CIMA F3 Exam Syllabus Topics:

Section	Weight	Objectives
Topic 1: Financial Policy Decisions	15%	- Development of Financial Strategy 1. Investment decisions 2. Dividend decisions 3. Financing decisions - Strategic Financial Objectives 1. Shareholder wealth maximization 2. Financial and non-financial objectives 3. Stakeholder objectives
Topic 2: Sources of Long-Term Funds	25%	- Equity Finance 1. Private placements 2. Rights issues 3. Ordinary shares - Debt Finance 1. Bank borrowing 2. Loan notes and bonds 3. Lease finance - Capital Structure and Dividend Policy 1. Capital structure theories 2. Cost of capital 3. Dividend policy theories
Topic 3: Business Valuation	40%	- Business Valuation Techniques 1. Discounted cash flow valuation 2. Asset-based valuation 3. Earnings and market-based valuation - Mergers and Acquisitions 1. Strategic rationale 2. Acquisition financing 3. Financial implications - Post-Transaction Issues 1. Value realization 2. Integration planning 3. Performance monitoring
Topic 4: Financial Risks	20%	- Interest Rate Risk Management 1. Forward rate agreements 2. Interest rate exposure 3. Interest rate derivatives - Currency Risk Management 1. Translation exposure 2. Transaction exposure 3. Hedging techniques - Risk Identification and Assessment 1. Credit risk 2. Liquidity risk 3. Market risk

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CIMA F3 Financial Strategy Sample Questions (Q250-Q255):

NEW QUESTION # 250
The Treasurer of Z intends to use interest rate options to set an interest rate cap on Z's borrowings.
Which of the following statement is correct?

A. The Treasurer will have to negotiate the options with Z's Dark
B. The Treasurer will retain the benefit of movements in interest rates below the floor limit.
C. The cost of a collar is lower than the cost of a cap a one.
D. The Treasurer should buy an interested rate floor and sell an interested cap ta the same time

Answer: C

NEW QUESTION # 251
Which TWO of the following statements about debt instruments are correct?

A. A zero coupon will eliminate the tax shield effect on debt payments.
B. The true cost of servicing debt instruments to the company is the post-tax cost of debt.
C. Changes in corporation tax rates will have no effect on the tax shield of fixed rate debentures.
D. If corporation tax rates rise, the tax shield effect on debenture interest will be reduced.

Answer: A,C

NEW QUESTION # 252
A company is planning a share buyback. In which of the following circumstances would a share buyback be appropriate?

A. The company has a one off cash surplus and no available investment opportunities.
B. The country in which the company operates taxes capital gains at a higher rate than income.
C. The company wants to reduce the nominal value of its shares to make them more marketable.
D. The company wants to reduce its gearing.

Answer: A

NEW QUESTION # 253
A company is considering the issue of a convertible bond compared to a straight bond issue (non-convertible bond).
Director A is concerned that issuing a convertible bond will upset the shareholders for the following reasons:
* it will dilute their control
* the interest payments will be higher therefore reducing liquidity
* it will increase the gearing ratio therefore increasing financial risk Director B disagrees, and is preparing a board paper to promote the issue of the convertible bond rather than a non-convertible.
Advise the Director B which THREE of the following statements should be included in his board paper to promote the issue of the convertible bond?

A. Over the life of the bond, a convertible will be more expensive than a non-convertible.
B. When converted into shares, the company will receive a cash inflow which can be used for future investments.
C. The convertible bond may not dilute control as the bond holder has an option to choose conversion.
D. Issuing a convertible bond will have a more favourable impact on the gearing ratio than a non- convertible bond.
E. The coupon rate on the convertible bond will be lower than that on a non-convertible bond.

Answer: C,D,E

Explanation:
A). May not dilute control - A convertible bond does not cause immediate dilution. Bondholders only become shareholders if they choose to convert, usually when the share price performs well. So dilution is potential and future, not automatic at issue.
B). Lower coupon - A core feature of convertibles is that investors accept a lower interest (coupon) rate than on an equivalent straight bond, because they are being compensated by the conversion option. This directly rebuts the concern that interest payments will be higher.
D). More favourable impact on gearing - Compared with issuing a straight bond, a convertible is often viewed as "quasi-equity". Under modern financial reporting, part of the convertible may be classified as equity, and if conversion happens later, the bond liability disappears and is replaced by shares, reducing gearing. So, from a strategic financing perspective, convertibles are typically seen as less damaging to gearing than an equivalent non-convertible bond.
Options C (no cash inflow on conversion) and E (more expensive over life) are incorrect.

NEW QUESTION # 254
When valuing an unlisted company, a P/E ratio for a similar listed company may be used but adjustments to the P/E ratio may be necessary.
Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use?

A. A lower level of scrutiny and regulation for unlisted companies.
B. Control premium not being included within the proxy p/e ratio used.
C. A profit item within the unlisted company's latest earnings which will not reoccur.
D. Unlisted companies being generally smaller and less established.
E. The relative lack of marketability of unlisted company shares.
F. The forecast earnings growth being relatively higher in the unlisted company.

Answer: A,D,E

Explanation:
When valuing an unlisted company using a P/E ratio from a similar listed company, we normally reduce the proxy P/E to reflect the extra risk and reduced attractiveness of the unlisted investment.
A). Relative lack of marketability - Unlisted shares are harder to sell and usually take longer to realise, so investors demand a higher return, i.e. a lower P/E. #
B). Lower level of scrutiny and regulation - Unlisted companies face less disclosure and governance requirements, so information risk is higher. Greater risk # lower valuation multiple # reduced P/E. #
C). Smaller and less established - Unlisted companies tend to be smaller, less diversified and less stable, so investors again expect a higher return, implying a lower P/E. #
D). Control premium not included - If the proxy P/E excludes a control premium but you are valuing a controlling stake, you would increase the P/E, not reduce it. #
E). Higher forecast earnings growth - Higher expected growth justifies a higher P/E, not a lower one. #
F). One-off profit item in latest earnings - This should be dealt with by adjusting the earnings, not by cutting the P/E multiple. # So the three factors justifying a reduction in the proxy P/E are A, B and C.

NEW QUESTION # 255
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