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CIMA F3 Exam Syllabus Topics:

Section	Weight	Objectives
Financial Risks	20%	- Risk management techniques 1. Hedging strategies 2. Derivatives: futures, forwards, swaps, options - Types of financial risk 1. Interest rate risk 2. Credit and liquidity risk 3. Foreign exchange risk - Risk reporting and governance - Risk measurement and assessment 1. Value-at-Risk, sensitivity analysis
Business Valuation	40%	- Impairment testing and value management - Valuation methods 1. Relative valuation: P/E, EV/EBITDA 2. Asset-based valuation 3. Discounted cash flow (DCF) - Investment appraisal 1. NPV, IRR, payback, discounted payback 2. Adjusted present value (APV) - Mergers, acquisitions and divestments 1. Valuation of target companies 2. Financing and post-deal integration
Financial Policy Decisions	15%	- Strategic financial objectives and stakeholder impact 1. Taxation and regulatory framework 2. ESG and ethical influences 3. Financial objective setting - Interaction between investment, financing and dividend decisions
Sources of Long-term Funds	25%	- Dividend policy and distribution strategies - Capital structure theories and WACC 1. Modigliani-Miller propositions 2. Cost of capital calculation - Debt finance 1. Bonds, loans, convertible instruments 2. Leasing and sale-and-leaseback - Equity finance 1. Ordinary shares, preference shares, rights issues 2. Flotation and listing methods

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CIMA F3 Financial Strategy Sample Questions (Q142-Q147):

NEW QUESTION # 142
Company A has just announced a takeover bid for Company B. The two companies are large companies in the same industry_ The bid is considered to be hostile.
Company B's Board of Directors intends to try to prevent the takeover as they do not consider it to be in the best interests of shareholders
Which THREE of the following are considered to be legitimate post-offer defences?

A. Alter the memorandum and articles of association to state that a minimum of 75% of shareholders must agree to the bid before it can proceed
B. Make a counter bid for Company A provided such an acquisition could enhance Company B's shareholder wealth
C. Publish very optimistic financial forecasts for Company B even though the Board of Directors realises that these are highly unlikely to be achievable
D. Have all the assets independently professionally revalued to demonstrate that the offer undervalues the company
E. Refer the bid to the competition authorities to try to have the bid prohibited on competition grounds

Answer: A,B,E

NEW QUESTION # 143
A company has stable earnings of S2 million and its shares are currently trading on a price earnings multiple
{PIE) of 10 times. It has10 million shares in issue.
The company is raising S4 million debt finance to fund an expansion of its existing business which is forecast to increase annual earnings straight away by 25% and then remain at that level for the foreseeable future. The corporation tax rate is 20%. It is expected that the P/E will reduce to 8 times over the next year.
What is the most likely change in shareholder wealth resulting from this plan?

A. Shareholder wealth will increase by $4 million.
B. Shareholder wealth will increase by $3.2 million.
C. No change in shareholder wealth.
D. Shareholder wealth will increase by $5 million

Answer: A

NEW QUESTION # 144
A geared and profitable company is evaluating the best method of financing the purchase of new machinery.
It is considering either buying the machinery outright, financed by a secured bank borrowing and selling the machinery at the end of a fixed period of time or obtain the machinery under a lease for the same period of time.
Which is the correct discount rate to use when discounting the incremental cash flows of the lease against those of the buy and borrow alternative?

A. The company's cost of equity
B. The pre-tax cost of the bank borrowing
C. The company's WACC.
D. The post-tax cost of the bank borrowing

Answer: D

Explanation:
In lease vs buy decisions, the relevant risk is essentially that of secured debt, and the cash flows (lease payments, tax shields, loan repayments) are after tax. Therefore, you discount incremental cash flows at the after-tax cost of borrowing, not WACC or cost of equity.

NEW QUESTION # 145
Company J plans to acquire Company K, an unlisted company whose equity is to be valued using a P/E ratio approach.
A listed company has been identified which is very similar to Company K and which can be used as a proxy.
However, the growth prospects of Company K are higher than those of the proxy.
The Directors of Company J are aware that certain adjustments will be necessary to the proxy company's P
/E ratio in order to obtain a more reliable valuation.
The following adjustments have been agreed:
* 20% due to Company K being unlisted.
* 15% to allow for the growth rate difference.
The total adjustment to the proxy p/e ratio is:

A. 35% increase
B. 35% decrease
C. 5% increase
D. 5% decrease

Answer: D

NEW QUESTION # 146
Which TWO of the following statements about debt instruments are correct?

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

Answer: A,C

Explanation:
CIMA F3 links the cost of debt to the tax shield created by the tax deductibility of interest. The effective cost of servicing debt to a company is therefore the post-tax cost of debt, commonly expressed as kd(1#T)k_d(1-T) kd(1#T). This makes statement C correct: when evaluating financing decisions and WACC, the company benefits from interest tax relief, so the relevant servicing cost is after tax. Statement A is also treated as correct in the standard F3 exam context: zero-coupon debt pays no periodic coupon interest, so there are no regular interest payments generating the conventional annual tax-deductible interest expense and therefore the familiar tax-shield effect on "interest payments" is not obtained in the same way (i.e., the typical coupon- based shield is eliminated). Statement B is incorrect because the size of the tax shield depends on the tax rate; if corporation tax changes, the value of the tax relief changes. Statement D is incorrect because if corporation tax rates rise, the tax shield from deductible interest would increase, not reduce (a higher tax rate increases the tax saving per dollar of interest). Hence the two correct statements are A and C.

NEW QUESTION # 147
......

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