Cima certkiller f3 Exam Questions Tutorials by Wiktoria q78 vce pdf

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Exam Name:	Financial Strategy
Exam Code:	F3 Dumps
Vendor:	CIMA	Certification:	CIMA Strategic
Questions:	393 Q&A's	Shared By:	wiktoria

Question 56

An unlisted company is attempting to value its equity using the dividend valuation model.

Relevant information is as follows:

• A dividend of $500,000 has just been paid.

• Dividend growth of 8% is expected for the foreseeable future.

• Earnings growth of 6% is expected for the foreseeable future.

• The cost of equity of a proxy listed company is 15%.

• The risk premium required due to the company being unlisted is 3%.

The calculation that has been performed is as follows:

Equity value = $540,000 / (0.18 - 0.08) = $5,400,000

What is the fault with the calculation that has been performed?

Options:

The cost of equity used in the calculation should have been 12% (15% subtract 3%).

The dividend cashflow used should have been $500,000 rather than $540,000.

The dividend growth rate is unsuitable given that earning growth is lower than dividend growth.

The cost of equity used in the calculation should have been 15%; no adjustment was necessary.

Discussion

Question 57

A company generates and distributes electricity and gas to households and businesses.

Forecast results for the next financial year are as follows:

Questions 57

The Industry Regulator has announced a new price cap of $1.50 per Kilowatt.

The company expects this to cause consumption to rise by 10% but costs would remained unaltered.

The price cap is expected to cause the company's net profit to fall to:

Options:

$47.5 million profit

$27.5 million profit

$20.0 million profit

$35.0 million loss

Discussion

Question 58

If a company's bonds are currently yielding 8% in the marketplace, why would the entity's cost of debt be lower than this?

Options:

There should be no difference; the cost of debt is the same as the bond's market yield.

Interest is deductible for tax purposes.

The company's credit rating has changed.

Market interest rates have decreased.

Discussion

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Question 59

Company A is identical in all operating and risk characteristics to Company B, but their capital structures differ.

Company B is all-equity financed. Its cost of equity is 17%.

Company A has a gearing ratio (debt:equity) of 1:2. Its pre-tax cost of debt is 7%.

Company A and Company B both pay corporate income tax at 30%.

What is the cost of equity for Company A?

Options:

20.5%