Cima certsexpert download Full Version F3 Exam by Giovanni q352 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:	giovanni

Question 80

A company has a financial objective of maintaining a gearing ratio of between 30% and 40%, where gearing is defined as debt/equity at market values.

The company has been affected by a recent economic downturn leading to a shortage of liquidity and a fall in the share price during 20X1.

On 31 December 20X1 the company was funded by:

• Share capital of 4 million $1 shares trading at $4.0 per share.

• Debt of $7 million floating rate borrowings.

The directors plan to raise $2 million additional borrowings in order to improve liquidity.

They expect this to reassure investors about the company's liquidity position and result in a rise in the share price to $4.2 per share.

Is the planned increase in borrowings expected to help the company meet its gearing objective?

Options:

No, gearing would increase but the gearing objective would be met both before and after the announcement.

No, gearing would increase and the gearing objective would be exceeded both before and after the announcement.

No, gearing would increase and the gearing objective would be met before the announcement but exceeded after the announcement.

Yes, gearing would fall and the gearing objective would be exceeded before the announcement but met after the announcement.

Discussion

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Question 81

Company R is a major food retailer. It wishes to acquire Company S, a food manufacturer.

Company S currently supplies many stores owned by Company R with food products that it manufactures.

Company S is of similar size to Company R but has a lower credit rating.

Which of the following is most likely to be a synergistic benefit to R on purchasing S?

Options:

Savings due to a reduction in purchase costs and more control over the value chain.

Cost savings due to reducing the range of products manufactured by Company S.

Lower cost of borrowing due to the acquistion of a company with a different credit rating.

Reduced competition resulting in the ability to raise retail selling prices for food products.

Discussion

Question 82

A company has in a 5% corporate bond in issue on which there are two loan covenants.

• Interest cover must not fall below 3 times

• Retained earnings for the year must not fall below $3.5 million

The Company has 200 million shares in issue.

The most recent dividend per share was $0.04.

The Company intends increasing dividends by 10% next year.

Financial projections for next year are as follows:

Questions 82

Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?

Options:

The company will be in compliance with both covenants.

The company will be in breach of both covenants.

The company will breach the covenant in respect of retained earnings only.

The company will be in breach of the covenant in respect of interest cover only.

Discussion

Question 83

A listed publishing company owns a subsidiary company whose business activity is training.

It wishes to dispose of the subsidiary company.

The following information is available:

Questions 83

The board of the publishing company believe that the value of the subsidiary company, and hence the value of the equity invested in it, can be determined by calculating the present value of the subsidiary's free cashflows.

Which of the following is the most appropriate discount rate to use when determining the enterprise value of the company?

Options:

A WACC that reflects the gearing of the publishing company and the asset beta of a listed company that provides training activities.

A cost of equity that reflects the asset beta of a listed company that provides training activities.

A WACC that reflects the gearing of the subsidiary company and the asset beta of a listed company that provides training activities.

A WACC that the reflects the gearing of the publishing company and the equity beta factor of the publishing company.