Cima examstrust cima F3 Online Access by Eisa q196 vce pdf

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Exam Name:	Financial Strategy
Exam Code:	F3 Dumps
Vendor:	CIMA	Certification:	CIMA Strategic level
Questions:	435 Q&A's	Shared By:	eisa

Question 40

A company is funded by:

• $40 million of debt (market value)

• $60 million of equity (market value)

The company plans to:

• Issue a bond and use the funds raised to buy back shares at their current market value.

• Structure the deal so that the market value of debt becomes equal to the market value of equity.

According to Modigliani and Miller's theory with tax and assuming a corporate income tax rate of 20%, this plan would:

Options:

increase the company's asset beta.

decrease the company's equity beta.

increase shareholder wealth.

increase the market value of the company's equity.

Discussion

Question 41

Company A is based in Country A where the functional currency is the A$. Currently all sales are to domestic customers in Country A. However, the company is planning to expand internationally by acquiring Company B, a distribution company in Country B, to enable it to sell goods worldwide The functional currency of Country B is the BS

Company A will invoice its international customers in their local currency.

Wage increases in Country B are forecast to be modest, due to high unemployment levels, but overall inflation in Country B is forecast to be significantly higher than in Country A

Which TWO of the following statements about the economic risk of the acquisition of Company B are true?

Options:

Financing this acquisition with block denominated in B$ will reduce economic risk.

Economic risk can be eliminated by using forward contracts to convert future cash flows into A$

Higher inflation will increase the project's BS returns, so the economic risk can be ignored

Exporting into a variety of international markets will reduce economic risk.

Using purchasing power parity, AS is forecast to strengthen against B$, so the economic risk can be ignored

Discussion

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Question 42

Which of the following statements best describes a residual dividend policy?

Options:

Dividends are paid only after the on-going operational needs of the business have been met.

Dividends are paid only if no further positive NPV projects are available.

All surplus earnings are invested back into the business.

Dividends are paid at a constant rate.

Discussion

Question 43

Listed company R is in the process of making a cash offer for the equity of unlisted company S.

Company R has a market capitalisation of $200 million and a price/earnings ratio of 10.

Company S has a market capitalisation of $50 million and earnings of $7 million.

Company R intends to offer $60 million and expects to be able to realise synergistic benefits of $20 million by combining the two businesses. This estimate excludes the estimated $8 million cost of integrating the two businesses.

Which of the following figures need to be used when calculating the value of the combined entity in $ millions?

Options:

8, 20, 50, 60, 200

8, 20, 50, 200

20, 50, 60, 200

7, 10, 20, 50, 200