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CIMA Updated F3 Exam Questions and Answers by iga

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CIMA F3 Exam Overview :

Exam Name: Financial Strategy
Exam Code: F3 Dumps
Vendor: CIMA Certification: CIMA Strategic
Questions: 393 Q&A's Shared By: iga
Question 96

Company BBB has prepared a valuation of a competitor company, Company BBD. Company BBB is intending to acquire a controlling interest in the equity of Company BBD and therefore wants to value only the equity of Company BBD.

Questions 96

The directors of Company BBB have prepared the following valuation of Company BBD:

Value of Equity = 4.63 + 5.14 + 5.56 = S15.33 million

Additional information on Company BBD:

Questions 96

Which THREE of the following are weaknesses of the above valuation?

Options:

A.

Free cash flows to all investors should be discounted at the cost of equity of 10% rather than WACC of 8%.

B.

The valuation is understated as forecast future growth has been ignored beyond year 3.

C.

The valuation is understated as the directors have failed to include a perpetuity factor in the calculations.

D.

The approach used calculates the value of the total entity not the value of equity.

E.

The valuation is overstated as the directors have failed to deduct tax from the free cash flows.

Discussion
Question 97

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

Options:

A.

The company wants to reduce its gearing.

B.

The company wants to reduce the nominal value of its shares to make them more marketable.

C.

The country in which the company operates taxes capital gains at a higher rate than income.

D.

The company has a one off cash surplus and no available investment opportunities.

Discussion
Question 98

XYZ is a multi-national group with subsidiary AA in Country A and subsidiary BB in Country B. The capital structures of AA and BB are set up to take advantage of the lower tax rate in Country A Thin capitalisation rules in Country B will limit the ability for either AA or BB to claim tax relief on:

Options:

A.

interest earned by BB.

B.

interest earned by AA

C.

interest paid by BB

D.

interest paid by AA

Discussion
Question 99

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:

Options:

A.

5% increase

B.

5% decrease

C.

35% increase

D.

35% decrease

Discussion
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