Free Sales Ending Soon - Use Real F3 PDF Questions [Jan 10, 2022]
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NEW QUESTION 31
A profit-seeking company intends to acquire another company for a variety of reasons, primarily to enhance shareholder wealth.
Which THREE of the following offer the greatest potential for enhancing shareholder wealth?
- A. Exploiting production synergies.
- B. Achieving greater cultural diversity.
- C. Achieving more press coverage for the company.
- D. Creating new opportunities for employees.
- E. Acquiring Intellectual Property assets.
- F. Elimination of existing competition.
Answer: A,E,F
NEW QUESTION 32
A listed company in a high technology industry has decided to value its intellectual capital using the Calculated Intangible Value method (CIV).
Relevant data for the company:
* Pays corporate income tax at 30%
* Cost of equity is 9%, pre-tax cost of debt is 7% and the WACC is 8%
* The value spread has been calculated as $26 million
Calculate the CIV for the company.
- A. 325 million
- B. 531 million
- C. 289 million
- D. 228 million
Answer: D
NEW QUESTION 33
A listed company is planning a share repurchase.
The following data applies:
* There are 10 million shares in issue
* The share repurchase will involve buying back 20% of the shares at a price of $0.75
* The company is holding $2 million cash
* Earnings for the current year ended are $2 million
The Directors are concerned about the impact that this repurchase programme will have on the company's cash balance and current year earnings per share (EPS) ratio.
Advise the directors which of the following statements is correct?
- A. The cash balance will decrease by 75% and EPS will increase by 25%.
- B. The cash balance will decrease by 75% and EPS will decrease by 25%.
- C. The cash balance will decrease by 20% and the EPS will decrease by 25%.
- D. The cash balance will decrease by 20% and the EPS will increase by 25%.
Answer: A
NEW QUESTION 34
XYZ has a variable rate loan of $200 million on which it is paying interest of Liber ' 3%.
XYZ entered into a swap with AG bank to convert this to a fixed rate 8% loan. AB bank charges an annual commission of 0.4% for making this arrangement Calculate the net payment from KYZ to AB bank at the end of the first year if Libor was 2% throughout the year.
Give your answer in $ million, to one decimal place.
Answer:
Explanation:
22.8
NEW QUESTION 35
A company's Board of Directors is considering raising a long-term bank loan incorporating a number of covenants.
The Board members are unsure what loan covenants involve.
Which THREE of the following statements regarding loan covenants are true?
- A. A positive loan covenant would require the company to undertake specific actions.
- B. A covenant gives the financial institution the right but not the obligation to convert debt into equity in a case of non-compliance.
- C. A loan covenant has no contractually binding obligations.
- D. A restrictive covenant prohibits the company from conducting certain actions without the approval of the lending institution.
- E. A financial covenant usually requires the company to adhere to specific financial conditions or targets.
Answer: A,D,E
NEW QUESTION 36
A company needs to raise $20 million to finance a project.
It has decided on a rights issue at a discount of 20% to its current market share price.
There are currently 20 million shares in issue with a nominal value of $1 and a market price of $5 per share.
Calculate the terms of the rights issue.
- A. 1 new share for every 20 existing shares
- B. 1 new share for every 4 existing shares
- C. 1 new share for every 25 existing shares
- D. 1 new share for every 5 existing shares
Answer: B
Explanation:
Explanation
Calc_Set2
NEW QUESTION 37
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:
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?
- A. A WACC that the reflects the gearing of the publishing company and the equity beta factor of the publishing company.
- B. A WACC that reflects the gearing of the subsidiary company and the asset beta of a listed company that provides training activities.
- C. A cost of equity that reflects the asset beta of a listed company that provides training activities.
- D. A WACC that reflects the gearing of the publishing company and the asset beta of a listed company that provides training activities.
Answer: D
NEW QUESTION 38
Using the CAPM, the expected return for a company is 11%. The market return is 8% and the risk free rate is 2%.
What does the beta factor used in this calculation indicate about the risk of the company?
- A. It has the same risk as the average market risk.
- B. It is not possible to tell from CAPM.
- C. It has greater risk than the average market risk.
- D. It has lower risk than the average market risk.
Answer: C
NEW QUESTION 39
A private company was formed five years ago and is currently owned and managed by its five founders. The founders, who each own the same number of shares have generally co-operated effectively but there have also been a number of areas where they have disagreed The company has grown significantly over this period by re-investing its earnings into new investments which have produced excellent returns The founders are now considering an Initial Public Offering by listing 70% of the shares on the local stock exchange Which THREE of the following statements about the advantages of a listing are valid?
- A. Helps access to wider sources of finance.
- B. Provides an exit route for the founders
- C. Increases the profile and reputation of the business.
- D. Increases dividend payouts
- E. Reduces agency conflict
Answer: A,B,C
NEW QUESTION 40
A company has some 7% coupon bonds in issue and wishes to change its interest rate profile.
It has decided to do this by entering into a plain coupon interest rate swap with it's bank.
The bank has quoted a swap rate of: 6.0% - 6.5% fixed against LIBOR.
What will the company's new interest rate profile be?
- A. VARIABLE at LIBOR + 0.5%
- B. FIXED at 6.5%
- C. VARIABLE at LIBOR + 1.0%
- D. VARIABLE at LIBOR
Answer: C
NEW QUESTION 41
A listed entertainment and media company produces and distributes films globally. The company invests heavily in intellectual property in order to create the scope for future film projects. The company has five separate distribution companies, each managed as a separate business unit The company is seeking to sell one of its business units in a management buy-out (MBO) to enable it to raise finance for proposed new investments The business unit managers have been in discussions with a bank and venture capitalists regarding the financing for the MBO The venture capitalists are only prepared to invest a mixture of debt and equity and have suggested the following:
The venture capitalists have stated that they expect a minimum return on their equity investment of 30% a year on a compound basis over the first 5 years of the MBO No dividends will be paid during this period.
Advise the MBO team of the total amount due to the venture capitalist over the 5-year period to satisfy their total minimum return?
- A. $120 14 million
- B. $111 39 million
- C. $146 39 million
- D. $155.14 million
Answer: B
NEW QUESTION 42
Company ABC is planning to bid for company DDD, an unlisted company in an unrelated industry sector to ABC.
The directors of ABC are considering a number of different valuation methods for DDD before making a bid.
Which of the following is the MOST appropriate method for ABC to use to value DDD?
- A. Using DDD's tangible assets.
- B. Discounting DDD's forecast cash flows using ABC's cost of equity.
- C. Applying Company ABC's P/E ratio to DDD's forecast earnings.
- D. Applying an industry P/E ratio to DDD's forecast earnings.
Answer: D
NEW QUESTION 43
On 31 October 20X3:
* A company expected to agree a foreign currency transaction in January 20X4 for settlement on 31 March 20X4.
* The company hedged the currency risk using a forward contract at nil cost for settlement on 31 March 20X4.
* The transaction was correctly treated as a cash flow hedge in accordance with IAS 39 Financial Instruments: Recognition and Measurement.
On 31 December 20X3, the financial year end, the fair value of the forward contract was $10,000 (asset).
How should the increase in the fair value of the forward contract be treated within the financial statements for the year ended 31 December 20X3?
- A. Not recognised in 20X3 as the gain will be offset by a loss on the hedged transaction.
- B. Not recognised in 20X3 as the forward contract is not settled until after the year end.
- C. A $10,000 profit will be recognised within other comprehensive income.
- D. A $10,000 profit will be recognised within the Income Statement.
Answer: C
NEW QUESTION 44
A company has announced a rights issue of 1 new share for every 4 existing shares.
Relevant data:
* The current market price per share is $10.00.
* Rights are to be issued at a 20% discount to the current price.
* The rate of return on the new funds raised is expected to be 10%.
* The rate of return on existing funds is 5%.
What is the yield-adjusted theoretical ex-rights price?
Give your answer to two decimal places.
$ ?
Answer:
Explanation:
11.20, 11.2
NEW QUESTION 45
A company currently has a 5.25% fixed rate loan but it wishes to change the interest style of the loan to variable by using an interest rate swap directly with the bank.
The bank has quoted the following swap rate:
* 4.50% - 455% in exchange for Libor
Libor is currently 4%.
If the company enters into the swap and Libor remains at 4%. what will the company's interest cost be?
- A. 4.70%
- B. 4.00%
- C. 4.75%
- D. 5.25%
Answer: B
NEW QUESTION 46
A listed company follows a policy of paying a constant dividend. The following information is available:
* Issued share capital (nominal value $0.50) $60 million
* Current market capitalisation $480 million
The shareholders are requesting an increased dividend this year as earnings have been growing. However, the directors wish to retain as much cash as possible to fund new investments. They therefore plan to announce a 1-for-10 scrip dividend to replace the usual cash dividend.
Assuming no other influence on share price, what is the expected share price following the scrip dividend?
Give your answer to 2 decimal places.
$ ?
Answer:
Explanation:
3.64, 3.63, 3.65
NEW QUESTION 47
M is an accountant who wishes to take out a forward rate agreement as a hedging instrument but the company treasurer has advised that a short-term interest rate future would be a better option.
Which of the following is true of a short-term interest rate future?
- A. The date is flexible and the position can be closed quickly and easily.
- B. It must be kept for ne whole duration of the contract
- C. It interest rates have gone down the price of the future will have fallen.
- D. It can be tailored to the exact reeds of the company.
Answer: B
NEW QUESTION 48
Which of the following statements is true of a spin-off (or demerger)?
- A. Increases the risk of a takeover bid for the core entity.
- B. Changes the ownership structure of the core entity by introducing new shareholders.
- C. Raises finance to fund new projects.
- D. Allows investors to identify the true value of the demerged business.
Answer: D
NEW QUESTION 49
Which of the following statements about IFRS 7 Financial Instruments: Disclosures is true?
- A. IFRS 7 requires sensitivity analysis in relation to credit risk.
- B. The main requirement of IFRS 7 is for qualitative disclosures relating to financial instruments and market risks.
- C. IFRS 7 requires disclosures to be given for each separate class of financial instruments.
- D. IFRS 7 only applies to entities that are designated as financial institutions by a regulatory authority.
Answer: C
NEW QUESTION 50
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