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SampleQuestions QUESTION NO:1 A listed company is planning to raise $21.6 million to finance a new project with a positive net present value of $5 million. The finance is to be raised via a rights issue at a 10% discount to the current share price. There are currently 100 million shares in issue, trading at $2.00each. Taking the new project into account, what would the theoretical ex-rights price be? Give your answer to two decimal places. $? Answer: 2.02,2.03 QUESTION NO:2 When valuing an unlisted company, a P/E ratio for a similar listed company may be used but adjustments to the P/E ratio may benecessary. Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use? The relative lack of marketability of unlisted companyshares. A lower level of scrutiny and regulation for unlistedcompanies. Unlisted companies being generally smaller and lessestablished. Control premium not being included within the proxy p/e ratioused. The forecast earnings growth being relatively higher in the unlistedcompany. A profit item within the unlisted company's latest earnings which will notreoccur. Answer: A, B,C QUESTION NO:3 Company E is a listed company. Its directors are valuing a smaller listed company, Company F, as a possibleacquisition. The two companies operate in the same markets and have the same business risk. Relevant data on the two companies is asfollows: Both companies are wholly equity financed and both pay corporate tax at30%. The directors of Company E believe they can "bootstrap" Company F's earnings to improve performance.
Calculate the maximum price that Company E should offer to Company F's shareholders to acquire thecompany. Give your answer to the nearest$million. A.3,150 B.1,890 C.4,500 D.2,700 Answer:A QUESTION NO:4 Company A is a large listed company, with a wide range of both institutional and private shareholders. It is planning a takeover offer for CompanyB. Company A has relatively low cash reserves and its gearing ratio of 40% is higher than most similar companies in itsindustry. Which TWO of the following would be the most feasible ways of Company A structuring an offer for CompanyB? Cash offer, funded byborrowings. Share for shareexchange. Cash offer, funded from existing cashresources. Cash offer, funded by a rightsissue. Debt for shareexchange. Answer: B,D QUESTION NO:5 Two listed companies in the same industry are joining together through a merger. What are the likely outcomes that will occur after the merger hashappened? Select ALL thatapply. Increase in customerbase. Competition authorities step in to stop a potential pricemonopoly. Decrease in employee motivation due to internalchanges. Changes to supplier relationships owing to internalchanges. Cost savings from synergistic benefits and economies ofscale.
Answer: A, C, D,E • QUESTION NO:6 • A listed company plans to raise $350 million to finance a major expansion program The cash flow projections for the program are subject to considerable variability. Brief details of the program have been public knowledge for a fewweeks. • The directors are considering two financing options, either a rights issue at a 20% discount to current share price or a long termbond. • The following data isrelevant: • The company's share price has fallen by 5% over the past 3 months compared with a fall in the market of 3% over the sameperiod. • The directors favor the bondoption. • However, the Chief Accountant has provided arguments for a rights issue. Which TWO of the following arguments in favor of a right issue arecorrect? • The issue of bonds might limit the availability of debt finance in thefuture. • The recent fall in the share price makes a rights issue more attractive to thecompany. • The rights issue will lead to less pressure on the operating cash flows of theprogram. • The WACC will decrease assuming Modigliani and Miller's Theory of Capital Structure without taxesapplies. • The administrative costs of a rights issue will belower. • Answer: A,C • QUESTION NO:7 • A company has in a 5% corporate bond in issue on which there are two loancovenants. • Interest cover must not fall below 3times • Retained earnings for the year must not fall below $3.5 million The Company has 200 million shares inissue. • The most recent dividend per share was$0.04. • The Company intends increasing dividends by 10% next year. Financial projections for next year are asfollows: • Advise the Board of Directors which of the following will be the status of compliance with the loan covenants nextyear? • The company will be in compliance with bothcovenants. • The company will be in breach of bothcovenants. • The company will breach the covenant in respect of retained earningsonly.
D. The company will be in breach of the covenant in respect of interest coveronly. • Answer:C • QUESTION NO:8 • The ex div share price of a company's shares is$2.20. • An investor in the company currently holds 1,000shares. • The company plans to issue a scrip dividend of 1 new share for every 10 shares currently held. After the scrip dividend, what will be the total wealth of theshareholder? • Give your answer to the nearest whole$. • $ ?. • Answer:2200 • QUESTION NO:9 • Company T is a listed company in the retailsector. • Its current profit before interest and taxation is $5 million. This level of profit is forecast to be maintainable infuture. • Company T has a 10% corporate bond in issue with a nominal value of $10 million. This currently trades at 90% of its nominalvalue. • Corporate tax is paid at20%. • The following information isavailable: • Which of the following is a reasonable expectation of the equity value in the event of an attemptedtakeover? • $32.0million • $41.6million • $65.0million • $50.2million • Answer:B • QUESTION NO:10 • A company wishes to raise additional debt finance and is assessing the impact this will have on keyratios. • The following data currentlyapplies: • Profit before interest and tax for the current year is$500,000 • Long term debt of $300,000 at a fixed interest rate of5%
250,000 shares in issue with a share price of$8 • The company plans to borrow an additional $200,000 on the first day of the year to invest in new project which will improve annual profit before interest and tax by$24,000. • The additional debt would carry an interest rate of3%. • Assume the number of shares in issue remain constant but the share price will increase to $8.50 after theinvestment. • The rate of corporate income tax is30%. • Interest cover will fall; P/E ratio willfall. • Interest cover will fall; P/E ratio willrise. • Interest cover will rise; P/E ratio willrise. • Interest cover will rise; P/E ratio willfall. • Answer:B • Buy Complete Questions Answers Filefrom • http://www.exams4sure.com/CIMA/F3-practice-exam- dumps.html • 100% Exam Passing Guarantee & Money BackAssurance • PDF Version + Test Engine SoftwareVersion • 90 Days Free UpdatesService • Valid For AllCountries