CIMA F3 Financial Strategy CIMAPRA19-F03-1 Exam Practice Test

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.

MAN is a manufacturing company that is based in country M and sells almost exclusively to customers in country M, priced in the local currency, M$.

MAN wishes to expand the business by acquiring a company that manufactures similar products but has a more global customer base. It is particularly interested in selling to customers in country P, which uses currency P$ but recognises that the P$ is generally quite volatile against the M$.

Country P uses the same language as country M, has free entry of labour from country M,no exchange controls or withholding tax and a favourable double tax treaty.

Which of the following companies would be most suitable takeover candidates for MAN to investigate further?

Company B is anallequityfinancedcompany with a cost of equity of 10%.

It is considering issuing bonds in order to achieve agearing levelof20% debt and 80% equity.

These bonds will pay a coupon rate of 5%and have an interest yield of 6%.

Company B payscorporatetax atthe rate of25%.

According to Modigliani and Miller's theoryof capital structurewith tax, what will beCompany B'snewcost of equity?

A)

B)

C)

D)

CompanyA is located in Country A, where the currency is the A$.

It is listed on the local stock market which was set up 10 years ago.

It plans a takeover of Company B, which is located in CountryB where the currency is the B$, and where the stock market has been operating for over 100 years.

CompanyA is considering how to finance the acquisition, and how the shareholders of CompanyB might respond to a share exchange or cash (paid in B$).

Which of the followingislikely to explain why the shareholders ofCompanyB wouldprefera share exchange as opposed to a cash offer?

A company gas a large cash balance but its directors have been unable to identify any positive NPV projects to invest in. Which THREE of the following are advantages of a share repurchase, compared with a one-off large dividend?

Which THREE of the following long term changes are most likely to increase the credit rating of a company?

Aconsultancycompanyis dependent for profits and growth on the high value individuals it employs.

The company hasrelatively fewtangible assets.

Select the most appropriate reason for the net asset valuation method being considered unsuitable for such a company.