CIMA CIMAPRA19-F03-1 Exam Questions Instant Access

Question 1

A company is based in Country Y whosefunctionalcurrency isY$. It has an investment in CountryZwhosefunctionalcurrency isZ$.

This year the company expects to generateZ$10 million profit after tax.

Tax Regime:

* Corporate income taxrate in country Yis 50%

* Corporate income tax rate in country Z is 20%

* Full double tax relief is available

Assume an exchange rate ofY$1 = Z$ 5.

What is the expected profit after tax in Y$ if the Z$ profit is remitted to Country Y?

AY$ 1.25 million

BY$ 1.00 million

CY$ 31.25 million

DY$ 4.00 million

Answer : A

Question 2

A company is reporting under IFRS 7 Financial Instruments: Disclosures for the first time and the directors are concerned about whether this will lead to the disclosure of information that could affect the company's share price.

The company is based in a country that uses the A$ but 40% of revenue relates to export sales to the USA and priced in US$.

When the company reports under IFRS 7 for the first time, the share price is most likely to:

AIncrease due to greater clarity of information available on the extent of US$ risks and how they are managed.

BStay the same since US$ risk can already be quantified from segmental analysis disclosures included elsewhere in the annual report.

CDecrease since investors place a lower value on higher risk businesses.

DEither increase or decrease depending on market reaction to new information on how financial risk is managed.

Answer : D

Question 3

A venture capitalist invests in a company by means of buying:

* 9million shares for$2 a share and

* 8% bonds with anominalvalue of $2 million, repayableat par in 3 years' time.

The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment.

The company has 10 million shares in issue.

What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?

Give your answer to the nearest$million.

$ million.

A34, 35, 34000000, 35000000

B35, 35, 34000000, 35000000

Answer : A

Question 4

A government is currently considering the privatisation of the national airline. The shares are to be offered to the public via a fixed price Initial Public Offering (IPO).

Which THREE of the following statements are correct?

AAn IPO is normally underwritten

BThe government will receive significant financial resources from the sale of its shareholding in the national airline.

CThe rational airline employees will no longer be public sector employees following the completion of the privatisation

DThe use of a fixed price offer will ensure that the government raises the maximum amount of finance.

EThe rational airline will receive significant financial resources as a direct result of the shares company shares in the IPO.

Answer : B, D, E

Question 5

Which THREE of the following are considered in detail in IFRS 7 Financial Instruments: Disclosures?

ACredit risk

BBusiness risk

CMarket risk

DEnterprise risk

ELiquidity risk

Answer : A, C, E

Question 6

A company's Board of Directors is assessing thelikely impact of financing new projectsbyusing either debt or equity finance.

The impact of using debt or equity finance on some key variables is uncertain.

WhichTHREEof the following statements are true?

AThe use of equity finance reduces the company's overall financial risk.

BThe use of equity finance will create pressure for increases in dividend per share in the future.

CThe use of debt finance will always result in an increase in earnings per share.

DRetained earnings is the cheapest form of equity finance.

EThe use of debt finance increases the cost of equity.

FThe use of debt finance is always preferable to equity finance.

Answer : A, B, E

Question 7

Company A is planning to acquire Company B.

Company A's managers think they can improve the performance of Company B to the extent that its own P/E ratio should be applied to Company B's earnings.

Relevant Data:

What is the expected synergy if the acquisition goes ahead?

Give your answer to the nearest $ million.

$? million

A8, 8000000

B7, 8000000

Answer : A

CIMA F3 Financial Strategy CIMAPRA19-F03-1 Exam Questions