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CIMA F3 Exam Sample Questions


Question # 1

ZZZ wishes to borrow at a floating rate and has been told that it can use swaps to reduce
the effective interest rate it pays. ZZZ can borrow floating at the risk-free rate + 1, and fixed
at 10%.
Which of the following companies would be the most appropriate for ZZZ to enter into a
swap with?

A.

Company DDA - it can borrow at risk-free rate + 1 Vz and fixed at 10.5%

B.

Company CCA - it can borrow at risk-free rate + Y% and fixed at 9%

C.

Company BBA - it can borrow floating at risk-free rate +VA and fixed at 12%

D.

Company AAB - it can borrow floating at risk-free rate + % and fixed at 9.5%



B.

Company CCA - it can borrow at risk-free rate + Y% and fixed at 9%


C.

Company BBA - it can borrow floating at risk-free rate +VA and fixed at 12%


D.

Company AAB - it can borrow floating at risk-free rate + % and fixed at 9.5%






Question # 2

A company generates and distributes electricity and gas to households and businesses. Forecast results for the next financial year are as follows:

The Industry Regulator has announced a new price cap of $1.50 per Kilowatt.
The company expects this to cause consumption to rise by 10% but costs would remained
unaltered.
The price cap is expected to cause the company's net profit to fall to:

A.

$47.5 million profit

B.

$27.5 million profit

C.

$20.0 million profit

D.

$35.0 million loss



A.

$47.5 million profit






Question # 3

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 decrease by 25%.

B.

The cash balance will decrease by 75% and EPS will increase 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%.



B.

The cash balance will decrease by 75% and EPS will increase by 25%.






Question # 4

 A company plans to raise $12 million to finance an expansion project using a rights issue.
Relevant data:
 

 • Shares will be offered at a 20% discount to the present market price of $15.00 per share.
• There are currently 2 million shares in issue.
• The project is forecast to yield a positive NPV of $6 million.
What is the yield-adjusted Theoretical Ex-Rights Price following the announcement of the
rights issue?
 

A.

 $16.00 

B.

 $14.00 

C.

 $9.00 

D.

 $11.00 



A.

 $16.00 






Question # 5

A company is financed by debt and equity and pays corporate income tax at 20%.
Its main objective is the maximisation of shareholder wealth.
It needs to raise $200 million to undertake a project with a positive NPV of $10 million.
The company is considering three options:
• A rights issue.

• A bond issue.
• A combination of both at the current debt to equity ratio.
Estimations of the market values of debt and equity both before and after the adoption of
the project have been calculated, based upon Modigliani and Miller's capital theory with
tax, and are shown below:

Under Modigliani and Miller's capital theory with tax, what is the increase in shareholder
wealth?

A.

$210 million if financed by equity

B.

$50 million if financed by debt

C.

$160 million if financed by a mixture of debt and equity

D.

$10 million irrespective of finance



B.

$50 million if financed by debt





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