Updated Jan 05, 2024 CIMAPRA19-F03-1 Exam Dumps - PDF Questions and Testing Engine
New (2024) CIMA CIMAPRA19-F03-1 Exam Dumps
NEW QUESTION # 127
Company A has made an offer to acquire Company Z.
Both companies are quoted and their current market share prices are:
* Company A - $4
* Company Z - $5
Shareholders in company Z have been given three alternative offers:
* Cash of $5.50 per share
* Share for share exchange on the basis of 3 for 2
* 10.5% long dated bond for every 20 shares
The bond is has a nominal value of $100 and the expected yield on bonds of similar risk is 10%.
You are advising a Company Z shareholder on the three offers.
She requires a 15% premium if she is to accept the offer.
In providing your advice, which of the following statements is correct?
- A. The bond offer is only worth $100 which represents a zero premium and should be rejected.
- B. The value of the consideration given by the cash and bond offers is certain, unlike the share offer.
- C. The bond offer is above the minimum threshold and should be accepted.
- D. The share for share exchange is the only offer which is above the acceptance threshold.
Answer: D
NEW QUESTION # 128
An aerospace company is planning to diversify into car manufacturing.
Relevant data:
What is the the cost of equity to be used in the WACC for the project appraisal?
Give your answer in percentage, as a whole number.
? %
Answer:
Explanation:
19
NEW QUESTION # 129
Under traditional theory, an increase in a company's WACC would cause the value of the company to:
- A. Stay the same
- B. Decrease
- C. Increase
- D. Either increase or decrease
Answer: B
NEW QUESTION # 130
A company has a 4% corporate bond in issue on which there are two loan covenants.
* Interest cover must not fall below 4 times
* Retained earnings for the year must not fall below S5 00 million
The Company has 100 million shares in issue. The most recent dividend per share was $0 10 The Company intends increasing dividends by 8% next year.
Financial projections tor next year are as follows:
Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?
- A. The company will breach the covenant in respect of retained earnings only.
- B. The company will be in breach of the covenant in respect of interest cover only.
- C. The company will be in compliance with both covenants.
- D. The company will be in breach of both covenants
Answer: C
NEW QUESTION # 131
Company Z has identified four potential acquisition targets: companies A, B. C and D.
Company Z has a current equity market value of S590 million.
The price it would have to pay for the equity of each company is as follows:
Only one of the target companies can be acquired and the consideration will be paid in cash.
The following estimations of the new combined value of Company Z have been prepared for each acquisition before deduction of the cash consideration:
Ignoring any premium paid on acquisition, which acquisition should the directors pursue?
- A. C
- B. A
- C. D
- D. B
Answer: A
NEW QUESTION # 132
A company has two divisions.
A is the manufacturing division and supplies only to B, the retail division.
The Board of Directors has been approached by another company to acquire Division B as part of their retail expansion programme.
Division A will continue to supply to Division B as a retail customer as well as source and supply to other retail customers.
Which is the main risk faced by the company based on the above proposal?
- A. Shareholders will be opposed to the divestment and stop the acquisition.
- B. Suppliers to Division A will be opposed to the divestment and stop the acquisition.
- C. Division A's going concern is highly dependent on its relationship with Division B as a retail customer.
- D. The level of quality of the product will not be maintained by the acquired company.
Answer: C
NEW QUESTION # 133
Company F's current profit before interest and taxation is $5.0 million.
It has a 10% long-term corporate bond in issue with a nominal value of $10 million.
Corporate tax is paid at 25%.
The industry average P/E multiple is 10.
Company X has made an approach to acquire the entire share capital of Company F for $30 million.
Company X has announced that anticipated synergies (after interest and taxation) arising from its acquisition of Company F will be $1 million each year in perpetuity.
Advise the Board of Directors of Company F if the bid should be accepted, based on the above information?
- A. Reject the bid because Company F is potentially worth $60 million to Company X.
- B. Reject the bid because Company F is potentially worth $50 million to Company X.
- C. Accept the bid because Company F is potentially worth $30 million to Company X.
- D. Reject the bid because Company F is potentially worth $40 million to Company X.
Answer: D
NEW QUESTION # 134
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 # 135
Z wishes to borrow at a floating rate and has been told that it can use swaps to reduce the effective interest rate it pays. Z can borrow floating at Libor ' 1, and fixed at 10%.
Which of the following companies would be the most appropriate for Z to enter into a swap with?
- A. Company C - it can borrow at L +1 ½ and fixed at 9%
- B. Company E - it can borrow floating at L +1 ½ and fixed at 12%
- C. Company A - it can borrow floating L +1 ½ and fixed at 9.5%
- D. Company D - it can borrow at L +1 ½ and fixed at 10.5%
Answer: A
NEW QUESTION # 136
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 $2.00 per Kilowatt.
The company expects this to cause consumption to rise by 15% but costs would remained unaltered.
The price cap is expected to cause the company's net profit to fall to:
- A. $43.00 million profit
- B. $126.50 million loss
- C. $164.00 million profit
- D. $8.75 million profit
Answer: C
NEW QUESTION # 137
A company wishes to raise new finance using a rights issue. The following data applies:
* There are 10 million shares in issue with a market value of $4 each
* The terms of the rights will be 1 new share for 4 existing shares held
* After the rights issue, the theoretical ex-rights price (TERP) will be $3.80 Assuming all shareholders take up their rights, how much new finance will be raised ?
Give your answer to one decimal place.
$ ? million
Answer:
Explanation:
7.5, 7.50
NEW QUESTION # 138
Company A, a listed company, plans to acquire Company T, which is also listed.
Additional information is:
* Company A has 150 million shares in issue, with market price currently at $7.00 per share.
* Company T has 120 million shares in issue,. with market price currently at $6.00 each share.
* Synergies valued at $50 million are expected to arise from the acquisition.
* The terms of the offer will be 2 shares in A for 3 shares in T.
Assuming the offer is accepted and the synergies are realised, what should the post-acquisition price of each of Company A's shares be?
Give your answer to two decimal places.
- A. 7.24
- B. 8.24
Answer: B
Explanation:
NEW QUESTION # 139
Company P is a pharmaceutical company listed on an alternative investment market.
The company is developing a new drug which it hopes to market in approximately six years' time.
Company P is owned and managed by a group of doctors who wish to retain control of the company. The company operates from leased laboratories with minimal fixed assets.
Its value comes from the quality of its research staff and their research.
The company currently has one approved drug which generates sufficient cashflow to cover day to day operations but not sufficient for major new research and development.
Company P wish to raise debt finance to develop the new drug.
Recommend which of the following types of debt finance would be most appropriate for Company P to help finance the development of this new drug.
- A. 3% Commercial Paper.
- B. 4% Convertible bond with a conversion ratio of 350 ordinary shares per bond.
- C. 5% Bond repayable at par in 7 years' time.
- D. 6% Eurobond repayable at par in 5 years' time.
Answer: B
NEW QUESTION # 140
XCV can borrow at either 9.5% fixed or the risk-free rate plus 1.3%.
XCV wishes to borrow at a variable rate and thinks that a swap may enable it to do so cheaply BNM can borrow the same principal sum as XCV It can borrow at 10 5% fixed or the risk-free rate plus 2 1 % BNM wishes to raise fixed rate debt XCV and BNM have agreed to use an interest rate swap They will share any savings equally Calculate the effective swap rate that will be paid by XCV.
Give your answer to one decimal place.
Answer:
Explanation:
Pending
NEW QUESTION # 141
An unlisted software development business is to be sold by its founders to a private equity house following the initial development of the software. The business has not yet made a profit but significant profits are expected for the next three years with only negligible profits thereafter. The business owns the freehold of the property from which it operates. However, it is the industry norm to lease property.
Which THREE of the following are limitations to the validity of using the Calculated Intangible Value (CIV) method for this business?
- A. Significant profits are forecast for the next three years with only negligible profits thereafter.
- B. The intellectual property representing the software development has not been included in the accounts.
- C. The business owns the freehold property from which it operates.
- D. The business has not yet made a profit.
- E. The CIV method cannot be applied to an unlisted company.
Answer: B,C,D
NEW QUESTION # 142
Company A is planning to acquire Company B at a price of $ 65 million by means of a cash bid.
Company A is confident that the merged entity can achieve the same price earnings ratio as that of Company A.
What does Company A expect the value of the merged entity to be post acquisition?
- A. $187.5 million
- B. $156.0 million
- C. $122.5 million
- D. $207.0 million
Answer: C
NEW QUESTION # 143
Company A is unlisted and all-equity financed. It is trying to estimate its cost of equity.
The following information relates to another company, Company B, which operates in the same industry as Company A and has similar business risk:
Equity beta = 1.6
Debt:equity ratio 40:60
The rate of corporate income tax is 20%.
The expected premium on the market portfolio is 7% and the risk-free rate is 5%.
What is the estimated cost of equity for Company A?
Give your answer to one decimal place.
? %
- A. 12.3, 12.30
- B. 11.3, 12.30
Answer: A
NEW QUESTION # 144
Which TWO of the following situations offer arbitrage opportunities?
A)
B)
C)
D)
- A. Option C
- B. Option D
- C. Option B
- D. Option A
Answer: C
NEW QUESTION # 145
A company's Board of Directors wishes to determine a range of values for its equity.
The following information is available:
Estimated net asset values (total asset less total liabilities including borrowings):
* Net book value = $20 million
* Net realisable value = $25 million
* Free cash flows to equity = $3.5 million each year indefinitely, post-tax.
* Cost of equity = 10%
* Weighted Average Cost of Capital = 7%
Advise the Board on reasonable minimum and maximum values for the equity.
- A. Minimum value = $25.0 million, and maximum value = $50.0 million
- B. Minimum value = $25.0 million, and maximum value = $35.0 million
- C. Minimum value = $20.0 million, and maximum value = $35.0 million
- D. Minimum value = $20.0 million, and maximum value = $50.0 million
Answer: B
NEW QUESTION # 146
Companies A, B, C and D:
* are based in a country that uses the K$ as its currency.
* have an objective to grow operating profit year on year.
* have the same total levels of revenue and cost.
* trade with companies or individuals in the eurozone. All import and export trade with companies or individuals in the eurozone is priced in EUR.
Typical import/export trade for each company in a year are as follows:
Which company's growth objective is most sensitive to a movement in the EUR/K$ exchange rate?
- A. Company D
- B. Company A
- C. Company B
- D. Company C
Answer: C
NEW QUESTION # 147
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 25 existing shares
- B. 1 new share for every 5 existing shares
- C. 1 new share for every 20 existing shares
- D. 1 new share for every 4 existing shares
Answer: D
Explanation:
Explanation
Calc_Set2
NEW QUESTION # 148
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