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CIMA Strategic
F3
Financial Strategy Questions and Answers

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Viewing page 11 out of 12 pages

Viewing questions 101-110 out of questions

Questions # 101:

STU has relatively few tangible assets and is dependent for profits and growth on the high-value individuals it employs. Which of the following statements best explains why the net asset valuator method’s considered unstable for TU?

Options:

STU does not account for its tangible assets

STU does not account for its intangible assets.

STU accounts for its intangible assets at net realisable value.

STU accounts for its intangible assets at historical value.

Answer

Questions # 102:

A company is financed as follows:

• 400 million $1 shares quoted at $3.00 each.

• $800 million 5% bonds quoted at par.

The company plans to raise $200 million long term debt to finance a project with a net present value of $100 million.

The bank that is providing the debt is insisting on a maximum gearing level covenant.

Gearing will be based on market values and calculated as debt/(debt + equity).

What is the lowest figure for the gearing covenant that the bank could impose without the company breaching the agreement?

Options:

43%

44%

45%

46%

Answer

Questions # 103:

A company is concerned about the interest rate that it will be required to pay on a planned bond issue.

It is considering issuing bonds with warrants attached.

Advise the directors which of the following statements about warrants is NOT correct?

Options:

Warrants are a debt sweetener attached to the bond to drive down the interest rate payable on the bond.

Warrants give the holder the right to buy ordinary shares in the company at a fixed price at a future date.

Warrants can be sold back to the issuing company for the nominal value of the share if no longer required by the bond holder.

Warrants can potentially be very expensive because they can involve the issue of shares at a discount in the future if exercised.

Answer

Questions # 104:

JAG and ZEB are two listed companies. JAG is approximately 20 times the size of ZEB.

10 days ago JAG made a hostile bid for ZEB. offering a share exchange.

The bid price represents a 10% profit to the shareholders of ZEB at today's market prices to reflect the high levels of synergistic benefits that JAG expects to realise from the transaction.

Which of the following is the greatest future threat to the post-transaction value for JAG?

Options:

Forecast synergistic benefits are not realised.

New shareholders acquired from ZEB demand a higher dividend payout than JAG is used to.

Negative market response to the bid.

New shareholders acquired from ZEB withdraw their investment by selling their shares within 12 months.

Answer

Questions # 105:

A company with a market capitalisation of S50million is considering raising $1 million debt to fund a new 10-year capital investment protect

The value of this issue is considered to be small in comparison to the company's market capitalisation

The company is considering whether to raise the debt finance by either a "bond private placing' or a 'public bond issue.

Which THREE of the following statements are correct?

Options:

An initial public bond issue will be administratively complex and relatively expensive for the relatively small amount of debt being raised whereas a bond private placing will be relatively less complex

An average investor is made aware of a potential initial public bond issue whereas the average investor is only made aware of a bond private placing after it has occurred.

The company's credit rating will be a key element in determining the interest rate payable and the potential success of either the public bond issue or the bond private placing

An initial public bond issue does not need to be underwritten whereas a bond private placing must be underwritten.

An initial public bond issue can be arranged relatively quickly whereas a bond private placing can take up to a year to arrange.

Answer

A, E

Questions # 106:

Company ABE is an unlisted company that has been trading for 10 years. During this period, it has seen substantial growth in revenue and earnings. For the company to continue its growth it needs to raise new finance The directors are considering an initial public offering (IPO).

The following information is relevant to Company ABE:

Question # 106

A listed company of similar size and in the same industry as Company ABE had earnings per share in the last financial year of $1 80 Its shares are currently trading at a price / earnings ratio of 12.

The directors of Company ABE have asked for advice on what price they might expect if the company is listed on the stock exchange by means of an IPO.

Using the information provided what is an estimated issue price for each share in Company ABE?

Question # 106

Give your answer to 2 decimal places.

Options:

Answer

Questions # 107:

Which of the following statements about companies seeking a stock market listing is correct?

Options:

A listing may make it harder for a company to raise money from its existing lenders.

The enhanced reputation of the company can improve its credit rating reducing the risk of non-payment to suppliers and lenders.

When a company seeks a listing this may unsettle its staff, potentially resulting in a loss of valued employees.

A listing will require the owners to either sell a majority of their shares, or, if they retain their shares, to step down from the board.

Answer

Questions # 108:

A listed entertainment and media company produces and distributes films globally. The company invests heavily in intellectual property in order to create the scope for future film projects. The company has five separate distribution companies, each managed as a separate business unit The company is seeking to sell one of its business units in a management buy-out (MBO) to enable it to raise finance for proposed new investments

The business unit managers have been in discussions with a bank and venture capitalists regarding the financing for the MBO The venture capitalists are only prepared to invest a mixture of debt and equity and have suggested the following:

Question # 108

The venture capitalists have stated that they expect a minimum return on their equity investment of 3Q°/o a year on a compound basis over the first 5 years of the MBO No dividends will be paid during this period.

Advise the MBO team of the total amount due to the venture capitalist over the 5-year period to satisfy their total minimum return?