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F3
Financial Strategy Questions and Answers

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Viewing page 12 out of 12 pages

Viewing questions 111-120 out of questions

Questions # 111:

Which of the following statements about the tax impact on debt finance is correct?

Options:

Debt instruments issued with fixed and floating charges do not attract tax relief on interest paid.

Preference share dividends attract tax relief in the same way as debenture interest.

Interest on debt is deducted from post-tax profits.

Interest on debt is deducted from pre-tax profits.

Answer

Questions # 112:

A company generates operating profit of $17.2 million, and incurs finance costs of $5.7 million.

It plans to increase interest cover to a multiple of 5-to-1 by raising funds from shareholders to repay some existing debt. The pre-tax cost of debt is fixed at 5%, and the refinancing will not affect this.

Assuming no change in operating profit, what amount must be raised from shareholders?

Give your answer in $ millions to the nearest one decimal place.

$ ?

Options:

Answer

Answer:

45.2

Questions # 113:

The Board of Directors of a listed company is considering the company's dividend/retentions policy.

The inflation rate in the economy is currently high and is expected to remain so for the foreseeable future.

The board are unsure what impact the high level of inflation might have on the dividend policy.

Which THREE of the following statements are true?

Options:

The high inflation rate does not need to be considered when determining the dividend policy.

Consideration should be given to the fact that shareholders will have a desire for real growth in dividend.

Retained earnings for reinvestment will have to earn a return in excess of the inflation level.

The impact of inflation on the cash flows should be considered when formulating the dividend policy.

In periods of high inflation 100% of earnings should always be paid out as dividends so that shareholders can protect their wealth against the impact of inflation.

Answer

B, C, D

Questions # 114:

Formed in 2010, the International Integrated Reporting Council

The primary purpose of the IIRC's framework is to help enable an organisation to communicate which of the following'?

Options:

How it creates value in the short medium and long term.

How it minimises the environmental impact of its business processes.

How it contributes positively to the economic wellbeing of the environment in which it operates.

How it ensures that the conflicting net sets of different stakeholder groups are met in an optimal manner.

Answer

Questions # 115:

A national airline has made an offer to acquire a smaller airline in the same country.

Which of the following would be of most concern to the competition authorities?

Options:

After the acquisition the board propose to reduce the number of flight destinations from the country.

The board informed a major institutional shareholder about the proposed acquisition before informing other shareholders.

After the acquisition the board propose to increase prices significantly on routes where no other airlines operate.

The acquisition is likely to result in significant redundancies of staff currently working for the smaller airline.

Answer

Questions # 116:

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?

Options:

The shareholder can choose whether to take the cast or not.

It increases the number of shares issue.

It means that the company will be able to pay lower total dividends in the future.

It returns cash to shareholders so that they can choose hew to spend It

It will not create an expectation for future increased dividends.

Answer

A, D, E

Questions # 117:

Company A plans to acquire Company B, an unlisted company which has been in business for 3 years.

It has incurred losses in its first 3 years but is expected to become highly profitable in the near future.

No listed companies in the country operate the same business field as Company B, a unique new high-risk business process.

The future success of the process and hence the future growth rate in earnings and dividends is difficult to determine.

Company A is assessing the validity of using the dividend growth method to value Company B.

Which THREE of the following are weaknesses of using the dividend growth model to value an unlisted company such as Company HHG?

Options:

The company has been unprofitable to date and hence, there is no established dividend payment pattern.

The future projected dividend stream is used as the basis for the valuation.

The future growth rate in earnings and dividends will be difficult to accurately determine.

The dividend growth model does not take the time value of money into consideration.

The cost of capital will be difficult to estimate.

Answer

B, C, E

Questions # 118:

A company based in the USA has a substantial fixed rate borrowing at an interest rate of 3.5% and wishes to swap a part of this to a floating rate to take advantage of reducing interest rates Its bank has quoted swap rates of 3 4%-3 5% against 12-month USD risk-free rate.

What is the overall interest rate achieved by the company under this borrowing plus swap combination?

Options:

12-month USD risk-free rate minus 0 1 % (where 0 1 % = the fixed rate of 3.6% minus the swap rate of 3 4%)

12-month USD risk-free rate

12-month USD risk-free rate plus 0 1% (where 0.1 % = the fixed rate of 3.5% minus the swap rate of 3 4%) D. Unchanged at 3.60% as this is the same as the swap rate

Answer

Questions # 119:

The ex div share price of a company's shares is $2.20.

An investor in the company currently holds 1,000 shares.

The company plans to issue a scrip dividend of 1 new share for every 10 shares currently held.

After the scrip dividend, what will be the total wealth of the shareholder?

Give your answer to the nearest whole $.

$ ? .

Options:

Answer

Answer:

2200

Questions # 120:

A publicly funded school is focused on providing Value for Money

It pays its leaching staff less than other schools, because class sizes are generally smaller than elsewhere Despite some staff demotivation from low pay, exam pass rates are high given the close one-to-one attention many pupils receive.

On which aspect of Value for Money is the school underperforming?