Pass the CIMA Strategic F3 Questions and answers with ExamsMirror

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?   

Company Z has identified four potential acquisition targets: companies A, B, C and D.  

Company Z has a current equity market value of $580 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?

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.

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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 consultancy company is dependent for profits and growth on the high value individuals it employs.

The company has relatively few tangible assets.

Select the most appropriate reason for the net asset valuation method being considered unsuitable for such a company.

Company W has received an unwelcome takeover bid from Company B. The offer is a share exchange of 3 shares in Company B for 5 shares in Company Wora cash alternative of $5.70 for each Company W share.

Company B is approximately twice the size of Company W based on market capitalisation. Although the two companies have some common business interested the main aim of the bid is diversification for Company B.

Company W has substantial cash balances which the directors were planning to use to fund an acquisition. These plans have not been announced to the market.

The following share price information is relevant.

Which of the following would be the most appropriate action by Company W's directors following receipt of this hostile bid?

Which THREE of the following methods of business valuation would give a valuation of the equity of an entity, rather than the value of the whole entity?

PPP's home currency is the PS. An overseas customer is due to make a payment of A$5,000,000 to PPP in 3 months. The present spot rate is 1PS = 5A$. P can obtain an interest rate of 4% per year on P$ deposits and 6% per year on AS deposits.

Forecast the value of the customer's payment to PPP, in PS, when the payment is made in 3 months' time.

Give your answer to the nearest thousand PS.

Company A is based in country A with the AS as its functional currency. It expects to receive BS20 million from Company B in settlement of an export invoice.

The current exchange rate is A$1 =B$2 and the daily standard deviation of this exchange rate = 0 5%

What is the one-day 95% VaR in AS?

DFG is a successful company and its shares are listed on a recognised stock exchange. The company's gearing ratio is currently in line with the industry average and the directors of DFG do not want to increase the company's financial risk. The company does not carry a large cash balance and its shareholders are not expected to be willing to support a rights issue at this time

LMB is a small services company owned and managed by a small board of directors who are going to retire within the next year

DFG wishes to purchase LMB and has approached LMB's owners, who are broadly open to the proposal, to discuss the bid and the consideration to be offered by DFG. LMB's owners explain to DFG that they are also keen to defer any tax liabilities they would be subject to on receipt of the consideration.

Based on the information provided, which of the following types of consideration would be most suitable to finance the acquisition?