Jan-2024 Latest Prep4sureGuide F3 Exam Dumps with PDF and Exam Engine Free Updated Today!
Following are some new F3 Real Exam Questions!
NEW QUESTION # 16
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. D
- B. C
- C. A
- D. B
Answer: B
NEW QUESTION # 17
A private company manufactures goods for export, the goods are priced in foreign currency B$.
The company is partly owned by members of the founding family and partly by a venture capitalist who is helping to grow the business rapidly in preparation for a planned listing in three years' time.
The company therefore has significant long term exposure to the B$.
This exposure is hedged up to 24 months into the future based on highly probable forecast future revenue streams.
The company does not apply hedge accounting and this has led to high volatility in reported earnings.
Which of the following best explains why external consultants have recently advised the company to apply hedge accounting?
- A. To ensure that the venture capitalist receives regular annual returns on its investment.
- B. To make it easier for the market to value the business when it is listed on the Stock Exchange.
- C. To provide a more appropriate earnings figure for use in calculating the annual dividend.
- D. To fully adopt IFRS in preparation for listing the company.
Answer: B
NEW QUESTION # 18
A project requires an initial outlay of $2 million which can be financed with either a bank loan or finance lease.
The company will be responsible for annual maintenance under either option.
The tax regime is:
* Tax depreciation allowances can be claimed on purchased assets.
* If leased using a finance lease, tax relief can be claimed on the interest element of the lease payments and also on the accounting depreciation charge.
The trainee management accountant has begun evaluating the lease versus buy decision and has produced the following dat a. He is not confident that all this information is relevant to this decision.
Using only the relevant data, which of the following is correct?
- A. The bank loan is $70,000 LESS expensive than the finance lease.
- B. The bank loan is $20,000 LESS expensive than the finance lease.
- C. The bank loan is $120,000 LESS expensive than the finance lease.
- D. The bank loan is $30,000 MORE expensive than the finance lease.
Answer: A
NEW QUESTION # 19
The Senior Management Team of ABC, an owner-managed, capital intensive start-up engineering business, is considering the options for its dividend policy. It has so far been a successful business and is expanding quickly Once in place, the Senior Management Team anticipates that its current investment plans will yield returns for many years to come The first agenda item at every meeting currently concerns arranging and funding new equipment and premises.
Which of the following dividend policies is likely to be the most suitable?
- A. A constant pay-out ratio
- B. Constant growth
- C. Zero dividend
- D. Residual policy.
Answer: D
NEW QUESTION # 20
The ex div share price of Company A's shares is $.3.50
An investor in Company A currently holds 2,000 shares.
Company A plans to issue a script divided of 1 new shares for every 10 shares currently held.
After the scrip divided, what will be the total wealth of the shareholder?
Give your answer to the nearest whole $.
Answer:
Explanation:
7000
NEW QUESTION # 21
Which of the following statements best describes a residual dividend policy?
- A. Dividends are paid only if no further positive NPV projects are available.
- B. Dividends are paid at a constant rate.
- C. All surplus earnings are invested back into the business.
- D. Dividends are paid only after the on-going operational needs of the business have been met.
Answer: A
NEW QUESTION # 22
A company wishes to raise additional debt finance and is assessing the impact this will have on key ratios.
The following data currently applies:
* Profit before interest and tax for the current year is $500,000
* Long term debt of $300,000 at a fixed interest rate of 5%
* 250,000 shares in issue with a share price of $8
The company plans to borrow an additional $200,000 on the first day of the year to invest in new project which will improve annual profit before interest and tax by $24,000.
The additional debt would carry an interest rate of 3%.
Assume the number of shares in issue remain constant but the share price will increase to $8.50 after the investment.
The rate of corporate income tax is 30%.
After the investment, which of the following statements is correct?
- A. Interest cover will rise; P/E ratio will rise.
- B. Interest cover will rise; P/E ratio will fall.
- C. Interest cover will fall; P/E ratio will fall.
- D. Interest cover will fall; P/E ratio will rise.
Answer: D
NEW QUESTION # 23
Company A is a listed company that produces pottery goods which it sells throughout Europe. The pottery is then delivered to a network of self employed artists who are contracted to paint the pottery in their own homes.
Finished goods are distributed by network of sales agents.The directors of Company A are now considering acquiring one or more smaller companies by means of vertical integration to improve profit margins.
Advise the Board of Company A which of the following acquisitions is most likely to achieve the stated aim of vertical integration?
- A. A listed international logistics firm.
- B. A company in a similar market to Company A.
- C. A company that produces accessories.
- D. A pottery factory in the Middle East.
Answer: A
NEW QUESTION # 24
Company A is planning to acquire Company B. Both companies are listed and are of similar size based on market capitalisation No approach has yet been made to Company B's shareholders as the directors of Company A are undecided about the most suitable method of financing the offer Two methods are under consideration a share exchange or a cash offer financed by debt.
Company A currently has a gearing ratio (debt to debt plus equity) of 30% based on market values. The average gearing ratio (debt to debt plus equity) for the industry is 50% Although no formal offer has been made there have been market rumours of the proposed bid. which is seen as favorable to Company A.
As a consequence. Company As share price has risen over the past few weeks while Company B's share price has fallen.
Which THREE of the following statements are most likely to be correct?
- A. The method of finance chosen will not affect the post-acquisition earning per share of the combined business
- B. Based on current share price movements, a share exchange would mean Company A has to issue fewer shares to acquire Company B than it would have done a few weeks ago
- C. Company A's weighted average cost of capital will fall if financing is with debt
- D. Company A's gearing will increase following a share exchange.
- E. Company B's shareholders will be able to participate in the future growth of the combined business if it is a share exchange
Answer: B,C
NEW QUESTION # 25
A company is considering hedging the interest rate risk on a 3-year floating rate borrowing linked to the
12-month risk-free rate.
If the 12-month risk-free rate for the next three years is 2%, 3% and 4%, which of the following alternatives would result in the lowest average finance cost for the company over the three years?
- A. Do not hedge.
- B. Enter into a zero-cost collar with a floor of 2.9% and a ceiling of 4%.
- C. Enter into an interest rate cap at an annual premium of 0.533% and a cap of 3%,
- D. Enter into an interest rate swap at 3.1% fixed against 12-month risk-free rate.
Answer: A
NEW QUESTION # 26
Company M plans to bid for Company J.
Company M has 20 million shares in issue and a current share price of $10.00 before publicly announcing the planned takeover. Company J has 10 million shares in issue and a current share price of $4.00.
The directors of Company M are considering an all-share bid of 1 Company M shares for 2 Company J shares.
Synergies worth $20m are expected from the acquisition.
What is the likely change in wealth for Company M's shareholders (in total) if the bid is accepted?
Give your answer to the nearest $ million.
$ ? million
Answer:
Explanation:
8
NEW QUESTION # 27
A company has forecast the following results for the next financial year:
The following is also relevant:
* Profit after tax for the year can be assumed to be equivalent to free cash flow for the year.
* Debt finance comprises a $10 million floating rate loan which currently carries an interest rate of 5%.
* $400,000 investment in non-current assets is required to achieve required growth, all of which is to financed from next year's free cash flow.
* The company plans to pay a dividend of $150,000 next year, financed from next year's free cash flow.
The company is concerned that interest rates could rise next year to 6% which could then affect their investment plans.
If interest rates were to rise to 6% and the company wishes to maintain its dividend amount, the planned investment expenditure will decrease by:
- A. $75,000
- B. $50,000
- C. $25,000
- D. $100,000
Answer: C
NEW QUESTION # 28
A UK company enters into a 5 year borrowing with bank P at a floating rate of GBP Libor plus 3% It simultaneously enters into an interest rate swap with bank Q at 4.5% fixed against GBP Libor plus 1.5% What is the hedged borrowing rate, taking the borrowing and swap into account?
Give your answer to 1 decimal place.
Answer:
Explanation:
7.5%
NEW QUESTION # 29
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 increase by 25%.
- B. The cash balance will decrease by 20% and the EPS will decrease by 25%.
- C. The cash balance will decrease by 20% and the EPS will increase by 25%.
- D. The cash balance will decrease by 75% and EPS will decrease by 25%.
Answer: A
NEW QUESTION # 30
Company A has made an offer to take over all the shares in Company B on the following terms:
* For every 20 shares currently held, Company B's shareholders will receive $100 bond with a coupon rate of 3%
* The bond will be repaid in 10 years' time at its par value of $100.
* The current yield on 10 year bonds of similar risk is 6%.
What is the effective offer price per share being made to Company B's shareholders?
- A. $4.50
- B. $6.89
- C. $3.89
- D. $6.43
Answer: C
NEW QUESTION # 31
An entity prepares financial statements to 31 December each year. The following data applies:
1 December 20X0
* The entity purchased some inventory for $400,000.
* In order to protect the inventory against adverse changes in fair value the entity entered into a futures contract to sell the inventory for a fixed price on 31 January 20X1.
* The entity designated this contract as a fair value hedge of the value of the inventory.
31 December 20X0
* The inventory had a fair value of $480,000 and the futures contract had a fair value of $75,000 (a financial liability).
What will be the impact on the statement of profit or loss and other comprehensive income for the year ended
31 December 20X0 in respect of the change in the value of the inventory and the futures contract?
- A. A net gain of $5,000 will be recognised in profit or loss.
- B. A loss of $75,000 will be recognised in other comprehensive income.
- C. A net gain of $5,000 will be recognised in other comprehensive income.
- D. A loss of $75,000 will be recognised in profit or loss.
Answer: A
NEW QUESTION # 32
On 1 January 20X1 a company entered into a S200 million interest rate swap with a bank at a fixed rate of 4% against the 6-month risk-free rate to hedge the interest rale risk on a floating rate borrowing.
6-month risk-free rate was as follows:
What is the net settlement due under the swap contract on 1 July 20X1?
- A. $1 000 000 net receipt to the company.
- B. S1 500.000 net payment by the company.
- C. $1.500.000 net receipt to the company.
- D. S1 000 000 net payment by the company.
Answer: B
NEW QUESTION # 33
Company A is planning to acquire Company B.
Company A's managers think they can improve the performance of Company B to the extent that its own P/E ratio should be applied to Company B's earnings.
Relevant Data:
What is the expected synergy if the acquisition goes ahead?
Give your answer to the nearest $ million.
Answer:
Explanation:
$ ? million
8, 8000000
NEW QUESTION # 34
Which THREE of the following long term changes are most likely to increase the credit rating of a company?
- A. A decrease in the (Book value of debt) / (Book value of equity) ratio.
- B. An increase in the free cashflow generated from operations.
- C. A decrease in the dividend cover ratio.
- D. A decrease in the (Net debt) / (Earnings before interest, tax, depreciation and amortisation) ratio.
- E. An increase in the interest cover ratio.
Answer: B,D,E
NEW QUESTION # 35
PTT has a number of subsidiary companies around the world, including FTT based in Europe and CTT based in Indonesia
CTT purchases all of us raw materials from FTT CTT processes these materials and the resulting products are exported to several different countries CTT pays FTT in the Indonesian currency.
Indonesia's inflation is higher than that of FTTs home country
Which of the following statements are correct?
Select ALL that apply
- A. FTT could investigate whether it could import anything from Indonesia in order to create a natural hedge.
- B. CTT will be exposed to translation risk because FTT will almost certainly have to reflect the changing prices in its selling price and it will be difficult for CTT to make a profit
- C. FTT will be exposed to transaction risk The Indonesian currency that it receives Is likely to decline over time because of anticipated inflation
- D. FTT could ask for ail payments to K to be made in its home currency, which would reduce exposure to currency risk
- E. FTT will be exposed to transaction risks as the Indonesian currency will appreciate over time because of the expected inflation rates
Answer: C,D,E
NEW QUESTION # 36
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?
- A. The shareholder can choose whether to take the cast or not.
- B. It increases the number of shares issue.
- C. It will not create an expectation for future increased dividends.
- D. It returns cash to shareholders so that they can choose hew to spend It
- E. It means that the company will be able to pay lower total dividends in the future.
Answer: A,C,D
NEW QUESTION # 37
Company A is based in Country A where the functional currency is the A$. Currently all sales are to domestic customers in Country A. However, the company is planning to expand internationally by acquiring Company B, a distribution company in Country B, to enable it to sell goods worldwide The functional currency of Country B is the BS Company A will invoice its international customers in their local currency.
Wage increases in Country B are forecast to be modest, due to high unemployment levels, but overall inflation in Country B is forecast to be significantly higher than in Country A Which TWO of the following statements about the economic risk of the acquisition of Company B are true?
- A. Financing this acquisition with block denominated in B$ will reduce economic risk.
- B. Economic risk can be eliminated by using forward contracts to convert future cash flows into A$
- C. Exporting into a variety of international markets will reduce economic risk.
- D. Higher inflation will increase the project's BS returns, so the economic risk can be ignored
- E. Using purchasing power parity, AS is forecast to strengthen against B$, so the economic risk can be ignored
Answer: C
NEW QUESTION # 38
Company S is planning to acquire Company T.
The shareholders in Company T will receive new shares in Company S in an all-share consideration.
Relevant information:
The shareholders in Company T want sufficient shares to receive a 25% premium on the pre-acquisition value of their shares, based on the pre-acquisition share price.
Which of the following share-for-share offers will achieve the desired result?
- A. 1 share in Company S for 1 share in Company T
- B. 1 share in Company S for 2 shares in Company T
- C. 2 shares in Company S for 1 share in Company T
- D. 10 shares in Company S for 4 shares in Company T
Answer: A
NEW QUESTION # 39
On 1 January 20X1, a company had:
* Cost of equity of 10 0%.
* Cost of debt of 5.0%
* Debt of $100Mmilion
* 100 million $1 shares trading at $4.00 each.
On 1 February 20X1:
* The company's share police fell to $3.00.
* Debt and the cost of debt remained unchanged
The company does not pay tax.
Under Modigliani and Miller's theory without lax. what is the best estimate of the movement in the cost of equity as a result of the fall in ne share price?
- A. It will rise to 11.2%.
- B. It will fall to 9.3%.
- C. It will stay the same at 10.0%.
- D. It will rise to 10.3%.
Answer: C
NEW QUESTION # 40
D has US$10 million to invest over 12 months in either USS or GBP Its options are to invest in USS at the present USS interest rate of 10 18%. or to convert the USS to GBP at the spot rate GBP1 =US$1 61 and invest in GBP at an interest rate of 6.4%.
According to the interest rate parity theory, what will the one year forward rate be?
Give your answer to three decimal places.
Answer:
Explanation:
1.667
NEW QUESTION # 41
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