F3 Pre-Exam Practice Tests | (Updated 255 Questions)
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NEW QUESTION 128
A listed company is planning a share repurchase.
Research into different offer prices has given the following data with regards acceptance by the shareholders at different prices:
What price should be offered to shareholders if the retained earnings of the company are to remain unchanged?
- A. $9.50
- B. $10.00
- C. $8.50
- D. $9.00
Answer: A
NEW QUESTION 129
Select the most appropriate divided for each of the following statements:
Answer:
Explanation:
NEW QUESTION 130
Company C invests heavily in Research and Development an need to raise $45 million to finance future projects. It has decided to use equity finance raised by a tender offer, The following tender offers have been received from potential investors:
Company C wishes to select an offer price that will project shareholders from a significant dilution of control but still raise the required amount of finance.
What offer price should Company C's select?
- A. $4.25
- B. $4.00
- C. $4.75
- D. $4.50
Answer: D
NEW QUESTION 131
A company is wholly equity funded. It has the following relevant data:
* Dividend just paid $4 million
* Dividend growth rate is constant at 5%
* The risk free rate is 4%
* The market premium is 7%
* The company's equity beta factor is 1.2
Calculate the value of the company using the Dividend Growth Model.
Give your answer in $ million to 2 decimal places.
Answer:
Explanation:
$ ? million
56.76, 56.75
NEW QUESTION 132
On 31 October 20X3:
* A company expected to agree a foreign currency transaction in January 20X4 for settlement on 31 March
20X4.
* The company hedged the currency risk using a forward contract at nil cost for settlement on 31 March
20X4.
* The transaction was correctly treated as a cash flow hedge in accordance with IAS 39 Financial Instruments: Recognition and Measurement.
On 31 December 20X3, the financial year end, the fair value of the forward contract was $10,000 (asset).
How should the increase in the fair value of the forward contract be treated within the financial statements for the year ended 31 December 20X3?
- A. A $10,000 profit will be recognised within other comprehensive income.
- B. A $10,000 profit will be recognised within the Income Statement.
- C. Not recognised in 20X3 as the gain will be offset by a loss on the hedged transaction.
- D. Not recognised in 20X3 as the forward contract is not settled until after the year end.
Answer: A
NEW QUESTION 133
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 pottery factory in the Middle East.
- B. A company that produces accessories.
- C. A company in a similar market to Company A.
- D. A listed international logistics firm.
Answer: D
NEW QUESTION 134
A company has a covenant on its 5% long-term bond, stipulating that its retained earnings must not fall below $2 million.
The company has 100 million shares in issue.
Its most recent dividend was $0.045 per share. It has committed to grow the dividend per share by 4% each year.
The nominal value of the bond is $60 million. It is currently trading at 80% of its nominal value.
Next year's earnings before interest and taxation are projected to be $11.25 million.
The rate of corporate tax is 20%.
If the company increases the dividend by 4%, advise the Board of Directors if the level of retained earnings will comply with the covenant?
- A. Covenant is not breached as retained earnings = $2.40 million.
- B. Covenant is breached as retained earnings = $1.92 million.
- C. Covenant is not breached as retained earnings = $2.10 million.
- D. The covenant is not breached as retained earnings = $4.68 million.
Answer: B
NEW QUESTION 135
Companies A, B, C and D:
* are based in a country that uses the K$ 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 A
- B. Company D
- C. Company C
- D. Company B
Answer: D
NEW QUESTION 136
A UK based company is considering investing GBP1 ,000,003 in a project it the USA. It is anticipated that the project will yield net cash inflows of USD580.000 each year for the next three years. These surplus cash flows will be remitted to the UK at the end of each year.
Currently GBP1.00 is worth USD1.30.
The expected inflation rates in the two countries ever the next four years are 2% in the UK and 4% in the USA.
Applying the purchasing power parity theory, which of the following represents the expected remittance at the end of year three, in GBP whole the nearest whole GBP)?
- A. GBP546,547
- B. GBP450,906
- C. GBP472,916
- D. GBP568,846
Answer: B
NEW QUESTION 137
A listed company has suffered a period of falling revenues and profit margins. It has been obliged to issue a profit warning to the market and its share price has fallen sharply. The company relies heavily on debt finance and is discussing with its banks possible refinancing options to assist with a restructuring programme.
Which THREE of the following are likely to be of MOST interest to the company's banks when they review the refinancing requests?
- A. Shareholder profile
- B. Book value of assets
- C. Cash flow forecasts
- D. Current capital structure
- E. Trends in share price movements
Answer: C,D,E
NEW QUESTION 138
A company is valuing its equity prior to an initial public offering (IPO).
Relevant data:
* Earnings per share $1.00
* WACC is 8% and the cost of equity is 12%
* Dividend payout ratio 40%
* Dividend growth rate 2% in perpetuity
The current share price using the Dividend Valuation Model is closest to:
- A. $4.00
- B. $6.80
- C. $6.12
- D. $4.08
Answer: D
NEW QUESTION 139
A company is planning a share repurchase programme with the following details:
* Repurchased shares will be immediately cancelled.
* The shares will be purchased at a premium to the market share price.
The current market share price is greater than the nominal value of the shares.
Which of the following statements about the impact of the share repurchase programme on the company's financial statements is correct?
- A. The share capital figure would reduce by the nominal value of the shares purchased.
- B. The premium to the nominal value would be charged to retained earnings.
- C. The total value of the equity in its Statement of Financial Position would remain unchanged.
- D. The premium to the market value would be charged to the Income Statement.
Answer: A
NEW QUESTION 140
Company M is a listed company in a highly technical service industry.
The directors are considering making a cash offer for the shares in Company Q, an unquoted company in the same industry.
Relevant data about Company Q:
* The company has seen consistent growth in earnings each year since it was founded 10 years ago.
* It has relatively few non-current assets.
* Many of the employees are leading experts in their field. A recent exercise suggested that the value of the company's human capital exceeded the value of its tangible assets.
The directors and major shareholders of Company Q have indicated willingness to sell the company.
Before negotiations become too advanced, the directors of Company M are considering the benefits to their company that would follow the acquisition.
Which THREE of the following are the most likely benefits of the acquisition to Company M's shareholders?
- A. Reduction of risk through diversification.
- B. Improve earnings per share (EPS).
- C. Access to technical expertise.
- D. Improved asset backing for borrowing due to the acquisition of intangible assets.
- E. Gain economies of scale.
Answer: B,C,E
NEW QUESTION 141
The competition authorities are investigating the takeover of Company Z by a larger company, Company
Y.
Both companies are food retailers.
The takeover terms involve using a part cash, part share exchange means of payment.
Company Z is resisting the bid, arguing that it undervalues its business, while lobbying extensively among politicians to sway public opinion against the bidder.
Which of the following actions by Company Y is most likely to persuade the competition authorities to approve the acquisition?
- A. Company Y agrees to dispose of specified outlets which geographically overlap those of Company Z.
- B. Company Y undertakes to pass on any cost savings to customers.
- C. Company Y increases the cash element of its bid offer.
- D. Company Y guarantees to preserve employment at its cental distribution depot.
Answer: A
NEW QUESTION 142
A listed publishing company owns a subsidiary company whose business activity is training.
It wishes to dispose of the subsidiary company.
The following information is available:
The board of the publishing company believe that the value of the subsidiary company, and hence the value of the equity invested in it, can be determined by calculating the present value of the subsidiary's free cashflows.
Which of the following is the most appropriate discount rate to use when determining the enterprise value of the company?
- A. A WACC that reflects the gearing of the publishing company and the asset beta of a listed company that provides training activities.
- B. A WACC that the reflects the gearing of the publishing company and the equity beta factor of the publishing company.
- C. A WACC that reflects the gearing of the subsidiary company and the asset beta of a listed company that provides training activities.
- D. A cost of equity that reflects the asset beta of a listed company that provides training activities.
Answer: A
NEW QUESTION 143
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 provide a more appropriate earnings figure for use in calculating the annual dividend.
- C. To fully adopt IFRS in preparation for listing the company.
- D. To make it easier for the market to value the business when it is listed on the Stock Exchange.
Answer: D
NEW QUESTION 144
A company wishes to raise new finance using a rights issue to invest in a new project offering an IRR of 10% The following data applies:
* There are currently 1 million shares in issue at a current market value of $4 each.
* The terms of the rights issue will be $3.50 for 1 new share for 5 existing shares.
* The company's WACC is currently 8%.
What is the yield-adjusted theoretical ex-rights price (TERP)?
Give your answer to 2 decimal places.
$ ?
Answer:
Explanation:
4.06, 4.060
NEW QUESTION 145
X exports goods to customers in a number of small countries Asia. At present, X invoices customers in X's home currency.
The Sales Director has proposed that X should begin to invoice in the customers currency, and the Treasurers considering the implications of the proposal.
Which TWO of the following statement are correct?
- A. If the proposal is adopted, X will have a lower effective sales price per unit due to exchange rate fluctuations.
- B. X will know advance the amount of home currency it will receive for the export sales.
- C. The customer will tear the foreign exchange risk and will only buy from X if they are prepared to accept this.
- D. The overseas customers may have difficulty obtaining X's name currency with which to make the purchases, so the Sales Director's proposal may increase sales.
- E. X may be able to sell the receipts forward.
Answer: A,D
NEW QUESTION 146
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