F3 Exam Questions Get Updated [2022] with Correct Answers
Practice F3 Questions With Certification guide Q&A from Training Expert BraindumpQuiz
NEW QUESTION 38
Company F's current profit before interest and taxation is $5.0 million.
It has a 10% long-term corporate bond in issue with a nominal value of $10 million.
Corporate tax is paid at 25%.
The industry average P/E multiple is 10.
Company X has made an approach to acquire the entire share capital of Company F for $30 million.
Company X has announced that anticipated synergies (after interest and taxation) arising from its acquisition of Company F will be $1 million each year in perpetuity.
Advise the Board of Directors of Company F if the bid should be accepted, based on the above information?
- A. Reject the bid because Company F is potentially worth $40 million to Company X.
- B. Reject the bid because Company F is potentially worth $60 million to Company X.
- C. Reject the bid because Company F is potentially worth $50 million to Company X.
- D. Accept the bid because Company F is potentially worth $30 million to Company X.
Answer: A
NEW QUESTION 39
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 $.
Answer:
Explanation:
$ ? .
2200
NEW QUESTION 40
H Company has a fixed rate load at 10.0%, but wishes to swap to variable. It can borrow at LIBOR 8%.
The bank is currently quoting swap rates of 3.1% (bid) and 3.5% (ask).
What net rate will H Company pay if it enters into the swap?
- A. LIBOR +8%
- B. LIBOR +6.9%
- C. LIBOR +3.1%
- D. LIBOR +6.5%
Answer: B
NEW QUESTION 41
A company needs to raise $20 million to finance a project.
It has decided on a rights issue at a discount of 20% to its current market share price.
There are currently 20 million shares in issue with a nominal value of $1 and a market price of $5 per share.
Calculate the terms of the rights issue.
- A. 1 new share for every 25 existing shares
- B. 1 new share for every 5 existing shares
- C. 1 new share for every 20 existing shares
- D. 1 new share for every 4 existing shares
Answer: D
NEW QUESTION 42
A company enters into a floating rate borrowing with interest due every 12 months over the five year life of the borrowing.
At the same time, the company arranges an interest rate swap to swap the interest profile on the borrowing from floating to fixed rate.
These transactions are designated as a hedge for hedge accounting purposes under IAS 39 Financial Instruments: Recognition and Measurement.
Assuming the hedge is considered to be effective, how would the swap be accounted for 12 months later?
- A. The swap would be shown at fair value the statement of financial position and the change in value posted to profit or loss.
- B. The swap would be shown at nominal value in the statement of financial position and the change in value posted to other comprehensive income.
- C. The swap would be shown at fair value the statement of financial position and the change in value posted to other comprehensive income.
- D. The swap would be shown at nominal value in the statement of financial position and the change in value posted to profit or loss.
Answer: C
NEW QUESTION 43
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. $126.50 million loss
- B. $164.00 million profit
- C. $8.75 million profit
- D. $43.00 million profit
Answer: B
NEW QUESTION 44
Company T is a listed company in the retail sector.
Its current profit before interest and taxation is $5 million.
This level of profit is forecast to be maintainable in future.
Company T has a 10% corporate bond in issue with a nominal value of $10 million.
This currently trades at 90% of its nominal value.
Corporate tax is paid at 20%.
The following information is available:
Which of the following is a reasonable expectation of the equity value in the event of an attempted takeover?
- A. $65.0 million
- B. $32.0 million
- C. $50.2 million
- D. $41.6 million
Answer: D
NEW QUESTION 45
Company A has a cash surplus.
The discount rate used for a typical project is the company's weighted average cost of capital of 10%.
No investment projects will be available for at least 2 years.
Which of the following is currently most likely to increase shareholder wealth in respect of the surplus cash?
- A. Maintaining the cash in a current account.
- B. Investing in the local money market at 4% each year.
- C. Investing in a 2 year bond returning 5% each year.
- D. Paying the surplus cash as a dividend at the earliest opportunity.
Answer: D
Explanation:
Calc_Set4
NEW QUESTION 46
A large, listed company in the food and household goods industry needs to raise $50 million for a period of up to 6 months.
It has an excellent credit rating and there is almost no risk of the company defaulting on the borrowings. The company already has a commercial paper programme in place and has a good relationship with its bank.
Which of the following is likely to be the most cost effective method of borrowing the money?
- A. Bank overdraft
- B. Treasury Bills
- C. Commercial paper
- D. 6 month term loan
Answer: C
NEW QUESTION 47
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. $4.75
- B. $4.50
- C. $4.00
- D. $4.25
Answer: B
NEW QUESTION 48
A company financed by equity and debt can be valued by discounting:
- A. free cash flow before interest at the cost of equity.
- B. free cash flow before interest at WACC.
- C. free cash flow after interest at the cost of equity.
- D. free cash flow after interest at WACC.
Answer: B
NEW QUESTION 49
TU 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?
- A. TU accounts for its intangible assets at net realisable value.
- B. TU does not account for its intangible assets.
- C. TU accounts for its intangible assets at historical value.
- D. TU does not account for its tangible assets
Answer: B
NEW QUESTION 50
Which THREE of the following remain unchanged over the life of a 10 year fixed rate bond?
- A. The nominal value
- B. The amount payable on maturity
- C. The market value
- D. The yield
- E. The coupon rate
Answer: A,B,E
NEW QUESTION 51
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 W or a 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?
- A. Write to shareholders explaining fully why the company's share price is under valued.
- B. Refer the bid to the country's competition authorities.
- C. Change the Articles of Association to increase the percentage of shareholder votes required to approve a takeover.
- D. Pay a one-off special dividend.
Answer: A
NEW QUESTION 52
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.
$ ? million
Answer:
Explanation:
8, 8000000
NEW QUESTION 53
A listed company follows a policy of paying a constant dividend. The following information is available:
* Issued share capital (nominal value $0.50) $60 million
* Current market capitalisation $480 million
The shareholders are requesting an increased dividend this year as earnings have been growing. However, the directors wish to retain as much cash as possible to fund new investments. They therefore plan to announce a
1-for-10 scrip dividend to replace the usual cash dividend.
Assuming no other influence on share price, what is the expected share price following the scrip dividend?
Give your answer to 2 decimal places.
Answer:
Explanation:
$ ?
3.64, 3.63, 3.65
NEW QUESTION 54
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.
Answer:
Explanation:
$ ? million
8
NEW QUESTION 55
Company T is a listed company in the retail sector.
Its current profit before interest and taxation is $5 million.
This level of profit is forecast to be maintainable in future.
Company T has a 10% corporate bond in issue with a nominal value of $10 million.
This currently trades at 90% of its nominal value.
Corporate tax is paid at 20%.
The following information is available:
Which of the following is a reasonable expectation of the equity value in the event of an attempted takeover?
- A. $65.0 million
- B. $32.0 million
- C. $50.2 million
- D. $41.6 million
Answer: D
NEW QUESTION 56
Providers of debt finance often insist on covenants being entered into when providing debt finance for companies.
Agreement and adherence to the specific covenants is often a condition of the loan provided by the lender.
Which THREE of the following statements are true in respect of covenants?
- A. Covenants are entered into to eliminate the tax liability of the company.
- B. Covenants enable the lender to demand immediate repayment or to renegotiate terms if it is breached.
- C. Covenants are entered into to penalise the company.
- D. Covenants are entered into to give the lender added protection on the loan extended to the company.
- E. Covenants are entered into to impose financial discipline on the company.
Answer: B,D,E
Explanation:
Explanation
Discursive_F0
NEW QUESTION 57
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 58
A company's gearing is well below its optimal level and therefore it is considering implementing a share re-purchase programme.
This programme will be funded from the proceeds of a planned new long-term bond issue.
Its financial projections show no change to next year's expected earnings.
As a result, the company plans to pay the same total dividend in future years.
If the share re-purchase is implemented, which THREE of the following measures are most likely to decrease?
- A. The number of shares in issue
- B. The gearing, based on book value (debt รท (debt + equity))
- C. The cost of equity
- D. Next year's dividend per share
- E. The Weighted Average Cost of Capital
- F. The interest cover
Answer: A,E,F
NEW QUESTION 59
A venture capitalist invests in a company by means of buying:
* 9 million shares for $2 a share and
* 8% bonds with a nominal value of $2 million, repayable at par in 3 years' time.
The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment.
The company has 10 million shares in issue.
What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?
Give your answer to the nearest $ million.
$ million.
Answer:
Explanation:
34, 35, 34000000, 35000000
NEW QUESTION 60
A new company was set up two years ago using the personal financial resources of the founders.
These funds were used to acquire suitable premises.
The company has entered into a long-term lease on the premises which are not yet fully fitted out.
The founders are considering requesting loan finance from the company's bank to fund the purchase of custom-made advanced technology equipment.
No other companies are using this type of equipment.
The company expects to continue to be profitable for the forseeable future.
It re-invests some of its surplus cash in on-going essential research and development.
Which THREE of the following features are likely to be considered negatives by the bank when assessing the company's credit-worthiness?
- A. The equipment is advanced technology custom-made equipment.
- B. The company will continue to remain profitable and to generate net cash.
- C. The company premises are on a long-term lease but are not yet fully fitted out.
- D. Essential on-going research and development expenditure is required.
- E. The founders invested their personal financial resources in the company.
Answer: A,C,D
NEW QUESTION 61
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 increases the cash element of its bid offer.
- B. Company Y guarantees to preserve employment at its cental distribution depot.
- C. Company Y agrees to dispose of specified outlets which geographically overlap those of Company Z.
- D. Company Y undertakes to pass on any cost savings to customers.
Answer: C
NEW QUESTION 62
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 $30,000 MORE expensive than the finance lease.
- D. The bank loan is $120,000 LESS expensive than the finance lease.
Answer: A
NEW QUESTION 63
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