[2022] Free F3 Exam Dumps to Pass Exam Easily [Q195-Q216]

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[2022] Free F3 Exam Dumps to Pass Exam Easily

F3 Exam Dumps, F3 Practice Test Questions

NEW QUESTION 195
A company intends to sell one of its business units, Company R by a management buyout (MBO).
A selling price of $100 million has been agreed.
The managers are discussing with a bank and a venture capital company (VCC) the following financing proposal:
The VCC requires a minimum return on its equity investment in the MBO of 30% a year on a compound basis over 5 years.
What is the minimum TOTAL equity value of Company R in 5 years time in order to meet the VCC’s required return?
Give your answer to one decimal place.
$ ? million

NEW QUESTION 196
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.
$ ? million

NEW QUESTION 197
Listed company R is in the process of making a cash offer for the equity of unlisted company S.
Company R has a market capitalisation of $200 million and a price/earnings ratio of 10.
Company S has a market capitalisation of $50 million and earnings of $7 million.
Company R intends to offer $60 million and expects to be able to realise synergistic benefits of $20 million by combining the two businesses. This estimate excludes the estimated $8 million cost of integrating the two businesses.
Which of the following figures need to be used when calculating the value of the combined entity in $ millions?

8, 20, 50, 60, 200

8, 20, 50, 200

20, 50, 60, 200

7, 10, 20, 50, 200

NEW QUESTION 198
Which of the following statements are true with regard to interest rate swaps?
Select ALL that apply.

Some companies interest rate swap to deliberately increase their risks because they believe that they are better at predicting future interest rates than the market.

Risk of default is high from the floating interest rate payer if interest rates rise.

When interest rates are falling the risk of default by the fixed interest rate payer is low.

An nicest rate swap is an internal hedging technique.

An interest rate swap is an external hedging technique.

NEW QUESTION 199
A company intends to sell one of its business units. Company W, by a management buyout (MBO). A selling price of S200 million has been agreed.
The managers are discussing with a bank and a venture capital company (VCC) the following financing proposal.

The VCC requires a minimum return on its equity investment In the MBO of 35% a year on a compound basis over 5 years What is the minimum total equity value of Company W in 5 years time in order to meet the VCC’s required return? Give your answer to one decimal place.

NEW QUESTION 200
A company is planning to repurchase some of its shares. Relevant details are as follows:
* 100 million shares in issue
* Current share price $5
* 5 million shares to be repurchased
* 10% repurchase premium
* Repurchased shares to be cancelled
What would you expect the share price after the repurchase to be?
Give your answer to two decimal places.

NEW QUESTION 201
A company is considering whether to lease or buy an asset.
The following data applies:
* The bank will charge interest at 7.14% per annum
* The asset will cost $1 million
* Tax-allowable depreciation is available on a straight line basis over 5 years
* There is no residual value
* Corporate tax is paid at 30% in the year when the profit is earned
What is the NPV of the buy option?
Give your answer to the nearest $000.

NEW QUESTION 202
A company is considering a divestment via either a management buyout (MBO) or sale to a private equity purchaser. Which of the following is an argument in favour of the MBO from the viewpoint of the original company?

Better co-operation post divestment.

Enhanced big data opportunities.

Improved relationships with management buyout team in the event of a sale to the private equity purchaser.

Higher price due to synergistic benefits.

NEW QUESTION 203
A listed company plans to raise $350 million to finance a major expansion programme.
The cash flow projections for the programme are subject to considerable variability.
Brief details of the programme have been public knowledge for a few weeks.
The directors are considering two financing options, either a rights issue at a 20% discount to current share price or a long term bond.
The following data is relevant:

The company’s share price has fallen by 5% over the past 3 months compared with a fall in the market of 3% over the same period.
The directors favour the bond option.
However, the Chief Accountant has provided arguments for a rights issue.
Which TWO of the following arguments in favour of a right issue are correct?

The issue of bonds might limit the availability of debt finance in the future.

The recent fall in the share price makes a rights issue more attractive to the company.

The rights issue will lead to less pressure on the operating cash flows of the programme.

The WACC will decrease assuming Modigliani and Miller’s Theory of Capital Structure without taxes applies.

The administrative costs of a rights issue will be lower.

NEW QUESTION 204
Two unlisted companies TTT and YYY are being valued. The companies have similar capital structures and risk profiles and operate in the same industry sector It is easier to value TTT than to value YYY because there have recently been several well-publicised private sales of TTT shares.
Relevant company data:

What is the best estimate of YYY’s share price?

$0.60

$1.20

$0.68

$0.94

NEW QUESTION 205
A company plans to cut its dividend but is concerned that the share price will fall. This demonstrates the _____________ effect

NEW QUESTION 206
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 $.

NEW QUESTION 207
Company ABC’s management has noticed that Company BCD has quickly built up a 20% stake by buying shares in Company ABC and are concerned that this is the start of a hostile bid.
This build-up of shares triggers the poison pill provision which automatically converts the rights to buy future preference shares previously issued to existing shareholders in Company ABC to full ordinary shares
What is the most likely impact of the triggering of a poison pill strategy at this stage in the bidding process?

It is too late for a poison pill strategy to have any impact on a hostile takeover because Company BCD has already built up a significant stake in Company ABC.

Company BCD loses value on its shareholding and has to sell at a loss before losing more value

Company ABC becomes less attractive due to a fall in value of the shares as a result of the discount.

The threat of a hostile takeover is reduced because Company ABC becomes more expensive to buy.

NEW QUESTION 208
Company A is a large listed company, with a wide range of both institutional and private shareholders.
It is planning a takeover offer for Company B.
Company A has relatively low cash reserves and its gearing ratio of 40% is higher than most similar companies in its industry.
Which TWO of the following would be the most feasible ways of Company A structuring an offer for Company B?

Cash offer, funded by borrowings.

Share for share exchange.

Cash offer, funded from existing cash resources.

Cash offer, funded by a rights issue.

Debt for share exchange.

NEW QUESTION 209
The directors of a financial services company need to calculate a valuation of their company’s equity in preparation for an upcoming initial Public Offering (IPO) of shares. At a recent board meeting they discussed the various methods of business valuation.
The Chief Executive suggested using a Price-earing (P./E) method of valuation, but the finance Director argued that a valuation based on forecast cash flows to equity would be more appropriate.
Which THREE of the following are advantages of valuation based on forecast cash flows to equity, compared to a valuating using a price earnings methods?

Using cash is theoretically superior to using profits in a valuation calculation.

It give on estimate of the likely shareholder value that will be created.

The calculations are much simpler.

It incorporates the time value of money.

It avoids the problem of having to forecast a sustainable level of future growth.

NEW QUESTION 210
RST wishes to raise at least $40 million of new equity by issuing up to 10 million new equity shares at a minimum price of $3.00 under an offer for sale by tender. It receives the following tender offers:

What is the maximum amount that RST can raise by this share issue?
(Give your answer to the nearest $ million).

NEW QUESTION 211
A company is considering either directly exporting its product to customers in a foreign country or setting up a subsidiary in the foreign country to manufacture and supply customers in that country.
Details of each alternative method of supplying the foreign market are as follows:

There is an import tax on product entering the foreign country of 10% of sales value.
This import duty is a tax-allowable deduction in the company’s domestic country.
The exchange rate is A$1.00 = B$1.10
Which alternative yields the highest total profit after taxation?

Domestic: A$41,250

Domestic: A$33,750

Foreign subsidiary: A$35,000

Foreign subsidiary: A$38,500

NEW QUESTION 212
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?

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.

NEW QUESTION 213
A company has:
* A price/earnings (P/E) ratio of 10.
* Earnings of $10 million.
* A market equity value of $100 million.
The directors forecast that the company’s P/E ratio will fall to 8 and earnings fall to $9 million.
Which of the following calculations gives the best estimate of new company equity value in $ million following such a change?

NEW QUESTION 214
Which THREE of the following are benefits of integrated reporting?

Improve the quality of information available to the providers of financial capital.

Promote an understanding of the interdependencies of capitals.

Reduce the amount of work that is required to produce the report and accounts.

Improve short term decision making.

Support integrated decision-making.

NEW QUESTION 215
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.

1 new share for every 4 existing shares

1 new share for every 20 existing shares

1 new share for every 5 existing shares

1 new share for every 25 existing shares

NEW QUESTION 216
Company B is an all equity financed company with a cost of equity of 10%.
It is considering issuing bonds in order to achieve a gearing level of 20% debt and 80% equity.
These bonds will pay a coupon rate of 5% and have an interest yield of 6%.
Company B pays corporate tax at the rate of 25%.
According to Modigliani and Miller’s theory of capital structure with tax, what will be Company B’s new cost of equity?
A)

B)

C)

D)