Cima F3 Practice Test

1
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Sample Questions

• QUESTION NO 1
• A listed company is planning to raise 21.6
  million to finance a new project with a positive
  net present value of 5 million. The finance is
  to be raised via a rights issue at a 10 discount
  to the current share price. There are currently
  100 million shares in issue, trading at 2.00
  each.
• Taking the new project into account, what would
  the theoretical ex-rights price be? Give your
  answer to two decimal places. ?
• Answer 2.02, 2.03
• QUESTION NO 2
• When valuing an unlisted company, a P/E ratio for
  a similar listed company may be used but
  adjustments to the P/E ratio may be necessary.
• Which THREE of the following factors would
  justify a reduction in the proxy p/e ratio before
  use?
• The relative lack of marketability of unlisted
  company shares.
• A lower level of scrutiny and regulation for
  unlisted companies.
• Unlisted companies being generally smaller and
  less established.
• Control premium not being included within the
  proxy p/e ratio used.
• The forecast earnings growth being relatively
  higher in the unlisted company.
• A profit item within the unlisted company's
  latest earnings which will not reoccur.

3

• Calculate the maximum price that Company E should
  offer to Company F's shareholders to acquire the
  company.
• Give your answer to the nearest million.
• A. 3,150
• B. 1,890
• C. 4,500
• D. 2,700
• Answer A
• QUESTION NO 4
• 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.

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Answer A, C, D, E

• QUESTION NO 6
• A listed company plans to raise 350 million to
  finance a major expansion program The cash flow
  projections for the program are subject to
  considerable variability. Brief details of the
  program 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 favor the bond option.
• However, the Chief Accountant has provided
  arguments for a rights issue. Which TWO of the
  following arguments in favor 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 program.
• 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.
• Answer A, C
• QUESTION NO 7

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• D. The company will be in breach of the covenant
  in respect of interest cover only.
• Answer C
• QUESTION NO 8
• 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 2200
• QUESTION NO 9
• 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.

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• 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.
• Interest cover will fall P/E ratio will fall.
• Interest cover will fall P/E ratio will rise.
• Interest cover will rise P/E ratio will rise.
• Interest cover will rise P/E ratio will fall.
• Answer B
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