Pass the CIMA Strategic F3 Questions and answers with Dumpstech

A – Integrated reporting is designed to improve the quality of information for providers of financial capital.

B – A core aim is to show the interdependencies between the different capitals (financial, manufactured, human, social, natural, intellectual).

E – It explicitly aims to support integrated decision-making and value creation over the short, medium and long term.

C is wrong (it usually increases work), and D is wrong (focus is long-term, not short-term).

Target earnings (after tax) with 5% growth:

5.0×1.05=5.25 million5.0 \times 1.05 = 5.25 \text{ million}5.0×1.05=5.25 million

Let required operating profit (PBIT) be XXX.

Interest on bond = 7% × 1m = 0.07m

Profit before tax = X−0.07X - 0.07X−0.07

Tax = 30%, so profit after tax:

Earnings=(X−0.07)×(1−0.30)=0.70(X−0.07)\text{Earnings} = (X - 0.07) \times (1 - 0.30) = 0.70(X - 0.07)Earnings=(X−0.07)×(1−0.30)=0.70(X−0.07)

Set equal to earnings target:

0.70(X−0.07)=5.250.70(X - 0.07) = 5.250.70(X−0.07)=5.25 X−0.07=5.250.70=7.50X - 0.07 = \frac{5.25}{0.70} = 7.50X−0.07=0.705.25​=7.50 X=7.50+0.07=7.57 millionX = 7.50 + 0.07 = 7.57 \text{ million}X=7.50+0.07=7.57 million

So the minimum required operating profit is $7.57m (C).

Market cap isn’t available yet, book-value net asset valuation ignores the substantial unrecognised oil reserves, and current earnings don’t reflect the value of those reserves. DCF based on forecast cash flows from the proven reserves is the most appropriate for an IPO price here.

In CIMA F3, the evaluation of mergers and acquisitions focuses on whether shareholder wealth is increased through strategic and operational synergies, rather than accounting or cosmetic effects. When assessing benefits, CIMA emphasises real economic advantages arising from the acquisition.

A. Access to technical expertise ✔ Correct

This is the most significant benefit in this scenario. Company Q operates in a highly technical service industry and derives much of its value from human capital. CIMA F3 explicitly recognises that acquiring skilled employees and specialist knowledge constitutes a knowledge-based synergy, which can enhance innovation, service quality, and competitive advantage for the acquirer.

D. Gain economies of scale ✔ Correct

Both companies operate in the same industry, making economies of scale highly achievable. CIMA F3 identifies cost synergies—such as shared infrastructure, reduced overheads, and improved purchasing power—as a primary motive for horizontal acquisitions. These efficiencies directly enhance shareholder value.

E. Improve earnings per share (EPS) ✔ Correct

Although CIMA warns that EPS growth alone does not guarantee value creation, it remains a likely outcome where genuine synergies and earnings growth exist. Given Company Q’s consistent earnings growth and Company M’s ability to apply its listed-company resources, EPS enhancement is a plausible benefit to shareholders.

Why the other options are incorrect

B. Reduction of risk through diversification ✘ Incorrect

CIMA F3 states that diversification benefits arise mainly from unrelated acquisitions. As both firms operate in the same industry, shareholders gain little additional risk reduction.

C. Improved asset backing due to intangible assets ✘ Incorrect

Intangible assets—especially human capital—are generally not acceptable collateral for borrowing. CIMA F3 highlights that asset backing depends primarily on tangible, transferable assets.

✅ Final Answer:

A, D, E\boxed{A,\ D,\ E}A, D, E​

You can send the next CIMA F3 question whenever you’re ready.

 A. The shareholder can choose whether to take the cash or not.

With a repurchase, shareholders can decide to sell (take cash) or keep their shares. A one-off dividend forces all shareholders to receive cash.

 C. It means that the company will be able to pay lower total dividends in the future.

After a buyback there are fewer shares in issue. If the company keeps the same dividend per share, the total dividend outlay falls – good for future cash flow and flexibility.

 E. It will not create an expectation for future increased dividends.

A large one-off dividend may be interpreted as a permanent increase, creating pressure to maintain higher payouts. A buyback is seen as a more one-off, discretionary event, so it avoids that expectation.

 B is wrong: a repurchase reduces, not increases, shares in issue.

 D is not an advantage relative to a dividend – both methods return cash that shareholders can spend as they wish.

Dividend Valuation Model (Gordon growth).

EPS = $1.00

Payout ratio = 40% → D0=0.40D_0 = 0.40D0​=0.40

Growth g=2%=0.02g = 2\% = 0.02g=2%=0.02

Cost of equity ke=12%=0.12k_e = 12\% = 0.12ke​=12%=0.12

Use:

P0=D1ke−g=D0(1+g)ke−gP_0 = \frac{D_1}{k_e - g} = \frac{D_0(1+g)}{k_e - g}P0​=ke​−gD1​​=ke​−gD0​(1+g)​ D1=0.40×1.02=0.408D_1 = 0.40 \times 1.02 = 0.408D1​=0.40×1.02=0.408 P0=0.4080.12−0.02=0.4080.10=4.08P_0 = \frac{0.408}{0.12 - 0.02} = \frac{0.408}{0.10} = 4.08P0​=0.12−0.020.408​=0.100.408​=4.08

Answer: A. $4.08

Company A’s equity value at the launch date (end of 20X1) is the PV of a growing perpetuity of FCFE:

First FCFE (end of first year of operation, 20X2): $2m

Growth: 8%

Cost of equity: 12%

Value of Company A at end-20X1:

V=20.12−0.08=20.04=50 millionV = \frac{2}{0.12 - 0.08} = \frac{2}{0.04} = 50 \text{ million}V=0.12−0.082​=0.042​=50 million

Company V owns 40%:

Value of stake at sale=0.4×50=20 million\text{Value of stake at sale} = 0.4 \times 50 = 20 \text{ million}Value of stake at sale=0.4×50=20 million

It invests $15m at 1 Jan 20X0 and gets $20m at end-20X1 (≈ 2 years):

15(1+r)2=20⇒(1+r)2=2015=4315(1 + r)^2 = 20 \Rightarrow (1 + r)^2 = \frac{20}{15} = \frac{4}{3}15(1+r)2=20⇒(1+r)2=1520​=34​ 1+r=43≈1.1547⇒r≈15.47%1 + r = \sqrt{\frac{4}{3}} \approx 1.1547 \Rightarrow r \approx 15.47\%1+r=34​​≈1.1547⇒r≈15.47%

Nearest whole % = 16%

Answer: C. 16%

For a listed company in the food retailing industry, the most relevant non-financial objectives are typically focused on customers and people, because success depends heavily on service quality, shopping experience and motivated staff.

A. Reduce customer complaints – Very appropriate. Complaints are a direct indicator of service problems, product quality issues, or process failures. Reducing complaints improves reputation and customer retention.

B. Increase customer service quality – Core objective for food retailers. Better service quality (speed at checkout, helpful staff, availability of products) improves competitive position and supports long-term sales growth.

D. Improve staff morale – Also highly relevant. Retail is labour-intensive and customer-facing. Motivated staff deliver better service, are more productive, and turnover is reduced.

Options C (Reduce production time) and E (Reduce raw material wastage) are more typical of manufacturing businesses, not retailers, who primarily buy finished goods rather than “produce” them. A retailer might track stock wastage or shrinkage, but the wording “raw material wastage” points clearly to a production environment.

So the best three for a listed food retailer are A, B and D.

Most suitable valuation method for an unlisted company that has only recently made a (small) loss and has very irregular dividends is an earnings-based multiple using comparables, not a dividend model or pure asset valuation.

Answer: D – The P/E method, adjusting the P/E of a listed company downwards to reflect R’s unlisted status.

Common data

Existing shares = 6 million

Current share price = $4.00

Funds to raise = $9 million

Director A – 25% discount

Rights issue price:

4.00×(1−0.25)=4.00×0.75=$3.004.00 \times (1 - 0.25) = 4.00 \times 0.75 = \$3.004.00×(1−0.25)=4.00×0.75=$3.00

So C is correct (“The rights issue price will be $3.00 under Director A's proposal.”)

Number of new shares:

9m3.00=3 million shares\frac{9\text{m}}{3.00} = 3\text{ million shares}3.009m​=3 million shares

After issue, total shares = 6m + 3m = 9m. To issue 3m against 6m existing, the terms are:

3 new6 existing=12\frac{3\text{ new}}{6\text{ existing}} = \frac{1}{2}6 existing3 new​=21​

So 1 new share for every 2 existing shares – D is correct.

Director B – 30% discount

Rights issue price:

4.00×(1−0.30)=4.00×0.70=$2.804.00 \times (1 - 0.30) = 4.00 \times 0.70 = \$2.804.00×(1−0.30)=4.00×0.70=$2.80

Number of new shares:

9m2.80≈3.214 million\frac{9\text{m}}{2.80} \approx 3.214\text{ million}2.809m​≈3.214 million

This is more shares than under Director A’s proposal (3.214m > 3m), so B is correct.

Because the total post-issue value is the same ($24m existing + $9m new cash), but Director B issues more shares, the TERP under B will be lower, not higher – so A is false. Total shareholder wealth is the same in theory (ignoring costs and signalling), so E is also false.

Correct statements: B, C, D.