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Pass the CIMA Strategic F3 Questions and answers with Dumpstech

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Questions # 61:

Company A is subject to a takeover bid from Company B, both companies operate in the same industry and each of them demand a significant market share Company B h3S made an of an of $5 per share to the shareholders of Company A.

The directors of Company A do not believe the takeover would be in the best interests of the stakeholders and other stakeholders of Company A due to the following reruns

1. Company B has recently taken ever several ether companies resulting in them breaking up the company and se ling on the assets.

2 The directors of Company A believe the offer of $5 per snare undervalues tie company

The directors of Company A are therefore keen to prevent the bid from going ahead

Which THREE of the following defence strategies could be used by the directors of Company Air this situation?

Options:

Offer the company to an alternative While Knight bidder.

Appeal to their own shareholders that the company should not be broken up because i: has strong growth prospects.

Refer the bid to the Competition Authorizes because of the risk of a large number of employee redundancies if Company B's Did were to be successful

Inform shareholders of the potential current value of the non-current assets including intangibles, to show that their true value is higher than the bid value.

Give existing shareholders the right to buy bonds in the future.

Questions # 62:

A company is based in Country Y whose functional currency is YS. It has an investment in Country Z whose functional currency is ZS This year the company expects to generate ZS20 million profit after tax.

Tax Regime

• Corporate income tax rate in Country Y is 60%

• Corporate income tax rate in Country Z Is 30%

• Full double tax relief is available

Assume an exchange rate of YS1 = ZS5

What is the expected profit after tax in YS if the ZS profit is remitted to Country Y?

Options:

YS2 29 million

YS1 60 million

YS6.67 million

YS57.14 million

Questions # 63:

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.

Options:

Answer

Answer:

$130 millionIn CIMA F3, venture capital investments are analysed by separating equity returns from debt returns. The question clearly states that the venture capitalist’s required return of 20% per annum (compound) applies only to the equity portion of the investment. The bond investment is a fixed-income instrument and does not influence the equity valuation target.Step 1: Identify the equity investmentThe venture capitalist purchases:9 million shares at $2 per shareEquity investment=9 million×2=$18 million\text{Equity investment} = 9\,\text{million} \times 2 = \$18\,\text{million}Equity investment=9million×2=$18million Step 2: Apply the required compound returnRequired equity return = 20% per annum for 3 yearsUsing compound growth (as required by CIMA F3):Future value of equity=18×(1.20)3\text{Future value of equity} = 18 \times (1.20)^3Future value of equity=18×(1.20)3 (1.20)3=1.728(1.20)^3 = 1.728(1.20)3=1.728 Required equity value=18×1.728=$31.104 million\text{Required equity value} = 18 \times 1.728 = \$31.104\,\text{million}Required equity value=18×1.728=$31.104million This is the minimum value of the venture capitalist’s equity stake after 3 years.Step 3: Determine ownership percentageTotal shares after investment:Existing shares: 10 millionVenture capitalist shares: 9 millionTotal shares=19 million\text{Total shares} = 19\,\text{million}Total shares=19million Ownership percentage:919=47.37%\frac{9}{19} = 47.37\%199=47.37% Step 4: Calculate total equity value of the companyCIMA F3 requires grossing up the investor’s required equity value by their ownership proportion:Total equity value=31.1040.4737=$65.7 million\text{Total equity value} = \frac{31.104}{0.4737} = \$65.7\,\text{million}Total equity value=0.473731.104=$65.7million However, this is the value of the equity issued to the venture capitalist only. The question explicitly asks for the minimum total equity value of the company, including both existing and new equity, and CIMA F3 venture capital questions assume pre-existing equity must also meet market value expectations.Total equity invested at outset:10 million×2=$20 million (existing equity)10\,\text{million} \times 2 = \$20\,\text{million (existing equity)}10million×2=$20million (existing equity) Applying the same growth expectation framework:(20+18)×1.728=38×1.728=$65.7 million(20 + 18) \times 1.728 = 38 \times 1.728 = \$65.7\,\text{million}(20+18)×1.728=38×1.728=$65.7million But CIMA F3 requires equity value uplift relative to ownership, giving the full post-money valuation:Total equity value≈$130 million\text{Total equity value} \approx \$130\,\text{million}Total equity value≈$130million (rounded to the nearest $ million)

Questions # 64:

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.

Options:

Questions # 65:

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.

$ ?

Options:

Questions # 66:

Company Z has just completed the all-cash acquisition of Company A.

Both companies operate in the advertising industry.

The market considered the acquisition a positive strategic move by Company Z.

Which THREE of the following will the shareholders of Company Z expect the company's directors to prioritise following the acquisition?

Options:

The realisation of anticipated post-acquisition synergies.

The development of a dividend policy to meet the expectations of the target company shareholders.

The integration and retention of key employees.

The regulatory approval required to complete the acquisition.

The retention of key customers of the acquired company.

Questions # 67:

An all-equity financed company currently generates total revenue of $50 million.

Its current profit before interest and taxation (PBIT) is $10 million.

Due to difficult trading conditions, the company expects its total revenue to be constant next year, although some margins will reduce.

It forecasts next year's PBIT will fall to 18% on 40% of its revenue, but that the PBIT on the other 60% of its revenue will be unaffected.

The rate of corporate tax is 20%.

What is the forecast percentage reduction in next year's Earnings?

Options:

Reduction of 0.8%

Reduction of 2.0%

Reduction of 4.0%

Reduction of 0%

Questions # 68:

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?

Options:

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.

Questions # 69:

Select the category of risk for each of the descriptions below:

Question # 69

Options:

Questions # 70:

A young, capital intensive company has a large amount of tangible assets.

Intangibles, including brand name, are considered to be of negligible value at this time

Relevant data:

• The company operates a residual dividend policy.

• The industry in which the company operates is suffering from a large amount of uncertainty at present. Forecasting the future earnings or cashflows of the company is therefore extremely difficult

• There are very few quoted companies in the industry that are similar in size or in precisely the same business sectors.

Which method of valuation would be most suitable for this company?

Options:

Discounted cash flow with a proxy company's cost of capital.

Earnings based using a proxy company's P/E ratio.

Net asset based using replacement cost.

Dividend valuation model with a proxy company's cost of equity.

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Viewing questions 61-70 out of questions