Verified & Correct F3 Practice Test Reliable Source Oct 08, 2022 Updated [Q42-Q60]

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Verified & Correct F3 Practice Test Reliable Source Oct 08, 2022 Updated

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NEW QUESTION 42
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 43
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?

The swap would be shown at nominal value in the statement of financial position and the change in value posted to other comprehensive income.

The swap would be shown at nominal value in the statement of financial position and the change in value posted to profit or loss.

The swap would be shown at fair value the statement of financial position and the change in value posted to other comprehensive income.

The swap would be shown at fair value the statement of financial position and the change in value posted to profit or loss.

NEW QUESTION 44
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 45
The Treasurer of Z intends to use interest rate options to set an interest rate cap on Z’s borrowings.
Which of the following statement is correct?

The Treasurer should buy an interested rate floor and sell an interested cap ta the same time

The Treasurer will retain the benefit of movements in interest rates below the floor limit.

The cost of a collar is lower than the cost of a cap a one.

The Treasurer will have to negotiate the options with Z’s Dark

NEW QUESTION 46
A company’s statement of financial position includes non-current assets which are leased, the tax regime follows the accounting treatment.
Which cash flows should be discounted when evaluating the cost of lease finance?

Lease payments, implied interested and straight-line accounting deprediation.

Lease payments and straight-line accounting depreciation.

Lease payments and implied interest.

Lease payments, tax relief on implied interest and tax relief on straight-line account depreciation.

NEW QUESTION 47
A company’s Board of Directors is considering raising a long-term bank loan incorporating a number of covenants.
The Board members are unsure what loan covenants involve.
Which THREE of the following statements regarding loan covenants are true?

A positive loan covenant would require the company to undertake specific actions.

A loan covenant has no contractually binding obligations.

A restrictive covenant prohibits the company from conducting certain actions without the approval of the lending institution.

A covenant gives the financial institution the right but not the obligation to convert debt into equity in a case of non-compliance.

A financial covenant usually requires the company to adhere to specific financial conditions or targets.

NEW QUESTION 48
A company aims to increase profit before interest and tax (PBIT) each year.
The company reports in A$ but has significant export sales priced in B$.
All other transactions are priced in A$.
In 20X1, the company reported:

In 20X2, the only changes expected are:
* An increase in export prices of 10%, but no change to units sold.
* A rise in the value of the B$ to A$/B$ 2.500 (that is, A$ 1 = B$ 2.5) Is it likely that the company would still meet its objective to grow PBIT between 20X1 and 20X2?

Yes, PBIT would increase by A$ 48 million.

No, PBIT would fall by A$ 48 million.

Yes, PBIT would increase by A$ 150 million.

No, PBIT would fall by A$ 150 million.

NEW QUESTION 49
A listed company in the retail sector has accumulated excess cash.
In recent years, it has experienced uncertainly with forecasting the required level of cash for capital expenditure due to unpredictable economic cycles.
Its excess cash is on deposit earning negligible returns.
The Board of Directors is considering the company’s dividend policy, and the need to retain cash in the company.
Which THREE of the following are advantages of retaining excess cash in the company?

Retaining excess cash may make the company vulnerable to hostile takeover.

The excess cash is earning a negligible return.

The company will be in a position to respond promptly to unexpected investment opportunities.

Liquidity problems are less likely to be experienced if there is a downturn in business.

The market may interpret the return of excess cash as a sign of weak growth prospects.

NEW QUESTION 50
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.

NEW QUESTION 51
A company has accumulated a significant amount of excess cash which is not required for investment for the foreseeable future.
It is currently on deposit, earning negligible returns.
The Board of Directors is considering returning this excess cash to shareholders using a share repurchase programme.
The majority of shareholders are individuals with small shareholdings.
Which THREE of the following are advantages of the company undertaking a share repurchase programme?

Individual shareholders can realise their investment if they wish.

The earnings per share should increase for the shareholders who do not sell their shares.

It reduces excess cash which might have been attractive to predators.

It reduces the amount of cash for potential future investment opportunities.

Institutional investors generally prefer a constant predictable income in the form of dividends.

NEW QUESTION 52
Select the most appropriate divided for each of the following statements:

NEW QUESTION 53
A company generates operating profit of $17.2 million, and incurs finance costs of $5.7 million.
It plans to increase interest cover to a multiple of 5-to-1 by raising funds from shareholders to repay some existing debt. The pre-tax cost of debt is fixed at 5%, and the refinancing will not affect this.
Assuming no change in operating profit, what amount must be raised from shareholders?
Give your answer in $ millions to the nearest one decimal place.
$ ?

NEW QUESTION 54
Company C has received an unwelcome takeover bid from Company P.
Company P is approximately twice the size of Company C based on market capitalisation.
Although the two companies have some common business interests, the main aim of the bid is diversification for Company P.
The offer from Company P is a share exchange of 2 shares in Company P for 3 shares in Company C.
There is a cash alternative of $5.50 for each Company C share.
Company C 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. All prices are in $.

Which of the following would be the most appropriate action by Company C’s directors following receipt of this hostile bid?

Write to shareholders explaining fully why the company’s share price is under valued.

Change the Articles of Association to increase the percentage of shareholder votes required to approve a takeover.

Pay a one-off special dividend.

Refer the bid to the country’s competition authorities.

NEW QUESTION 55
Company A, a listed company, plans to acquire Company T, which is also listed.
Additional information is:
* Company A has 100 million shares in issue, with market price currently at $8.00 per share.
* Company T has 90 million shares in issue,. with market price currently at $5.00 each share.
* Synergies valued at $60 million are expected to arise from the acquisition.
* The terms of the offer will be 2 shares in A for 3 shares in B.
Assuming the offer is accepted and the synergies are realised, what should the post-acquisition price of each of Company A’s shares be?
Give your answer to two decimal places.

NEW QUESTION 56
A listed company in a high growth industry, where innovation is a key driver of success has always operated a residual dividend policy, resulting in volatility in dividends due to periodic significant investments in research and development.
The company has recently come under pressure from some investors to change its dividend policy so that shareholders receive a consistent growing dividend. In addition, they suggested that the company should use more debt finance.
If the suggested change is made to the financial policies, which THREE of the following statements are true?

It may give a signal to the market that the company is entering a period of stable growth.

There may be a change to the shareholder profile due to ‘the clientele effect’.

The directors will not have to take shareholder dividend preferences into consideration in future.

Retained earnings have a lower cost than debt finance.

The company’s financial risk will increase due to its increased use of debt finance.

NEW QUESTION 57
WW is a quoted manufacturing company. The Finance Director has addressed the shareholders during WW’s annual general meeting-She has told the shareholders that WW raised equity during the year and used the funds to repay a large loan that was maturing, thereby reducing WW’s gearing ratio At the conclusion of the Finance Director’s speech one of the shareholders complained that it had been foolish for WW to have used equity to repay debt The shareholder argued that the Modigliani and Miller model (with tax) offers proof that debt is cheaper than equity when companies pay tax on their profits.
Which THREE arguments could the Finance Director have used in response to the shareholder?

A lower gearing ratio will result in an increase in the value of the company

WW was approaching a debt covenant limit and it was therefore important to reduce gearing.

A lower gearing ratio creates greater flexibility for WW in the future

The shareholder was confusing the cost of capital with shareholder wealth

Reducing the gearing ratio has reduced the financial risk of WW which will benefit shareholders

The Modigliani and Miller model would only be valid in practice if WW’s shareholders were aware of the model and believed in its validity

NEW QUESTION 58
Company A is a listed company that produces pottery goods which it sells throughout Europe. The pottery is then delivered to a network of self employed artists who are contracted to paint the pottery in their own homes.
Finished goods are distributed by network of sales agents.The directors of Company A are now considering acquiring one or more smaller companies by means of vertical integration to improve profit margins.
Advise the Board of Company A which of the following acquisitions is most likely to achieve the stated aim of vertical integration?

A company in a similar market to Company A.

A pottery factory in the Middle East.

A company that produces accessories.

A listed international logistics firm.

NEW QUESTION 59
An aerospace company is planning to diversify into car manufacturing.
Relevant data:

What is the the cost of equity to be used in the WACC for the project appraisal?
Give your answer in percentage, as a whole number.

NEW QUESTION 60
A company’s annual dividend has grown steadily at an annual rate of 3% for many years. It has a cost of equity of 11%. The share price is presently $64.38.
The company is about to announce its latest dividend, which is expected to be $5.00 per share.
The Board of Directors is considering an attractive investment opportunity that would have to be funded by reducing the dividend to $4.50 per share. The board expects the project to enable future dividends to grow by
5% every year and the cost of equity to remain unchanged.
Calculate the change in share price, assuming that the directors announce their intention to proceed with this investment opportunity.
Give your answer to 2 decimal places.
$ ?

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