F3 Financial Strategy Practice Test Answers

The Practice Test can be viewed at http://www.pearsonvue.com/cima/practiceexams/

These answers have been provided by CIMA for information purposes only. In the case of questions where a
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appropriate degree of accuracy. Note that a small range of values may be acceptable, for example, to take
account of rounding differences, where appropriate. For all other question types, the correct answer(s) are
shown.
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provide explanation as to why a particular answer is or is not correct students are encouraged to revisit their
learning materials to determine the source of any incorrect attempts at answers

For a bank wishing to increase its capital adequacy ratios.

1

To retain cash in the business to finance investment.

For a company facing liquidity problems

A hedge of the exposure to changes in highly probable fair value of a recognised asset or liability;
an unrecognised firm commitment, or an identified portion of an asset, liability or firm commitment
that is attributable to a particular risk and could affect profit or loss.

A public listed company

financial distress does not carry any cost.

6.0

not be breached

Cost per student of providing tuition

6

Student achievement level

Cash deficit avoided

A small company listed on a small company stock exchange and owned by investors seeking
maximum capital growth on their investment.

To ensure healthy levels of competition and safeguard public interest.

The company would become less able to respond promptly to new business opportunities.

10

Debt interest is paid ahead of preference share dividends

11

The hedged borrowing rate, taking both the borrowing and swap into account, is 5.5% fixed .

12

Semi-strong form

13

$0.24 increase

14

better off than

15

Where information is omitted due to confidentiality constraints, these should be explained.

16

Business risk

The Chartered Institute of Management Accountants 2014 no reproduction without prior consent

Investment in projects with a positive Net Present Value

17

Enhancing brand reputation and recognition

Moving profitable operations to low tax regimes

18

A$222

19

$70 million

20

21

ZZs earnings
YYs P/E ratio
Speculative

22

Transaction
Precautionary

23
24

Discounted cash flow analysis discounted at the sellers WACC

25

White Knight strategy

26

Cost savings due to economies of scale in purchasing activities.

27

Reduction in staff costs due to elimination of duplicated administration roles.

Enhanced profit due to reduced competition in the region.

Financial Strategy

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29

No, the overdraft facility would be exceeded by approximately $ 180,000.

30

Shareholder return can be measured as the aggregate of dividends plus growth in share price.

31

A leveraged buyout occurs when an investor, typically a private equity firm, acquires a controlling
interest in a companys equity and where a significant percentage of the purchase price is financed
through borrowings.
Credit risk management policy

32

Aged debtor analysis

The impact of adverse exchange rate movements on reported profit

33

34

Thin capitalisation rules

35

$44 million

36

$ 315 million

37

0.6
Bond with warrants attached

38

Redeemable bond
Convertible bond

39

delay a revaluation of assets.

40

Consideration for the sale of a business.

41

42

Private placement of bonds

43

Post-tax cost of debt

2014

Financial Strategy

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Company HH has a higher market capitalisation.

45

46

(Option B) E$ 1.53 million

47

Increasing ST shareholders earnings per share

48

49

2.60
Management buy-out

50

Trade sale
Private equity buy-in

51

$174.00

52

53

150
Cost of underwriting

54

Number of shares issued

Earnings per share

Financial Strategy

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56

57

58

5.3%

59

60

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Financial Strategy