[Mar-2026] CIMA F3 Exam Practice Test Questions - ExamCost
Updated Certification Exam F3 Dumps - Practice Test Questions
NEW QUESTION # 111
A company generates and distributes electricity and gas to households and businesses.
Forecast results for the next financial year are as follows:
The Industry Regulator has announced a new price cap of $2.00 per Kilowatt.
The company expects this to cause consumption to rise by 15% but costs would remained unaltered.
The price cap is expected to cause the company's net profit to fall to:
- A. $43.00 million profit
- B. $126.50 million loss
- C. $164.00 million profit
- D. $8.75 million profit
Answer: C
Explanation:
Current:
Revenue = $450m at $2.50/kWh # units = 450 / 2.5 = 180m kWh
Costs = $250m # Profit = $200m
After cap: price = $2.00, demand up 15%:
New volume = 180 × 1.15 = 207m kWh
New revenue = 207 × 2.00 = $414m
Costs unchanged = $250m # New profit = 414 # 250 = $164m
NEW QUESTION # 112
A company based in the USA has a substantial fixed rate borrowing at an interest rate of 3.5% and wishes to swap a part of this to a floating rate to take advantage of reducing interest rates Its bank has quoted swap rates of 3 4%-3 5% against 12-month USD risk-free rate.
What is the overall interest rate achieved by the company under this borrowing plus swap combination?
- A. 12-month USD risk-free rate
- B. 12-month USD risk-free rate plus 0.1% (where 0.1% = the fixed rate of 3.5% minus the swap rate of 3.4%)
- C. 12-month USD risk-free rate minus 0.1% (where 0.1% = the fixed rate of 3.6% minus the swap rate of 3.4%)
- D. Unchanged at 3.60% as this is the same as the swap rate
Answer: B
NEW QUESTION # 113
A company is preparing an integrated report according to the International <IR> Framework as issued by the International Integrated Reporting Council.
Which THREE of the following should be included in the report?
- A. An explanation of how the organisation's governance structure supports its ability to create value in the short, medium and long term.
- B. A comparison of the key elements of its financial statements with those of its main competitor.
- C. A summary of the key issues discussed by directors in main board meetings.
- D. A detailed analysis of the organisation's business model.
- E. The challenges and uncertainties that the organisation is likely to encounter in pursuing its strategy.
Answer: A,D,E
Explanation:
Integrated reports under the <IR> Framework should include:
Governance and how it supports value creation # A
The organisation's business model # B
Risks, challenges, and uncertainties affecting strategy and value creation # C Comparisons with competitors' financials (D) and a summary of board meeting discussions (E) are not required content elements in the <IR> Framework.
NEW QUESTION # 114
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.
Answer:
Explanation:
$ ?
45.2
NEW QUESTION # 115
The shares of a company in a high technology industry have been listed on a stock exchange for 10 years.
During this period, it has paid no dividends but invested all retained earnings in growth. The company is now entering a period of relatively stable growth and the directors are considering beginning to pay dividends They are reviewing the following suggestions made by members of the board:
* Pay cash dividends linked to growth in earnings
* Use a residual theory approach to establish cash dividends
* Issue scrip dividends (shares instead of cash)
* Continue to pay no dividends as dividends are irrelevant to the value of the company Which THREE of the following are correct statements for the directors to take into consideration when making a decision about future dividend policy?
- A. The residual theory of dividends suggest that dividends should only be paid after all operating costs have been met.
- B. Shareholder preferences for cash or scrip dividends will be influenced by their tax positions
- C. Neither cash nor scrip dividends will have an effect on earnings per share
- D. Modigliani and Miller argue that, ignoring taxation, as long as positive net present value projects are invested in, shareholder wealth will increase, regardless of dividend payments.
- E. Ignoring taxation and administrative costs, shareholders can provide their own dividends by selling shares in the market
Answer: B,D,E
Explanation:
A - True. Modigliani & Miller's dividend irrelevance theory (in a no-tax, perfect market) says shareholder wealth depends on investing in all positive NPV projects, not on the pattern of dividends.
B - True. Investor "clienteles" arise because some shareholders prefer cash (or scrip) depending on how each is taxed in their hands.
C - True. In a frictionless, no-tax market, shareholders can create "homemade dividends" by selling some shares if they want cash.
D - False. A cash dividend leaves the number of shares unchanged so EPS is unchanged, but a scrip dividend increases the number of shares and therefore reduces EPS.
E - False. The residual dividend theory says dividends are paid only from residual earnings after funding all acceptable investment projects, not just after operating costs.
NEW QUESTION # 116
Company B is an all equity financed company with a cost of equity of 10%.
It is considering issuing bonds in order to achieve a gearing level of 20% debt and 80% equity.
These bonds will pay a coupon rate of 5% and have an interest yield of 6%.
Company B pays corporate tax at the rate of 25%.
According to Modigliani and Miller's theory of capital structure with tax, what will be Company B's new cost of equity?
- A.
- B.
- C.
- D.
Answer: C
NEW QUESTION # 117
A company's latest accounts show profit after tax of $20.0 million, after deducting interest of $5.0 million. The company expects earnings to grow at 5% per annum indefinitely.
The company has estimated its cost of equity at 12%, which is included in the company WACC of 10%.
Assuming that profit after tax is equivalent to cash flows, what is the value of the equity capital?
Give your answer to the nearest $ million.
$ ? million
- A. 300, 300000000
- B. 100, 300000000
Answer: A
NEW QUESTION # 118
A company is undertaking a lease-or-buy evaluation, using the post-tax cost of bank borrowing as the discount rate.
Details of the two alternatives are as follows:
Buy option:
* To be financed by a bank loan
* Tax depreciation allowances are available on a reducing-balance basis
* Assets depreciated on a straight-line basis
Lease option:
* Finance lease
* Maintenance to be paid by the lessee
* Tax relief available on interest payments and book depreciation
Which THREE of the following are relevant cashflows in the lease-or-buy appraisal?
- A. Tax relief on tax depreciation allowances
- B. Maintenance payments
- C. Lease payments
- D. Bank loan payments
- E. Tax relief on the book depreciation
Answer: A,C,E
Explanation:
Relevant cash flows for a lease-or-buy decision (discounting at post-tax cost of borrowing) are:
A). Tax relief on tax depreciation allowances - relevant for the buy option.
B). Bank loan payments - not relevant; financing flows are excluded when using the borrowing rate as discount rate.
C). Maintenance payments - here, maintenance is paid by the lessee under the lease, and would also be paid if the asset is bought; since it is the same under both options, it is not a differential cash flow.
D). Lease payments - relevant cash outflows under the lease option.
E). Tax relief on the book depreciation - relevant where tax relief is given on book depreciation (here, under the finance lease).
Therefore, the three relevant cash flows from the list are:
Answer (200259):
A, D, E\boxed{A,\ D,\ E}A, D, E
NEW QUESTION # 119
Select the category of risk for each of the descriptions below:
Answer:
Explanation:
NEW QUESTION # 120
CI IJ has decided to move its production plant to overseas country X. This would make the product cheaper to produce. The technology used to make the product is very advanced and some of the skilled staff would have to move to country X.
The Production Director has identified that there are some political risks in moving to county X.
For each of the political risks of moving to country X shown below, select the correct method for reducing the risk.
Answer:
Explanation:
Explanation:
"The government of country X could refuse to grant visas to GHJ's staff who need to move to country X."
# Method: Employ at least 80% local people in the production plant
Relying mainly on local employees reduces dependence on foreign staff and makes visa refusal less damaging and less likely politically.
"The government of country X could introduce high taxes for outside companies which would make it difficult for GHJ to continue production in country X."
# Method: Take out a loan with a bank in country X
Local banks become important stakeholders. If high taxes threaten GHJ's viability and ability to service the loan, the local bank has an incentive to lobby the government, reducing this political risk.
"Local staff could find out how to make the product and use that knowledge to start a production plant of their own."
# Method: Import partly completed products from GHJ's home country
Keeping key stages of production or core technology in the home country limits how much know-how local staff can copy.
"The government of country X could refuse to renew visas for staff brought from GHJ's home country."
# Method: Employ at least 80% local people in the production plant
Again, the more the operation depends on local staff, the less vulnerable it is to visa non-renewal and the more politically acceptable the operation is.
NEW QUESTION # 121
RST wishes to raise at least $40 million of new equity by issuing up to 10 million new equity shares at a minimum price of $3.00 under an offer for sale by tender. It receives the following tender offers:
What is the maximum amount that RST can raise by this share issue?
(Give your answer to the nearest $ million).
Answer:
Explanation:
49
NEW QUESTION # 122
Which of the following explains an aim of integrated reporting in accordance with The International <IR> Framework as issued by the International Integrated Reporting Council?
- A. To support decision making and actions that focus on creating value over the short, medium and long term.
- B. To highlight the need for greater reporting of performance to stakeholders in a greater level of detail than at present.
- C. To highlight the separation of strategy, governance and financial performance in a social, environmental and economic context.
- D. To integrate the various accepted accounting practices of member bodies into a single, unified code of accounting principles.
Answer: A
NEW QUESTION # 123
An unlisted company.
* Is owned by the original founders and members of their families
* Pays annual dividends each year depending on the cash requirements of the dominant shareholders.
* Has earnings that are highly sensitive to underlying economic conditions.
* Is a small business in a large Industry where there are listed companies with comparable capital structures Which of the following methods is likely to give the most accurate equity value for this unlisted company?
- A. P/E based valuation using the P/E of a similar company.
- B. Dividend valuation model.
- C. Discounted cash flow analysis at WACC (based on cash flows after tax but before financing) plus the market value of debt.
- D. Net asset valuation
Answer: A
Explanation:
Dividends are set to suit family cash needs, so DDM (A) won't reflect value well.
NAV (B) ignores earnings power and intangibles for a going concern.
There are listed comparables with similar capital structures, so applying an industry P/E to this firm's earnings is standard practice for small private companies.
DCF at WACC (D) is theoretically strong but requires detailed, reliable forecasts; earnings are highly sensitive to the economy, so forecasts would be very uncertain.
NEW QUESTION # 124
Which of the following statements about companies seeking a stock market listing is correct?
- A. A listing will require the owners to either sell a majority of their shares, or, if they retain their shares, to step down from the board.
- B. The enhanced reputation of the company can improve its credit rating reducing the risk of non-payment to suppliers and lenders.
- C. A listing may make it harder for a company to raise money from its existing lenders.
- D. When a company seeks a listing this may unsettle its staff, potentially resulting in a loss of valued employees.
Answer: B
NEW QUESTION # 125
X exports goods to customers in a number of small countries Asi
a. At present, X invoices customers in X's home currency.
The Sales Director has proposed that X should begin to invoice in the customers currency, and the Treasurers considering the implications of the proposal.
Which TWO of the following statement are correct?
- A. If the proposal is adopted, X will have a lower effective sales price per unit due to exchange rate fluctuations.
- B. The customer will tear the foreign exchange risk and will only buy from X if they are prepared to accept this.
- C. X may be able to sell the receipts forward.
- D. X will know advance the amount of home currency it will receive for the export sales.
- E. The overseas customers may have difficulty obtaining X's name currency with which to make the purchases, so the Sales Director's proposal may increase sales.
Answer: A,E
NEW QUESTION # 126
Company P is a large unlisted food-processing company.
Its current profit before interest and taxation is $4 million, which it expects to be maintainable in the future.
It has a $10 million long-term loan on which it pays interest of 10%.
Corporate tax is paid at the rate of 20%.
The following information on P/E multiples is available:
Which of the following is the best indication of the equity value of Company P?
- A. $24 million
- B. $48 million
- C. $80 million
- D. $40 million
Answer: A
NEW QUESTION # 127
Company GDD plans to acquire Company HGG, an unlisted company which has been in business for 3 years.
Company HGG has incurred losses in its first 3 years but is expected to become highly profitable in the near future There are no listed companies in the country operating in the same business field as Company HGG The future success of Company HGG's business and hence the future growth rate in earnings and dividends is difficult to determine Company GDD is assessing the validity of using the dividend growth method to value Company HGG Which THREE of the following are weaknesses of using the dividend growth model to value an unlisted company such as Company HGG?
- A. The cost of capital will be difficult to estimate
- B. The future projected dividend stream is used as the basis for the valuation
- C. The future growth rate in earnings and dividends will be difficult to accurately determine
- D. The dividend growth model does not take the time value of money into consideration
- E. The company has been unprofitable to date and hence, there is no established dividend payment pattern
Answer: A,B,E
NEW QUESTION # 128
Which of the following statements are true with regard to interest rate swaps?
Select ALL that apply.
- A. When interest rates are falling the risk of default by the fixed interest rate payer is low.
- B. An interest rate swap is an external hedging technique.
- C. Some companies interest rate swap to deliberately increase their risks because they believe that they are better at predicting future interest rates than the market.
- D. Risk of default is high from the floating interest rate payer if interest rates rise.
- E. An nicest rate swap is an internal hedging technique.
Answer: A,B,D
NEW QUESTION # 129
Which TIIRCC of the following are most likely be primary objectives for a newly established, unincorporated entity in the service sector?
- A. Increasing the dividend payment year on year
- B. Maintaining sufficient liquidity in the business to avoid overtrading
- C. Increasing Revenue
- D. Providing consistently high levels service quality
- E. Reaching an optimum capital structure
Answer: B,C
NEW QUESTION # 130
A company's main objective is to achieve an average growth in dividends of 10% a year.
In the most recent financial year:
Sales are expected to grow at 8% a year over the next 5 years.
Costs are expected to grow at 5% a year over the next 5 years.
What is the minimum dividend payout ratio in 5 years' time that would allow the company to achieve its objective?
- A. 22.5%
- B. 27.5%
- C. 21.7%
- D. 30.0%
Answer: C
NEW QUESTION # 131
Company AAB is located in country A whose currency is the AS It has a subsidiary, BBA, located m country B that has the BS as its currency AAB has asked BBA to pay BS40 million surplus funds to AAB to assist with a planned new capital investment in country A The exchange rate today is AS1 = BS3 Tax regimes
* Company BBA pays withholding tax of 25% on all cash remitted to the parent company
* Company AAB pays tax of 10% on at cash received from its subsidiary
How much will company AAB have available for investment after receiving the surplus funds from BBA?
- A. A$ 12 million
- B. A$ 27 million
- C. A$ 81 million
- D. A$ 9 million
Answer: D
NEW QUESTION # 132
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