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Question Bank 2015 Syllabus

CIMA Paper F3 Financial Strategy

ii I n t r o d u c t i o n

CIMA F3 Question Bank (2015 Syllabus)

t h 5 g 1 i 0 r 2 y p ion o C uit t n I t s r i F

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CIMA F3 Question Bank (2015 syllabus)

Introduction

iii

Contents Topic

Question numbers

Page ref Q A

Chapter questions and answers 1 Business objectives

1 - 42

1

85

2 Sustainability and integrated reporting

43 - 50

10

90

3 Financial strategy

51 - 61

12

91

4 Hedge accounting

62 - 72

14

93

5 Equity finance

73 - 134

17

95

6 Debt finance

135 - 184

30

104

7 Capital structure

185 - 235

41

113

8 Dividend policy

236 - 249

52

122

9 Business valuations

250 - 299

55

124

10 Mergers and acquisitions

Fir Cop st I yri ntu ght itio n2 015 300 - 359

67

132

360 - 370

81

141

CIMA Pilot paper (60 questions to be answered in 90 mins)

145

165

Maths tables and Formulae

173

11 Business reorganisations

Pilot paper questions and answers

iv I n t r o d u c t i o n

CIMA F3 Question Bank (2015 Syllabus)

t h 5 g 1 i 0 r 2 y p ion o C uit t n I t s r i F

CIMA F3 Question Bank (2015 syllabus)

1: Business objectives

1

Chapter questions

Chapter 1: Business objectives 1

Company X and Company Y operate in the same industry but have different price earnings (P/E) ratios as follows: Company X Company Y

P/E ratio 7 13

Which of the following is the most probable explanation of the difference in the P/E ratios between the two companies?     2

Company Y has a greater profit this year than Company X. Company Y is higher risk than Company X. Company Y has higher expected growth than Company X. Company Y has higher gearing than Company X.

Extracts from company Z's accounts are as follows: Turnover Operating profit Interest payable Profit before tax Profit after tax

Fir Cop st I yri ntu ght itio n2 015 $m 200 50 10 40 20

What is company Z's interest cover?     3

20 times 5 times 4 times 2 times

WK’s profit or loss account contains the following: Gross profit Operating profit Interest payable Taxation

The nominal value of the ordinary shares is $1 and their market value is $8. The issued share capital is 10 million shares. What is the price/earnings ratio?    

0.63 1.6 2.67 5

$m 50 30 6 8

2 1: Business objectives 4

Shareholder wealth maximisation is most consistent with    

5

Profit maximisation Sales maximisation Maximisation of the present value of future cash flows Maximisation of future growth

During 20X5, HN's price-earnings ratio fell from 12 to 9. Which of the following could be a reason why this might have happened?    

6

CIMA F3 Question Bank (2015 syllabus)

Interest rates in the economy have risen. Prospects for future profits have improved. HN has performed better than other companies in its industry. The earnings yield on HN’s shares has risen.

Which of the following is most likely to benefit from strategies that increase the risk and return of a company?    

Equity shareholders Preference shareholders Trade receivables Debentureholders

t h 5 g 1 i 0 r 2 y p ion o C uit t n I t s r i F 7

Which of the following is not a valid difference between the objectives of for-profit and not-for profit entities? 

 



8

For-profit entities’ primary aim is maximisation of long-term value, not-for profit entities’ primary aim is achieving value for money. For-profit entities have financial objectives, not-for-profit entities don’t. For-profit entities are primarily responsible to their shareholders, not-for-profit entities are responsible to a wide range of stakeholders. For-profit entities will be concerned about the balance between capital gain and dividends, whereas this is not an important concern for not-for-profit entities.

Complete the sentence below by placing one of the following options in each of the spaces. High

Low

The same

The agency problem arises because managers have accountability to shareholders and access to information as shareholders.

Better

Worse

CIMA F3 Question Bank (2015 syllabus)

9

1: Business objectives

3

RJ Coaches was a nationwide coach company, which had experienced financial difficulties. Five years ago the government of Earland bought out the shareholders and now own all of the company. The target for the company is to earn a return each year of 5% on the amount that the government invested. What kind of entity is RJ Coaches?    

10

Private sector, not-for-profit entity Private sector, for-profit entity Public sector, not-for-profit entity Public sector, for-profit entity

Littlekit is listed on its local stock exchange. It has $20 million nominal value of share capital and $4 million worth of bonds. The nominal value of each ordinary share is $2. The shares are currently trading at $1.25 and the bonds are currently trading at $95 per cent. What is the gearing ratio of Littlekit, using market values and calculated as debt/equity?    

11

15.2% 20.0% 30.4% 40.0%

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Dandy’s share price rose from $7.20 to $7.60 during 20X4. During 20X4 Dandy paid out a dividend of $0.60 per share. What was the annual return to Dandy’s investors in 20X4?    

12

Which of the following figures should be used in the calculation of return on capital employed?    

13

2.6% 2.8% 13.2% 13.9%

Gross profit Profit before interest and tax Profit before tax Profit after tax

Louie’s current dividend yield is 9% and its dividend payout ratio is 12%. What is the P/E ratio of Louie?    

0.75 1.03 1.22 1.33

4 1: Business objectives 14

CIMA F3 Question Bank (2015 syllabus)

Dewie’s current P/E ratio is 8 and it retains 75% of after-tax earnings. What is the dividend yield of Dewie?    

15

2.0% 3.1% 6.0% 9.4%

Dan’s current P/E ratio is 5 and its dividend yield is 8%. What is Dan’s dividend payout ratio?    

16

1.6% 5.4% 40% 62.5%

The accounting ratios for Oldbear for 20X4 included the following:   

Gross profit margin 40% Operating profit margin 15% Return on capital employed 16.0%

t h 5 g 1 i 0 r 2 y p ion o C uit t n I t s r i F What was the asset turnover for Oldbear in 20X4?

   

17

0.40 0.94 1.07 2.50

Sydney’s Return on capital employed for 20X6 was 25% and its asset turnover was 2. What was the operating profit margin for Sydney Co in 20X6 to the nearest 0.1%? %

18

Achieving value for money is most likely to be the prime objective of a:    

Private sector, for profit entity Private sector, not for profit entity Public sector, for profit entity Public sector, not for profit entity

CIMA F3 Question Bank (2015 syllabus)

1: Business objectives

5

Use the following data to answer the next two questions. CS’s accounts for the year ended 31 December 20X5 included the following information. $000 200 100 50 20 30%

Revenue Cost of sales Other operating expenses Finance costs Tax rate

19

What is the operating profit margin and the margin of profit before tax to revenue?    

20

What is the interest cover?    

21

10 7.5 5 2.5

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All other things being equal, a firm’s sensitivity to swings in the business cycle is lowest when:    

22

50%:25% 25%:15% 50%:15% 25%:10.5%

The firm has a high beta factor. The firm has high operating leverage. Variable and fixed costs are roughly equal. Variable costs are the highest proportion of its expenses.

What is the effect on the prices of German imports and exports when the Euro appreciates? Import prices Export prices

23

Decrease 





If the $/€ exchange rate moves from $/€0.80 ($1 = €0.80) to $/€ 0.90 ($1 = €0.90), then:    

24

Increase 

The € has depreciated and European buyers will find US goods to be cheaper. The € has depreciated and European buyers will find US goods to be more expensive. The € has appreciated and European buyers will find US goods to be cheaper. The € has appreciated and European buyers will find US goods to be more expensive.

Post-tax earnings of RJ were $5.2 million 4 years ago. RJ has just announced post-tax earnings of $7.4 million. What is RJ’s compound annual growth rate in earnings to the nearest 0.01%? %

6 1: Business objectives 25

CIMA F3 Question Bank (2015 syllabus)

AW has paid the following dividend per share in the last few years: $ 0.30 0.29 0.27 0.34

20X1 20X2 20X3 20X4

What is AW’s compound annual rate of dividend growth between 20X1 and 20X4 to the nearest 0.01%? % 26

HJ is based in Denmark where the functional currency is the Krone. The current spot rate of the Krone to the Euro is Kr/€ 0.1400 (Kr1 = €0.1400). Expected interest rates in Denmark and Europe for the next year are 3% and 5% respectively. What is the forecast forward rate of exchange to 4 decimal places in one year’s time using interest parity theory?

t h 5 g 1 i 0 r 2 y p ion o C uit t n I t s r i F 27

KP is based in the USA. The current spot rate of the $ to the £ is $/£ 0.6200 ($1 = £0.6200). Expected interest rates in UK and the US for the next year are 2% and 4% respectively.

What is the forecast forward rate of exchange to 4 decimal places in 1 year’s time using expectations theory?

28

The current €/$ exchange rate is 1.2500 (€1 = $1.2500). The Euro is expected to depreciate by 4% each year over the next few years. What is the expected exchange rate in 3 years’ time, to 4 decimal places?

29

The current £/Kr exchange is 9.2000 (£1 = Kr9.2000). UK interest rates are expected to be 2% over the next few years, Danish interest rates are expected to be 5%. What is the expected exchange rate in 2 years’ time, to 4 decimal places?

30

RP is based in South Africa and is planning to make purchases of ¥600,000 in Japan in a year’s time. RP is trying to estimate the foreign exchange rate in a year’s time so that it can estimate the likely expenditure in Rand. The current R/¥ exchange rate is 9.7000 (R1 = ¥9.7000) and interest rates over the next year are expected to be 4% in South Africa, 6% in Japan. What is the expected value of the purchases in Rand in a year’s time to the nearest R100? R

CIMA F3 Question Bank (2015 syllabus)

31

1: Business objectives

7

SS Co is based in Australia and is looking to buy goods in the UK in three months’ time. The current £/Aus$ exchange is 1.8000 (£1 = Aus$ 1.8000) and the value of goods is £280,000. Interest rates over the next three months are expected to be 2.5% in the UK and 4% in Australia. What is the expected value of the purchases in Aus$ in three months’ time to the nearest Aus$100? $

32

Improving the welfare of beneficiaries is most likely to be the objective of:    

33

A public sector organisation A private limited company A public limited company A charity

NW has produced the following forecast data for the next year. Sales revenue (cash sales) Purchases (90 days credit) Other costs (settled immediately)

$000 10,000 5,400 4,000

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In the previous year prior to the forecast, purchases were also $5,400,000 and on 90 day credit terms. NW has a current overdraft balance of $200,000. The agreed overdraft facility is $1,000,000. Sales and purchases will arise evenly over the year. Assume 360 days in the year.

If all suppliers were to withdraw credit at the end of the year, would the overdraft figure still be adequate?     34

Yes, the bank account would not be overdrawn. Yes, approximately $250,000 of the facility would still be available for withdrawal. Yes, approximately $50,000 of the facility would still be available for withdrawal. No, the overdraft limit would be exceeded by $550,000.

The following data has been taken from the annual accounts of CC. Year ended Earnings ($m) Number of shares in issue

20X6 200 50

20X7 220 50

20X8 250 60

20X9 270 60

CC undertook a 1 for 5 rights issue on 2 January 20X8. What is the compound average growth rate in earnings per share, to the nearest 0.01%, achieved between 20X6 and 20X9? %

8 1: Business objectives 35

CIMA F3 Question Bank (2015 syllabus)

CH is a publicly-owned bus company which runs routes over many areas of Larland, including rural routes with few passengers. LG is a publicly-listed coach company that runs routes between the major towns and cities in Larland. Which of the following statements concerning the objectives of the two companies are true? Select ALL that apply.    

36

Which of the following definitions is incorrect in relation to value for money?    

37

The objectives of CH will be more difficult to define. The management of CH will have more impact over its objectives. CH will have to demonstrate value for money. The level of service provided is more likely to be an objective of LG.

Value for money means providing an economical, efficient and effective service. Economy means seeking the minimum cost of inputs. Efficiency means doing things as quickly as possible. Effectiveness means doing the right thing.

Which of the following is not generally an effect of inflation?   

Companies increase their level of inventory. The level of uncertainty for companies increases. The exchange rate of a company with high inflation falls against countries with lower inflation. Interest rates fall.

t h 5 g 1 i 0 r 2 y p ion o C uit t n I t s r i F 

38

Which of the following would lead to an increase in the general level of interest rates? Select ALL that apply.

   

39

A reduction in the rate of inflation A rise in the level of government borrowing Government relaxing constraints on growth in the money supply Greater demand for borrowing from businesses

AK has 1 million ordinary $0.50 shares in issue with a market price of $2.50. The following figures are taken from AK’s latest accounts. $000 5,000 (1,500) 3,500 (400) 3,100

Profit before tax Tax Profit after tax Dividend Retained profits

What is the dividend yield of AK, to the nearest %? %

CIMA F3 Question Bank (2015 syllabus)

40

1: Business objectives

9

Which of the following ratios would be least appropriate for comparing the profitability of two companies?    

Price-earnings ratio Return on capital employed Return on shareholders’ funds Earnings per share

41

The current market price of SS’s shares is $2.40. SS has a dividend yield of 5% and the shares have a P/E ratio of 12. What is the dividend cover to 2 decimal places?

42

KY has 4 million ordinary S1 shares in issue at a current market price of $1.50. The following figures are taken from KY’s latest accounts. Profit before tax Tax Profit after tax Dividend Retained profits

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What is the earnings yield of KY, to the nearest %? %

$000 2,000 (500) 1,500 (600) 900

10 2 : S u s t a i n a b i l i t y a n d i n t e g r a t e d r e p o r t i n g

CIMA F3 Question Bank (2015 syllabus)

Chapter 2: Sustainability and integrated reporting 43

Fluted is preparing a sustainability report, following Global Reporting Initiative guidelines. Which of the following headings would appear in the General Standards section of the report?    

44

Which of the following is an objective of Integrated Reporting, according to the International integrated Reporting Council?    

45

Stakeholder Engagement Employee Welfare Impact on Society Externalities

Disclose economic, environmental and social performance Increase quantity of information available to stakeholders Improve quality of information available to providers of financial capital Ensure consistency between the different reports that make up the annual report

Which of the following are Principles for Defining Report Quality according to the Global Reporting Initiative? Select ALL that apply.

t h 5 g 1 i 0 r 2 y p ion o C uit t n I t s r i F    

46

Danl has recently won an important legal case in its home country, enforcing its patent over its biggest selling product and preventing copies being made. Where would information about this case be disclosed in Danl’s integrated report?

   

47

Sustainability Clarity Completeness Comparability

Social and relationship capitals Intellectual capitals Manufactured capitals Natural capitals

Identify whether the following statements are true or false. Capitals in integrated reporting can be defined as resources and relationships Integrated reporting is part of sustainability reporting.

True 

False 





CIMA F3 Question Bank (2015 syllabus)

48

A company has no obligation to state that it has omitted information. If information is unavailable, no disclosure is required. Information can be omitted if it is subject to confidentiality constraints. If information is omitted due to legal restrictions, the company does not need to explain what has happened.

Which of the following is not a principle for defining report content under the Global Reporting Initiative?    

50

11

VV has adopted the Global Reporting Initiative and issued an annual sustainability report in accordance with the guidelines. Which of the following statements relating to incomplete disclosure is correct?    

49

2: Sustainability and integrated reporting

Materiality Completeness Accuracy Stakeholder inclusiveness

Which of the following is not a category under the Specific Standard Disclosures in the Global Reporting Initiative guidance?    

Economic Ethical Social Environmental

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12 3 : F i n a n c i a l s t r a t e g y

CIMA F3 Question Bank (2015 syllabus)

Chapter 3: Financial strategy 51

52

Would either or both of the following actions increase the wealth of shareholders in an allequity financed company? Paying out a dividend

Yes 

No 

Making a bonus issue





Would either or both of the following actions increase the wealth of shareholders in a currently all-equity financed company? Raising new equity finance Raising new debt finance

53

Yes 

No 





Which of the following are generally objectives of regulatory bodies? Select ALL that apply.    

Promotion of social objectives Promotion of relationships with stakeholders Protection of customers from full competition Protection of customers from monopoly power

t h 5 g 1 i 0 r 2 y p ion o C uit t n I t s r i F 54

AJ has an A credit rating from a credit rating agency, while BF has a BB credit rating. Will BF find it easier or harder to raise debt finance than AJ and is the rate of interest that BF is pays likely to be higher or lower than that paid by AJ?

   

55

Which of the following are valid reasons for holding cash? Select ALL that apply.

    56

Easier Higher Easier Lower Harder Higher Harder Lower

Meet future needs Maintain sufficient balances to be able to complete day-to-day transactions Maintain gearing levels Take advantage of opportunities in short-term financial markets

Oldted has $2 million net assets. Oldted is all equity-financed, and its earnings before interest and tax are $400,000. If Oldted changes its capital structure so that its current level of net assets is financed by 75% equity, 25% debt, what is the return on equity before and after the change? The tax rate is 20% and the interest rate on debt is 8%.    

100% equity - 20%, 75% equity - 24% 100% equity - 20%, 75% equity - 12.6% 100% equity - 16%, 75% equity - 24% 100% equity - 16%, 75% equity - 19.2%

CIMA F3 Question Bank (2015 syllabus)

57

3: Financial strategy

13

Pipshirl has the following objectives:  

Achieve an annual dividend growth rate of at least 8% per annum Keep gearing (debt to equity, measured in market value) below 50%

In the last 4 years the dividend paid by Pipshirl has increased from $0.8 million to $1.1 million. Pipshirl has 5 million $2 shares currently trading at $2.62 and $6 million of bonds with a current market value of $115 per cent. Which of the objects has Pipshirl achieved?     58

Which of the following strategies are likely to enhance shareholder wealth? Select ALL that apply.    

59

Neither objective Both objectives The dividend objective only The gearing objective only

Paying a constant dividend Making directors’ remuneration partly dependent on increases in share price Investing in projects with a positive net present value Purchasing shareholders’ shares with surplus cash

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AA has been generally successful in the last few years, although its cash flows have varied considerably over time, following no clear pattern.

Which of the following may be motives why AA would wish to hold surplus cash? Select ALL that apply.     60

Which of the following payments could be made as an earn-out arrangement?    

61

Income Transaction Precautionary Hedging

Golden handcuffs for directors Share options for directors Incentive payments for staff Consideration for the sale of a business

A small, recently-established, private company requires funding for a long-term investment and does not wish to take out bank loan finance. Which of the following sources of finance is most likely to be suitable?    

Commercial paper Eurobond Funds already generated from operations New equity subscribed by the directors

14 4 : H e d g e a c c o u n t i n g

CIMA F3 Question Bank (2015 syllabus)

Chapter 4: Hedge accounting 62

Which of the following is not a condition that must exist for hedge accounting to be permitted for a cash flow hedge under IAS 39 Financial Instruments: Recognition and Measurement?    

63

The effectiveness of the hedge can be reliably measured. The forecast transaction that is the subject of the hedge must be highly likely to occur. The hedge is assessed on an ongoing basis. The hedge is expected to be at least 90% effective.

Pravtank is a UK company. It has partly funded an investment of $100 million in the USA with a loan of $80 million taken out on 1 April 20X4. The £/$ exchange rate on 1 April 20X4 was 1.6000 (£1 = $1.6000) and the £/$ exchange rate on 31 March 20X5 was 1.6500. The hedging requirement satisfies the requirement for offset in IAS 39 Financial Instruments: Recognition and Measurement. What is the effectiveness of the net investment hedge at 31 March 20X5 to the nearest 0.1%? %

t h 5 g 1 i 0 r 2 y p ion o C uit t n I t s r i F 64

The directors of Tomcat are considering investing in a foreign subsidiary, funding the investment with a foreign currency loan and using hedge accounting. What standard will apply to this arrangement?

   

65

Which of the following statements futures and forwards contracts is true?

   

66

IAS 39 whenever the hedge is set up IFRS 7 whenever the hedge is set up IAS 39 up to 31 December 2017, IFRS 9 thereafter IFRS 7 up to 31 December 2017, IFRS 9 thereafter

Counterparty risk for a forward contract can be avoided by trading on a recognised exchange. Once entered, futures contracts must be closed out at the due date. Futures contract terms can always be tailored to the purchaser’s exact requirement. Futures contracts require a margin deposit.

JB Energy owns 5,000 barrels of oil that cost $200,000 on 1 January 20X4. To reduce market risk, JB Energy took out futures contracts to sell 5,000 barrels of oil at $250,000 on 31 March 20X5. At JB Energy’s year-end on 31 December 20X4, the market value of oil was $42 per barrel and the futures price was $52 per barrel. Under the hedge accounting rules of IAS 39 Financial Instruments: Recognition and Measurement, what is the accounting entry at 31 December 20X5 to reflect the change in the value of the oil?    

Credit statement of profit or loss gain of $10,000 Debit statement of profit or loss loss of $10,000 Debit statement of other comprehensive income loss of $10,000 No entry should be made until the date the contract is due to be closed out, on 31 March 20X5

CIMA F3 Question Bank (2015 syllabus)

67

Net investment in a foreign operation Changes in the value of assets or liabilities Variability in cash flows Unrecognised firm commitment Identified part of an asset, liability or firm commitment that is attributable to a particular risk and could affect profit or loss

Which of the following should a company that sells in its home country and overseas and also sources its supplies from its home country and overseas consider disclosing under IFRS 7 Financial Instruments: Disclosures? Select ALL that apply.     

69

Management of political risk affecting the value of overseas operation Maximum exposure to credit risk Management of liquidity risk Maturity analysis of financial liabilities Sensitivity analysis to currency risk

Which of the following would not need to be disclosed under IFRS 7 Financial Instruments: Disclosures by a company that trades and sources all of its supplies in its home country and has a mix of equity and debt finance?    

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Sensitivity analysis to interest rate risk Information about financial assets that are overdue Details of how customers are credit checked Exposure to losses of goods in transit

Use the following information to answer the next two questions.

NA accepted an export order on which it expected to make a profit of $5,000 in its local currency. It took out a forward contract to hedge this transaction.

On NA’s year-end date, 31 December 20X2, two months before the order was due to be delivered, its Finance Director calculated that the expected profit on the contract was $4,500 due to movements in the spot rate. The forward contract had been revalued and its value had fallen by $500. 70

What profit or loss figure would be shown in NA’s accounts for the year ended 31 December 20X2 in respect of the export contract plus forward contract if hedge accounting was not used (show a loss as a negative number using a minus sign (─))? $

71

15

Which of the following could be the subject of a fair value hedge? Select ALL that apply.     

68

4: Hedge accounting

What profit or loss figure would be shown in NA’s accounts for the year ended 31 December 20X2 in respect of the export contract plus forward contract if cash flow hedge accounting was used (show a loss as a negative number using a minus sign (─))? $

16 4 : H e d g e a c c o u n t i n g 72

CIMA F3 Question Bank (2015 syllabus)

Complete the sentence below by placing one of the following options in each of the spaces. Average

Closing

Historic

Profit or Loss

Other Comprehensive Income

If a business is using hedge accounting in relation to a net investment in a foreign operation, both the investment and the borrowing must be translated at rate at each year end and gains or losses on both items should be offset in

t h 5 g 1 i 0 r 2 y p ion o C uit t n I t s r i F

.

CIMA F3 Question Bank (2015 syllabus)

5: Equity finance

17

Chapter 5: Equity finance 73

SO has 4 million $1 ordinary shares in issue with a current market price of $4 per share. It decides to make a 1 for 4 rights issue at $3. What is the theoretical ex-rights price of the shares following the issue?    

74

HF has 3 million $1 ordinary shares in issue with a current market price of $3 per share. It decides to make a 1 for 3 rights issue at $2.40. What is the value of a right per new share?    

75

$2.40 $0.60 $0.45 $0.15

HD has 5 million $0.50 ordinary shares in issue with a current market price of $0.60 per share. It decides to make a 1 for 4 rights issue at $0.40. The rate of return on existing funds is 8%, but the rate of return on the new funds is expected to be 10%. What is the yield adjusted theoretical ex-rights price?    

76

$3.00 $3.50 $3.80 $4.00

$0.40 $0.50 $0.56 $0.58

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AL has 4 million $1 ordinary shares in issue with a current market price of $5 per share. It decides to make a 1 for 5 rights issue at $3.80. Calculate the value of a right per new share to the nearest $0.01. $

77

PM has 3 million $0.75 ordinary shares in issue with a current market price of $1.32 per share. It decides to make a 1 for 4 rights issue at $0.80. The rate of return on existing funds is 5%, but the rate of return on the new funds is expected to be 7%. Calculate the yield adjusted theoretical ex-rights price to the nearest $0.01. $

78

LW has 4 million $1 ordinary shares in issue with a current market price of $4.40 per share. It decides to make a 2 for 5 rights issue at $3.35 per share. Calculate the theoretical ex-rights price of the shares following the issue to the nearest $0.01. $

18 5 : E q u i t y f i n a n c e 79

CIMA F3 Question Bank (2015 syllabus)

AS has 5 million $0.50 ordinary shares in issue with a current market price of $1.50 per share. It decides to make a 1 for 4 rights issue at a 20% discount on current market price. Calculate the theoretical ex-rights price of the shares following the issue to the nearest $0.01. $

80

BS has 10 million ordinary shares in issue with a nominal value of $1 and a market value of $3. BS is intending to make a one-for-four scrip issue. Helen holds 100 shares in the company. How much would Helen have to pay BS for her new shares?    

81

$300.00 $240.00 $100.00 $Nil

A listed company makes a rights issue. Which of the following rankings of prices is most valid? (Note: the symbol '