F3 Free Study Guide! with New Update 435 Exam Questions [Q206-Q221]

F3 Free Study Guide! with New Update 435 Exam Questions

Get up-to-date Real Exam Questions for F3 UPDATED [2024]

NEW QUESTION # 206
Company X is an established, unquoted company which provides IT advisory services.
The company's results and cashflows are growing steadily and it has few direct competitors due to the very specialised nature of it's business. Dividends are predictable and paid annually.
Company P is looking to buy 30% of company X's equity shares.
Which TWO of the following methods are likely to be considered most suitable valuation methods for valuing company P's investment in Company X?

A. Dividend based using DVM
B. Earnings yield method using a listed IT company as proxy
C. Asset based using replacement cost
D. Cash based using free cash flow before interest
E. P/E ratio method using IT industry average

Answer: A,D

NEW QUESTION # 207
A company is planning to repurchase some of its shares. Relevant details are as follows:
* 100 million shares in issue
* Current share price $5
* 5 million shares to be repurchased
* 10% repurchase premium
* Repurchased shares to be cancelled
What would you expect the share price after the repurchase to be?
Give your answer to two decimal places.
$ ?

Answer:

Explanation:
4.97, 4.98

NEW QUESTION # 208
Listed Company A has prepared a valuation of an unlisted company. Company B. to achieve vertical integration Company A is intending to acquire a controlling interest in the equity of Company B and therefore wants to value only the equity of Company B.
The assistant accountant of Company A has prepared the following valuation of Company B's equity using the dividend valuation model (DVM):
Where:
* S2 million is Company B's most recent dividend
* 5% is Company B's average dividend growth rate over the last 5 years
* 10% is a cost of equity calculated using the capital asset pricing model (CAPM), based on the industry average beta factor

Which THREE of the following are valid criticisms of the valuation of Company B's equity prepared by the assistant accountant?

A. An unlisted company cannot use the capital asset pricing model to calculate its cost of equity
B. The beta factor used may not reflect Company B's financial risk.
C. The 5% growth rate may not reflect the future growth of Company B.
D. The DVM calculation should use Company A's cost of equity rather than Company B's cost of equity
E. It is better to use the present value of earnings rather than present value of dividends to value a controlling interest

Answer: B,C,D

NEW QUESTION # 209
G pic wishes to borrow $5 million in 6 months, for a period of 3 months. A bank has quoted the following Forward Rate Agreement (FRA) rales:
3 v 9 6.55%-6.70% 6v9 6.70%-6 90%.
G pic can borrow at 0 75% above base rate, and the base rate is currently 6.25% Concerned that base rates may rise, G pic decides that it will hedge using an FRA At the settlement date for the FRA, the base rate has risen to 7.50% What is the effective interest rate paid by G pic for its borrowing?

A. 7.45
B. 8.25
C. 7.65
D. 7.30

Answer: C

NEW QUESTION # 210
For which THREE of the following risk categories does IFRS 7 require sensitivity analysis?

A. Supply chain risk
B. Credit risk
C. Currency risk
D. Interest rate risk
E. Liquidity risk
F. Commodity risk

Answer: C,D,F

NEW QUESTION # 211
Company A, a listed company, plans to acquire Company T, which is also listed.
Additional information is:
* Company A has 150 million shares in issue, with market price currently at $7.00 per share.
* Company T has 120 million shares in issue,. with market price currently at $6.00 each share.
* Synergies valued at $50 million are expected to arise from the acquisition.
* The terms of the offer will be 2 shares in A for 3 shares in T.
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.

Answer:

Explanation:
8.24

NEW QUESTION # 212
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. $40 million
C. $80 million
D. $48 million

Answer: A

NEW QUESTION # 213
The value of a call option will increase because of:

A. A decrease in the market value of the share
B. A decrease in the volatility of the share.
C. An increase in the time to expiry.
D. An increase in the strike price.

Answer: C

NEW QUESTION # 214
If a company's bonds are currently yielding 8% in the marketplace, why would the entity's cost of debt be lower than this?

A. There should be no difference; the cost of debt is the same as the bond's market yield.
B. Market interest rates have decreased.
C. The company's credit rating has changed.
D. Interest is deductible for tax purposes.

Answer: D

NEW QUESTION # 215
Which of the following statements about the tax impact on debt finance is correct?

A. Interest on debt is deducted from pre-tax profits.
B. Preference share dividends attract tax relief in the same way as debenture interest.
C. Debt instruments issued with fixed and floating charges do not attract tax relief on interest paid.
D. Interest on debt is deducted from post-tax profits.

Answer: A

NEW QUESTION # 216
The directors of a multinational group have decided to sell off a loss-making subsidiary and are considering the following methods of divestment:
1. Trade sale to an external buyer
2. A management buyout (MBC)
The MDO team and the external buyer have both offered the same price to the parent company for the subsidiary.
Which of the following is an advantage to the parent company of opting for a MBO compared to a trade sale as the preferred method of divestment?

A. Retain the know edge of key management.
B. Raise the cash more quickly.
C. Avoid a hostile reaction from key management.
D. Focus on the core competencies of the business

Answer: C

NEW QUESTION # 217
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.

Answer:

Explanation:
$ ? .
8.19, 8.18

NEW QUESTION # 218
Company A plans to acquire Company B.
Both firms operate as wholesalers in the fashion industry, supplying a wide range of ladies' clothing shops.
Company A sources mainly from the UK, Company B imports most of its supplies from low-income overseas countries.
Significant synergies are expected in management costs and warehousing, and in economies of bulk purchasing.
Which of the following is likely to be the single most important issue facing Company A in post-merger integration?

A. Discussions with anti-poverty campaigning groups.
B. Identifying and removing surplus staff.
C. Discussions with representatives from key customer accounts.
D. Understanding the management information system of the acquired firm.

Answer: D

NEW QUESTION # 219
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:

NEW QUESTION # 220
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.