Cima F3 Exam Question No 6

Question No 6:

A company has in a 5% corporate bond in issue on which there are two loan covenants.
• Interest cover must not fall below 3 times
• Retained earnings for the year must not fall below $3.5 million
The Company has 200 million shares in issue.
The most recent dividend per share was $0.04.
The Company intends increasing dividends by 10% next year.
Financial projections for next year are as follows:
Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?

A. The company will be in compliance with both covenants.
B. The company will be in breach of both covenants.
C. The company will breach the covenant in respect of retained earnings only.
D. The company will be in breach of the covenant in respect of interest cover only.

Answer: C

Cima F3 Exam Question No 5

Question No 5:

A listed company plans to raise $350 million to finance a major expansion program. The cash flow projections for the program are subject to considerable variability. Brief details of the program have been public knowledge for a few weeks. The directors are considering two financing options, either a rights issue at a 20% discount to current share price or a long term bond. The following data is relevant: The company's share price has fallen by 5% over the past 3 months compared with a fall in the market of 3% over the same period. The directors favor the bond option.
However, the Chief Accountant has provided arguments for a rights issue. Which TWO of the following arguments in favor of a right issue are correct?

A. The issue of bonds might limit the availability of debt finance in the future.
B. The recent fall in the share price makes a rights issue more attractive to the company.
C. The rights issue will lead to less pressure on the operating cash flows of the program.
D. The WACC will decrease assuming Modigliani and Miller's Theory of Capital Structure without taxes applies.
E. The administrative costs of a rights issue will be lower.

Answer: A, C

Cima F3 Exam Question No 4

Question No 4:

Two listed companies in the same industry are joining together through a merger.
What are the likely outcomes that will occur after the merger has happened?
Select ALL that apply.

A. Increase in customer base.
B. Competition authorities step in to stop a potential price monopoly.
C. Decrease in employee motivation due to internal changes.
D. Changes to supplier relationships owing to internal changes.
E. Cost savings from synergistic benefits and economies of scale.

Answer: A, C, D, E

Cima F3 Exam Question No 3

Question No 3:

Company A is a large listed company, with a wide range of both institutional and private shareholders.

It is planning a takeover offer for Company B.

Company A has relatively low cash reserves and its gearing ratio of 40% is higher than most similar companies in its industry.

Which TWO of the following would be the most feasible ways of Company A structuring an offer for Company B?

A. Cash offer, funded by borrowings.
B. Share for share exchange.
C. Cash offer, funded from existing cash resources.
D. Cash offer, funded by a rights issue.
E. Debt for share exchange.

Answer: B, D

Cima F3 Exam Question No 2

Question No 2:

Company E is a listed company. Its directors are valuing a smaller listed company, Company F, as a possible acquisition.
The two companies operate in the same markets and have the same business risk.
Relevant data on the two companies is as follows:
Both companies are wholly equity financed and both pay corporate tax at 30%.
The directors of Company E believe they can "bootstrap" Company F's earnings to improve performance.
Calculate the maximum price that Company E should offer to Company F's shareholders to acquire the company.
Give your answer to the nearest $million.

A. 3,150
B. 1,890
C. 4,500
D. 2,700

Answer: A

What happened this far at CIMA Launch Pad 2015: Quick Recap

Throughout the month we brought you the events and ideas of CIMA Launch Pad 2015. The final will be tomorrow, Sunday November 1 the final destination of this trip. Here's a quick summary of what happened on the trip so far and what will happen.

Pace Location

 The pace was not a land of 3 minutes for the competing teams competing in two categories; Business and social. Of the 10 ideas ideas that were presented in each category were selected to move to the next phase.

The teams were invited to submit a detailed proposal of his idea, which ideally should include information on the concept, the details of the investigation (facts and figures) and over the entire business model.

Mentoring Program

After the presentation of the proposal, teams were sent through a tutoring session that had two phases; general workshop and mentoring. The key segment was the tutoring session where each team had the opportunity to have one to one discussions with the business idea with mentors.

Press conference

Company CIMA students organized a press conference with the intention of spreading the word of the good things that are happening. The representatives at the head table were Mrs. Akbar Amrah CFO Mr. Gnanam Jeevan Innovations MAS - Chairman / CEO of Orion City, Dr. Thulci Aluwihare, Director of Mergers and Acquisitions PwC, Mr. Vipula Gunatilleka President of CIMA Sri Council Lanka, Ms. Hasanji Ellawala company president and President Abdul Baasit Project CIMA students, CIMA Launch Pad 2015.

Four teams: Business Category 

CIMA Launch Pad finalists 2015 in the category of business (only) was revealed in the press conference. They were selected by the committee on the basis of advice from SLASSCOM evaluation of your project proposal. Congratulations to Alfa, Body Sculpt and Homefoods.lk TrekThru team. Remember, the positions are still to be determined and will happen in the Grand Final.

However, the top four teams of the social category are not announced so far and that was because they had another lap to go through unlike competitors in the business category.

Finals: Social Category

As we said, another round just to the social phase. It was not five minutes, followed by a 15 minute Q & A session. Had Ms. Sharmini Ratwatte, non-executive director for more investment and John Keells PLC, Dr. Rizvan Jaldeen, CEO - Business Development and Services Center LLC, Mr. Ravindu Denawaka General Olanka Travel, M. Abdul Careem Consultant CEO / Business - International Inotrend and Mr. Charitha Ratwatte, Jr., Director - Sustainable Development Axiata Group PLC dialogue on the panel of judges.

Although 10 teams had the opportunity to compete for any rate, which was reduced to 7 teams in the presentation of the proposal and the mentoring program. Unfortunately, it was 6 teams that could make presentations. Light equipment, boomers, Army of Poseidon, the team Tripper innovation labs and knowledge presented their ideas.

Of the 6 teams, 4 teams; the same as in the corporate category was chosen by the jury. Boomers, the Tripper equipment, soaps and innovation laboratories have qualified for the final.

 It would be nice if we say it was an intense time. Judges at all team mascot. Certainly if you happen to be a competitor and you hear these criticisms in his idea that you think so, you may be injured.
But the fact is, it would probably be the bitter truth that your mind does not want you agree because you are too blinded by love for his son brain. What is natural. In other words, these points could be real traps in the concept.
At the same time, remember, the idea is not bad, nobody can say it's okay. He would need some changes and improvements. Or this little feature in your great idea might be in itself the company is looking for all this time. As a future entrepreneur, listening is something you have to do more than talk. Hear.

What's Next?

Grand Final, the following eight categories representing the two teams presented their idea for the last time. Why? Because investors have in the house. This is best suited for teams to show that their idea is worthy of being the winner of the CIMA Launch Pad 2015. Even if you do not win, they got so far showing that they are all winners with great ideas now.

Cima F3 Exam Question No 1

Question No 1:

When valuing an unlisted company, a P/E ratio for a similar listed company may be used but adjustments to the P/E ratio may be necessary.
Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use?

A. The relative lack of marketability of unlisted company shares.
B. A lower level of scrutiny and regulation for unlisted companies.
C. Unlisted companies being generally smaller and less established.
D. Control premium not being included within the proxy p/e ratio used.
E. The forecast earnings growth being relatively higher in the unlisted company.
F. A profit item within the unlisted company's latest earnings which will not reoccur.

Answer: A, B, C