Free CIMA CIMAPRO19-F03-1-ENG Exam Questions

Become CIMA Certified with updated CIMAPRO19-F03-1-ENG exam questions and correct answers

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Total 305 Questions | Updated On: Mar 27, 2025

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Question 1

Company A needs to raise AS500 mi lion to invest in a new project and is considering using a pub ic issue of

bonds to finance the investment.

Which THREE of the following statements-relating to this bond issue are true?

A : company must be listed before it can issue bones.

B : largest issuer of bond i3 the government.

C : rchasing bonds in the capital markets enables entities to borrow large amounts of finance.

D : bond market is unregulated making it easier to raise finance

E : nds issues in the corporate debt market are underwritten.

Answer: A,B,C

Question 2

A company is concerned that a high proportion of its debt portfolio consists of variable rate finance with an

interest rate of LIBOR ' 1 .0%.

It is considering using an interest rate swap to reduce interest rate risk out is concerned about additional

finance cost this might create.

A bank has quoted swap rates of 3% 3.5% against LIBOR.

Is an interest rate swap likely to be beneficial to the company at current LIBOR rates?

A : , because it would be cheaper to repay variable rate finance aid enter into new fixed rate finance than to enter into an interest rate swap

B : , because it will have lower interest rate risk and interest cost remains the same.

C : , because interest cost will decrease with the interest rate swap in place.

D : , because interest cost will increase with the interest rate swap in place.

Answer: B

Question 3

A company has accumulated a significant amount of excess cash which is not required for investment for the

foreseeable future.

It is currently on deposit, earning negligible returns.

The Board of Directors is considering returning this excess cash to shareholders using a share repurchase

programme.

The majority of shareholders are individuals with small shareholdings.

Which THREE of the following are advantages of the company undertaking a share repurchase programme?

A : dividual shareholders can realise their investment if they wish.

B : earnings per share should increase for the shareholders who do not sell their shares.

C : reduces excess cash which might have been attractive to predators.

D : reduces the amount of cash for potential future investment opportunities.

E : titutional investors generally prefer a constant predictable income in the form of dividends.

Answer: A,B,C

Question 4

A company has:

• $6 million market value of equity

• $4 million market value of debt

• WACC of 11.04%

• Corporate income tax rate of 20%

According to Modigliani and Miller's theory of capital structure with tax, what is the ungeared cost of equity?

A : 12.00%

B : 10.16%

C : 16.24%

D : 12.54%

Answer: A

Question 5

Company Y plans to diversify into an activity where Company X has an equity beta of 1.6, a debt beta of zero

and gearing of 50% (debt/debt plus equity).

The risk-free rate of return is 5% and the market portfolio is expected to return 10%.

The rate of corporate income tax is 30%.

What would be the risk-adjusted cost of equity if Company Y has 60% equity and 40?bt?

A : 11.6%

B : 11.9%

C : 9.1%

D : 13%

Answer: B

Page: 1 / 61

Total 305 Questions | Updated On: Mar 27, 2025

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