[2024] Free F3 Exam Dumps to Pass Exam Easily [Q40-Q56]

[2024] Free F3 Exam Dumps to Pass Exam Easily

F3 Exam Dumps, F3 Practice Test Questions

NEW QUESTION # 40
A listed company follows a policy of paying a constant dividend. The following information is available:
* Issued share capital (nominal value $0.50) $60 million
* Current market capitalisation $480 million
The shareholders are requesting an increased dividend this year as earnings have been growing. However, the directors wish to retain as much cash as possible to fund new investments. They therefore plan to announce a 1-for-10 scrip dividend to replace the usual cash dividend.
Assuming no other influence on share price, what is the expected share price following the scrip dividend?
Give your answer to 2 decimal places.
$ ?

A. 3.64, 3.63, 3.65
B. 3.64, 3.63, 3.66

Answer: A

NEW QUESTION # 41
A company is considering taking out $10.000,000 of floating rate bank borrowings to finance a new project.
The current rate available to the company on floating rate barrowings is 8%. The borrowings contain a covenant based on an interested cover of 5 times.
The project is expected to generate the following results:

At what interest rate on the floating rate borrowings is the bank covenant first breached?

A. 10.0%
B. 11.0%
C. 8.0%
D. 9.4%

Answer: B

NEW QUESTION # 42
Company X plans to acquire Company Y.
Pre-acquisition information:

Post-acquisition information:
Total combined earnings are expected to increase by 10%
Total combined P/E multiple will remain at 10 times
Which of the following share-for-share exchanges will result in an increase of 10% in Company X's share price post-acquisition?

A. 1 share in Company X for 2 shares in Company Y
B. 3 shares in Company X for 5 shares in Company Y
C. 1 share in Company X for 2.75 shares in Company Y
D. 2 shares in Company X for 1 shares in Company Y

Answer: B

NEW QUESTION # 43
Company A is planning to acquire Company B by means of a cash offer. The directors of Company B are prepared to recommend acceptance if a bid price can be agreed. Estimates of the net present value (NPV) of future cash flows for the two companies and the combined group post acquisition have been prepared by Company A's accountant. There are as follows:

What is the maximum price that Company A should offer for the shares in Company B?
Give your answer to the nearest $ million

A. 0
B. 1

Answer: A

Explanation:

NEW QUESTION # 44
A company is owned by its five directors who want to sell the business.
Current profit after tax is $750,000.
The directors are currently paid minimal salaries, taking most of their incomes as dividends.
After the company is sold, directors' salaries will need to be increased by $50,000 each year in total.
A suitable Price/Earnings (P/E) ratio is 7, and the rate of corporate tax is 20%.
What is the value of the company using a P/E valuation?

A. $5,250,000
B. $4,970,000
C. $4,900,000
D. $5,530,000

Answer: B

NEW QUESTION # 45
Country X's short-term interest rates are slightly higher than its long-term rates. Which THREE of the following statements are correct?

A. Interest rates are expected to fall.
B. This difference may reverse.
C. Interest rates will definitely fall.
D. A long-term borrower would save by taking out a short-term loan and then refinancing
E. Country X's currency is expected to strengthen in the long-term.

Answer: B,D,E

NEW QUESTION # 46
ART manufactures traditional scooters. It has an equity beta of 1.4 and is financed entirely by equity. It plans to continue to be all-equity financed in future.
It is considering producing a range of electric scooters
GGG is a comparable quoted electric scooter manufacturer GGG has an equity beta of 2 4 reflecting its high level of gearing (the ratio of debt to equity is VI using market values).
The risk-free rate is 5%, and the market premium is 6%. The rate of corporation tax is 20% What is the recommended discount rate that ART should use to assess the project to manufacture electric scooters?

Answer:

Explanation:
9%

NEW QUESTION # 47
A company has announced a rights issue of 1 new share for every 4 existing shares.
Relevant data:
* The current market price per share is $10.00.
* Rights are to be issued at a 20% discount to the current price.
* The rate of return on the new funds raised is expected to be 10%.
* The rate of return on existing funds is 5%.
What is the yield-adjusted theoretical ex-rights price?
Give your answer to two decimal places.
$ ?

Answer:

Explanation:
11.20, 11.2

NEW QUESTION # 48
A company has stable earnings of S2 million and its shares are currently trading on a price earnings multiple
{PIE) of 10 times. It has10 million shares in issue.
The company is raising S4 million debt finance to fund an expansion of its existing business which is forecast to increase annual earnings straight away by 25% and then remain at that level for the foreseeable future. The corporation tax rate is 20%. It is expected that the P/E will reduce to 8 times over the next year.
What is the most likely change in shareholder wealth resulting from this plan?

A. Shareholder wealth will increase by $3.2 million.
B. Shareholder wealth will increase by $5 million
C. No change in shareholder wealth.
D. Shareholder wealth will increase by $4 million.

Answer: D

NEW QUESTION # 49
A company is financed as follows:
* 400 million $1 shares quoted at $3.00 each.
* $800 million 5% bonds quoted at par.
The company plans to raise $200 million long term debt to finance a project with a net present value of $100 million.
The bank that is providing the debt is insisting on a maximum gearing level covenant.
Gearing will be based on market values and calculated as debt/(debt + equity).
What is the lowest figure for the gearing covenant that the bank could impose without the company breaching the agreement?

A. 43%
B. 45%
C. 44%
D. 46%

Answer: C

NEW QUESTION # 50
Company M plans to bid for Company J. Company M has 20 million shares in issue and a current share price of $10.00 before publicly announcing the planned takeover. Company J has 10 million shares in issue and a current share price of $4.00.
The directors of Company M are considering an all-share bid of 1 Company M shares for 2 Company J shares.
Synergies worth $20m are expected from the acquisition.
What is the likely change in wealth for Company M's shareholders (in total) if the bid is accepted?
Give your answer to the nearest $ million.
$ ? million

Answer:

Explanation:
8

NEW QUESTION # 51
An unlisted company which is owned and managed by its original founders has accumulated excess cash following many years of profitable trading.
The Board of Directors is comprised of the four original founders who each hold 25% of the equity share capital.
Which THREE of the following will be significant considerations when deciding on the company's dividend policy?

A. Income tax rates and the personal tax liabilities of the shareholders.
B. The impact of the dividend policy on the company's share price.
C. The dividend policy of listed companies in the same industry.
D. The cash requirements of the shareholders in the foreseeable future.
E. The adequacy of the pension funds of the original founders.

Answer: A,D,E

NEW QUESTION # 52
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. The DVM calculation should use Company A's cost of equity rather than Company B's cost of equity
B. It is better to use the present value of earnings rather than present value of dividends to value a controlling interest
C. An unlisted company cannot use the capital asset pricing model to calculate its cost of equity
D. The 5% growth rate may not reflect the future growth of Company B.
E. The beta factor used may not reflect Company B's financial risk.

Answer: A,D,E

NEW QUESTION # 53
Company H is considering the valuation of an unlisted company which it hopes to acquire.
It has obtained the target company's financial statements.
Company H has been advised that the book value of net assets as shown in the financial statements of the target company does not provide a reliable indicator of their true value.
Advise the Board of Directors which of the following THREE statements are disadvantages of the net asset basis of valuation?

A. The net book value of current assets is normally a reliable indicator of their realisable value.
B. The net book value of assets is merely a record of past transactions which complies with accounting conventions.
C. The net book value of assets can be obtained from the financial statements.
D. The net realisable value is usually different from the net book value shown in the financial statements.
E. Intangible assets are often not shown in the company's financial statements.

Answer: B,D,E

NEW QUESTION # 54
Company T is a listed company in the retail sector.
Its current profit before interest and taxation is $5 million.
This level of profit is forecast to be maintainable in future.
Company T has a 10% corporate bond in issue with a nominal value of $10 million.
This currently trades at 90% of its nominal value.
Corporate tax is paid at 20%.
The following information is available:

Which of the following is a reasonable expectation of the equity value in the event of an attempted takeover?

A. $41.6 million
B. $32.0 million
C. $50.2 million
D. $65.0 million

Answer: A

NEW QUESTION # 55
AA is considering changing its capital structure. The following information is currently relevant to AA:

The gearing rating raising the new debt finance will be 50%.
Which THREE of the following statement about the impact of AA's change in capital structure are true under Modigliani and Miler's capital structure theory with tax.