F3 Exam Dumps - CIMA Strategic Questions and Answers

The most appropriate swap is to receive fixed and pay floating on $50 million of the new debt.

Answer: D. Receive fixed pay floating interest rate swap for $50 million.

The pre-acquisition share prices are:

Company S: $5.00

Company T: $4.00

Shareholders in Company T want a 25% premium on the value of their shares, based on T’s current price:

Required value per T share=4.00×1.25=$5.00\text{Required value per T share} = 4.00 \times 1.25 = \$5.00Required value per T share=4.00×1.25=$5.00

Now value each offer using Company S’s pre-acquisition share price of $5:

A. 2 S shares for 1 T share

Value received = 2×5=$102 \times 5 = \$102×5=$10 → 150% premium (too high)

B. 1 S share for 1 T share

Value received = 1×5=$51 \times 5 = \$51×5=$5 →

Premium =5−44=25%= \frac{5 - 4}{4} = 25\%=45−4​=25% ✅

C. 1 S share for 2 T shares

That’s 0.5 S per T → 0.5×5=$2.500.5 \times 5 = \$2.500.5×5=$2.50 → actually a discount

D. 10 S shares for 4 T shares

That’s 2.5 S per T → 2.5×5=$12.502.5 \times 5 = \$12.502.5×5=$12.50 → huge premium (>200%)

Only offer B gives T’s shareholders exactly a 25% premium.

Correct answer: B – 1 share in Company S for 1 share in Company T.

20X1 exports: B$800m = A$400m at A$/B$ = 0.5.

In 20X2, export price +10% → B$880m. New FX rate A$/B$ = 0.4 → export revenue = 880 × 0.4 = A$352m.

Domestic revenue stays at A$100m.

Total 20X2 revenue = 100 + 352 = A$452m (down from A$500m).

Costs remain A$200m.

PBIT 20X1: 500 − 200 = A$300m

PBIT 20X2: 452 − 200 = A$252m

Fall in PBIT = 300 − 252 = A$48m.

A company introduces debt; under Modigliani & Miller without tax the overall WACC is unchanged, so as gearing (D/E) rises the cost of equity must increase to compensate shareholders for higher financial risk.

Answer: C. increase.

CIMA F3 emphasises that shareholders expect directors to focus on value creation after an acquisition, particularly in the areas that protect and enhance the cash flows and synergies that justified the deal. Following an all-cash acquisition, the target’s former shareholders have exited, so the acquirer’s shareholders will not prioritise tailoring dividends to meet the target shareholders’ preferences (B is not relevant). Also, the question states the acquisition has just been completed, so regulatory approval needed to complete the acquisition (C) is no longer a priority stage item. What matters immediately is executing post-deal integration to secure the expected benefits. First, directors must ensure integration and retention of key employees from the acquired firm (A), especially in service/knowledge businesses where people drive client relationships and operational capability. Second, they must protect revenues by retaining the acquired firm’s key customers (D); losing customers can destroy acquisition value quickly. Third, they must deliver the deal logic by realising anticipated post-acquisition synergies (E), such as cost savings, higher capacity utilisation, cross-selling, and process improvements. These priorities align with F3’s post-merger integration focus: preserve the earnings base, then convert strategic fit into measurable synergy cash flows.

A. Any opportunity to benefit from future exchange rate movements is lost.

True – a money market hedge locks in the effective exchange rate now, so you remove both downside risk and upside potential.

B. It can be tailored to match the size of the payment.

True – you can structure the borrowing/lending and FX transaction to exactly match the foreign currency amount due.

C. It manages transaction risk.

True – transaction risk (uncertainty in the home currency value of a known future foreign-currency cash flow) is what a money market hedge directly addresses.

D. It offers a significantly better outcome than a forward contract.

False – under interest rate parity, a money market hedge and a forward contract should give similar effective rates (ignoring spreads and costs).

E. It avoids the need to find immediate finance.

False – for a payable, you normally borrow or use cash now as part of the hedge, so it does not avoid immediate financing; it actually requires it.

✅ Answer to Q29: A, B, C

Working

Market value of equity E=6mE = 6mE=6m; debt D=4mD = 4mD=4m; so total V=10mV = 10mV=10m.

DV=410=0.4T=20%=0.20\frac{D}{V} = \frac{4}{10} = 0.4 \qquad T = 20\% = 0.20VD​=104​=0.4T=20%=0.20

Under Modigliani–Miller with tax, the relationship between ungeared cost of equity KuK_uKu​ and the after-tax WACC is:

WACC=Ku (1−TDV)\text{WACC} = K_u\,(1 - T \tfrac{D}{V})WACC=Ku​(1−TVD​)

So:

Ku=WACC1−TDV=11.04%1−0.20×0.4=11.04%0.92=12.00%K_u = \frac{\text{WACC}}{1 - T\frac{D}{V}} = \frac{11.04\%}{1 - 0.20 \times 0.4} = \frac{11.04\%}{0.92} = 12.00\%Ku​=1−TVD​WACC​=1−0.20×0.411.04%​=0.9211.04%​=12.00%

So the ungeared cost of equity is 12.00%.

A – Retained earnings: When you value equity by discounting cash flows to equity, the result already represents the total value of equity. You don’t then add book retained earnings on top – that would double-count equity.

B – Deducting $400m for the bond: With a FCFE valuation you do not deduct the value of debt at all – the cash flows are already after interest and principal. So deducting the bond is wrong, and in any case they used nominal value ($400m) instead of market value ($380m).

C – Using WACC: Cash flows to equity must be discounted at the cost of equity, not at WACC. WACC is used only when discounting free cash flow to the firm.

Using cash flows to equity (D) is fine, and deducting replacement capex (E) is correct because only free cash after maintaining assets belongs to shareholders.