F3 Exam Dumps - CIMA Strategic Questions and Answers

For reviewing the effectiveness of hospital services, the focus is on quality of care and outcomes:

A. Proportion of surgical procedures successful – direct clinical effectiveness measure ✅

B. Average waiting times for treatment – key access and service delivery metric ✅

C. Patient satisfaction ratings – captures perceived quality and experience ✅

Options D (staff costs) and E (car park revenue) are financial/operational efficiency measures, not direct indicators of service effectiveness, so they are less relevant here.

A – True: listed companies face more onerous reporting and disclosure.

B – True: flotation planning must allow for issue/underwriting costs when deciding how much capital to raise.

C – True: listing can enhance reputation and credit standing, often improving supplier terms.

D – False: increased scrutiny usually reassures investors.

E – False: a company must become/remain a public company to list, not re-register as private.

Answer (Q118): A, B, C

VC wants to exit in 5 years at a significant profit.

A: Buyback at original cost → no profit → not preferred.

B: IPO within 5 years → creates market to sell at premium → preferred.

C: Put option to sell back to company at twice cost → guarantees profit → preferred.

D: Right to sell to any third party if no listing → provides liquidity / exit route → preferred.

E: Management can buy at nominal value → would likely be a loss → not preferred.

Answer: B, C, D

The company’s gearing is below its optimal level, so it plans to increase debt by issuing long-term bonds and using the proceeds to repurchase shares. CIMA F3 teaches that altering capital structure affects risk, cost of capital, and shareholder metrics.

A. Weighted Average Cost of Capital – Decreases (✔)

Since the company is moving toward its optimal gearing level, replacing equity with cheaper debt finance initially reduces WACC due to the tax shield on interest. This is a core Modigliani–Miller (with tax) implication emphasised in F3.

B. Cost of equity – Increases (✘)

Higher gearing increases financial risk to equity holders, so the cost of equity rises, not falls.

C. Interest cover – Decreases (✔)

Interest expense rises due to the new bond issue while earnings remain unchanged. This reduces interest cover, a key credit-risk indicator in F3.

D. Dividend per share – Increases (✘)

The same total dividend is paid but fewer shares remain after the buy-back, so dividend per share increases.

E. Gearing (book value) – Decreases (✔)

This is a common exam trap. Equity is reduced sharply due to the buy-back, and debt rises. However, because equity is reduced faster than debt rises, the denominator (debt + equity) falls, reducing the ratio based on book values as defined in the question.

F. Number of shares – Decreases (✘)

Shares do fall, but the question asks which measures decrease most likely; F3 focuses on financial metrics rather than mechanical outcomes.

A low dividend payout means the company is retaining more profits instead of distributing them. A classic reason (straight from CIMA F3 theory) is that external finance is expensive or hard to obtain, so the firm relies on retained earnings to fund investments.

High profitability (A) usually supports higher dividends.

Lack of investment opportunities (C) would lead to higher dividends, not lower.

Target earnings after tax for 20X2:

8.0m×1.05=8.4m8.0 \text{m} \times 1.05 = 8.4 \text{m}8.0m×1.05=8.4m

Interest on the new bond:

1.0m×4%=0.04m1.0 \text{m} \times 4\% = 0.04 \text{m}1.0m×4%=0.04m

Let required operating profit (PBIT) = XXX.

Profit before tax = X−0.04X - 0.04X−0.04.

Tax at 20% → profit after tax:

Earnings=(X−0.04)×0.8\text{Earnings} = (X - 0.04)\times 0.8Earnings=(X−0.04)×0.8

Set equal to the target 8.4m:

(X−0.04)×0.8=8.4⇒X−0.04=8.40.8=10.5⇒X=10.5+0.04=10.54m(X - 0.04)\times 0.8 = 8.4 \Rightarrow X - 0.04 = \frac{8.4}{0.8} = 10.5 \Rightarrow X = 10.5 + 0.04 = 10.54 \text{m}(X−0.04)×0.8=8.4⇒X−0.04=0.88.4​=10.5⇒X=10.5+0.04=10.54m

So minimum operating profit = $10.54 million.

Quick check of each offer (per Company Z share):

Current price of Z: $5

Required 15% premium:

5×1.15=5.755 \times 1.15 = 5.755×1.15=5.75

Cash offer = $5.50

Premium = (5.50 − 5) / 5 = 10% → below 15%

Share-for-share: 3 A shares for every 2 Z shares

For 1 Z share → 1.5 A shares

A’s price = $4 → value = 1.5 × 4 = $6.00

Premium = (6 − 5) / 5 = 20% → above 15%

Bond offer: 1 bond for every 20 Z shares

Coupon = 10.5% of 100 = 10.5

Required yield = 10% → bond value ≈ 10.5 / 0.10 = $105

Value per Z share = 105 / 20 = $5.25

Premium = (5.25 − 5) / 5 = 5% → below 15%

So only the share exchange meets her required premium → C is correct.

Practical considerations for dividend/retention policy of a high-risk exploration company facing volatile profits and major investment needs:

A. Timing and size of cash flows needed for the new investment – crucial for deciding how much to retain vs. pay out – Relevant.

B. Fluctuating projected profits – affects ability to sustain dividends – Relevant.

C. Legislation and regulation on distributable profits – always a hard constraint on dividends – Relevant.

D. Dividend policies of mature multinationals – not a practical constraint for a small, high-risk explorer – Not key.

E. Interest rates and tax savings on debt – less relevant where debt finance is unlikely to be available – Not key.

Answer (200289):

Venture capitalists typically exit by:

Flotation/IPO (B)

Trade sale to another company (C)

Sale back to the original owners/management (D)

Liquidation (A) is a failure scenario, not a planned exit, and raising long-term debt (E) is not an exit at all.

If the company switches from a residual dividend policy to a stable, growing dividend and increases its use of debt:

A. This does signal to the market that the company may be entering a more stable, mature growth phase – True.

B. A more stable dividend stream can attract a different type of investor (clientele effect) – True.

C. Directors still need to consider shareholder preferences; this statement is incorrect – False.

D. Retained earnings have an opportunity cost equal to the cost of equity and are generally not cheaper than debt – False.

E. More debt increases financial gearing and therefore financial risk – True.

Answer (200273):