F3 Exam Dumps - CIMA Strategic Questions and Answers

Exposure: Company A will receive B$20 million.

Spot rate: A$1 = B$2 ⇒ 1 B$ = A$0.5

Current A$ value of the receipt:

20,000,000×0.5=A$10,000,00020{,}000{,}000 \times 0.5 = A\$10{,}000{,}00020,000,000×0.5=A$10,000,000

Daily standard deviation of the exchange rate = 0.5% = 0.005

1-day 95% VaR uses Z ≈ 1.645

VaR:

VaR=Z×σ×exposure=1.645×0.005×10,000,000\text{VaR} = Z \times \sigma \times \text{exposure} = 1.645 \times 0.005 \times 10{,}000{,}000VaR=Z×σ×exposure=1.645×0.005×10,000,000 0.005×10,000,000=50,0000.005 \times 10{,}000{,}000 = 50{,}0000.005×10,000,000=50,000 1.645×50,000=82,2501.645 \times 50{,}000 = 82{,}2501.645×50,000=82,250

So the 1-day 95% VaR is A$82,250 → Option C.

Market cap isn’t available yet, book-value net asset valuation ignores the substantial unrecognised oil reserves, and current earnings don’t reflect the value of those reserves. DCF based on forecast cash flows from the proven reserves is the most appropriate for an IPO price here.

Shares repurchased: 10% × 20m = 2m shares at $1.20 → cash outflow = $2.4m.

Cash balance falls from $4.8m to $2.4m → 50% decrease.

EPS before: 3.6m / 20m = $0.18

EPS after: 3.6m / 18m = $0.20

% change in EPS = (0.20 − 0.18) / 0.18 ≈ 11% increase.

So the correct statement is D: cash decreases by 50% and EPS increases by 11%.

Current price = $5.00

Rights discount = 20% → Issue price = 5 × 0.8 = $4.00

Funds required = $20m

Number of new shares:

20m4=5m shares\frac{20\text{m}}{4} = 5\text{m shares}420m​=5m shares

Currently 20m shares in issue, so ratio:

5m20m=14\frac{5\text{m}}{20\text{m}} = \frac{1}{4}20m5m​=41​

So terms = 1 new share for every 4 existing → A.

The division is:

Currently loss-making

Has generated negative free cash flow

Requires significant new investment to return to profitability

Under CIMA F3 valuation principles:

Dividend growth model (A) – not suitable: the division does not pay dividends and may not be a standalone listed entity.

P/E ratio on forecast earnings (D) – inappropriate where current earnings are negative and future earnings highly uncertain.

Discounted forecast free cash flow (C) is theoretically strong, but here forecasts are likely to be very uncertain because profitability depends on substantial new investment by the buyer.

In such cases, the asset-based valuation (B) is often most useful as a negotiation tool: it provides a defensible view of what the business is worth in terms of its underlying net assets and sets a floor for acceptable sale price.

So the most useful approach in negotiations is B. Asset basis.

Each block of 20 shares in B gets a $100, 10-year, 3% coupon bond.

Current yield on similar bonds = 6%, so we value the bond at 6%.

PV=3×a6%,10+100×(1.06)−10\text{PV} = 3 \times a_{6\%,10} + 100 \times (1.06)^{-10}PV=3×a6%,10​+100×(1.06)−10

Annuity factor at 6% for 10 years:

a6%,10=1−(1.06)−100.06≈7.36a_{6\%,10} = \frac{1 - (1.06)^{-10}}{0.06} \approx 7.36a6%,10​=0.061−(1.06)−10​≈7.36

So:

PV of coupons=3×7.36≈22.08\text{PV of coupons} = 3 \times 7.36 \approx 22.08PV of coupons=3×7.36≈22.08 PV of redemption=100×(1.06)−10≈100×0.558≈55.8\text{PV of redemption} = 100 \times (1.06)^{-10} \approx 100 \times 0.558 \approx 55.8PV of redemption=100×(1.06)−10≈100×0.558≈55.8

Total bond value ≈ 22.1 + 55.8 = $77.9 (≈ $78)

This is for 20 shares, so effective offer per share:

77.920≈3.89\frac{77.9}{20} \approx 3.892077.9​≈3.89

Answer: C. $3.89

Acceptable actions:

Negotiate with lenders (A)

Drop the project if funding would breach the covenant (B)

Look for other finance such as cutting dividends (D)

Breaching covenants deliberately or relying on shareholders to “approve” a breach is not acceptable.

Answer: A, B, D

Current situation:

Earnings = $2m

P/E = 10 → Market value = 2 × 10 = $20m

After expansion:

Earnings increase by 25% → new earnings = 2 × 1.25 = $2.5m

New P/E = 8 → New market value = 2.5 × 8 = $20m

Shareholder wealth (equity value) stays at $20m, so the **most likely change is:

D. No change in shareholder wealth.**

For a listed company in the food retailing industry, the most relevant non-financial objectives are typically focused on customers and people, because success depends heavily on service quality, shopping experience and motivated staff.

A. Reduce customer complaints – Very appropriate. Complaints are a direct indicator of service problems, product quality issues, or process failures. Reducing complaints improves reputation and customer retention.

B. Increase customer service quality – Core objective for food retailers. Better service quality (speed at checkout, helpful staff, availability of products) improves competitive position and supports long-term sales growth.

D. Improve staff morale – Also highly relevant. Retail is labour-intensive and customer-facing. Motivated staff deliver better service, are more productive, and turnover is reduced.

Options C (Reduce production time) and E (Reduce raw material wastage) are more typical of manufacturing businesses, not retailers, who primarily buy finished goods rather than “produce” them. A retailer might track stock wastage or shrinkage, but the wording “raw material wastage” points clearly to a production environment.

So the best three for a listed food retailer are A, B and D.

Correct answer: D. Companies A and B have the same business risk

Business risk is measured by asset beta.

A and B both have asset beta = 1.16, so same business risk.

C has higher asset beta (1.20), so highest business risk.