CIMA F3 Exam With Confidence Using Practice Dumps

A – “X may be able to sell the receipts forward.”

If X invoices in customers’ currencies, it will receive known foreign-currency amounts and can hedge the exchange risk using forward contracts. So this is correct.

D – “The overseas customers may have difficulty obtaining X's home currency … so the proposal may increase sales.”

Right now, customers must obtain X’s currency to pay, bearing FX costs and risk. If X invoices in their local currency, buying becomes easier and could boost sales. So D is correct.

Why the others are wrong:

B: Effective sales price might go up or down; it isn’t necessarily lower.

C: Invoicing in customers’ currency removes certainty for X in home-currency terms unless hedged.

E: That describes the current position (customers bear the risk), not the proposed change.

Advantages of a debt-funded cash offer vs a share exchange:

A. Shareholder control will remain with AB’s current shareholders.

B. More of the synergistic benefits will accrue to AB’s current shareholders.

D. EPS will increase (no dilution of equity; if synergies materialise, earnings are spread over the same number of shares).

Answer: A, B, D

CIMA F3 examines acquisition financing choices under Financial Policy Decisions and Mergers and Acquisitions, with a particular focus on how cash offers versus share exchanges affect shareholder wealth, control, gearing and earnings. The key issue from the perspective of Company AB’s shareholders is whether the method of financing enhances shareholder value without undermining the firm’s optimal capital structure.

A debt-funded cash offer involves Company AB raising debt to pay cash to the shareholders of Company DC. In contrast, a share exchange issues new equity, diluting existing ownership.

Option A is an advantage.

CIMA F3 highlights that a cash offer allows existing shareholders to retain control, because no new shares are issued. With a share exchange, ownership and voting power are diluted as DC’s shareholders become part-owners of the combined company.

Option B is an advantage.

Under a cash offer, all future synergies accrue to AB’s existing shareholders. F3 explains that with a share exchange, synergy benefits are shared with the target’s shareholders through their new equity stake. Therefore, a debt-funded cash offer concentrates the upside of synergies with the acquirer’s shareholders.

Option D is an advantage.

CIMA F3 notes that debt financing can lead to EPS growth, provided the return on the acquisition exceeds the cost of debt. Because no new equity is issued, earnings are spread over the same number of shares, and financial gearing magnifies returns to equity holders.

The remaining options are not advantages:

C (Gearing will increase) is a consequence, not an advantage. Since AB is already at its optimum capital structure, higher gearing increases financial risk.

E is incorrect; increasing WACC would reduce shareholder value, not enhance it.

Workings:

BBA remits BS40 million.

Withholding tax in country B = 25%:

Tax = 25% × 40 = BS10m

Net remitted = 40 − 10 = BS30m

Company AAB pays tax of 10% on cash received:

Tax = 10% × 30 = BS3m

Net after tax = 30 − 3 = BS27m

Exchange rate: A$1 = BS3 →

\text{AAB receives in A$} = \frac{BS27m}{3} = \text{A\$9m}