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.

B. Using present value of earnings (or free cash flows) is more appropriate when valuing a controlling interest, because the acquirer can change the dividend policy. ✅

C. A 5% historical dividend growth rate may not reflect future growth – assuming it will continue indefinitely is a big weakness. ✅

D. The industry average beta may not reflect Company B’s specific financial (gearing) risk; it should ideally be adjusted to reflect B’s capital structure. ✅

The others:

A is incorrect – you should generally use the target’s cost of equity (or project-specific) not Company A’s.

E is incorrect – unlisted companies can use CAPM via proxy/industry betas.

Company B (all equity):

Cost of equity = asset return = Ku = 17%

Company A:

Gearing D:E = 1:2 → D/E = 0.5

Pre-tax cost of debt Kd = 7%

Tax rate T = 30%

Levered cost of equity with tax:

Ke=Ku+DE(1−T)(Ku−Kd)K_e = K_u + \frac{D}{E}(1 - T)(K_u - K_d)Ke​=Ku​+ED​(1−T)(Ku​−Kd​) Ke=17%+0.5×0.7×(17%−7%)=17%+0.5×0.7×10%=17%+3.5%=20.5%K_e = 17\% + 0.5 \times 0.7 \times (17\% - 7\%) = 17\% + 0.5 \times 0.7 \times 10\% = 17\% + 3.5\% = 20.5\%Ke​=17%+0.5×0.7×(17%−7%)=17%+0.5×0.7×10%=17%+3.5%=20.5%

✅ Correct: A. 20.5%