F3 CIMA Exam Lab Questions

Financial Strategy Questions and Answers

Question 45

A company is deciding whether to offer a scrip dividend or a cash dividend to its shareholders.

Although the company has excellent long-term growth prospects, it is experiencing short-term profit and cash flow problems.

Which of the following statements is most likely to be a reason for choosing the scrip dividend?

Options:

It is a way of raising additional finance to promote future growth.

It is a way of increasing earnings per share.

It is a way of encouraging shareholders to allow cash to be retained in the business.

It is a way of increasing dividend per share.

Question 46

A large multi-divisional company in the food processing and distribution business is conducting a strategic review. The divisions all compete in the same market.

The sale of one of its underperforming food processing divisions to the divisional management team is currently being considered. The purchase by the divisional management team will require venture capital finance.

Which THREE of the following are likely to influence the multi-divisional company's decision on whether or not to sell the under-performing division to the management team?

Options:

The divisional management team has detailed confidential information about the operation of the other divisions.

The divisional management team has skills and experience that are important for the future successful operation of other divisions.

The ability of the management team to raise the finance required to complete the purchase of the division at a reasonable price.

The quality of the management team and its ability to manage the divested division successfully.

The specific conditions imposed on the management team by the venture capital provider.

Question 47

A project requires an initial outlay of $2 million which can be financed with either a bank loan or finance lease.

The company will be responsible for annual maintenance under either option.

The tax regime is:

• Tax depreciation allowances can be claimed on purchased assets.

• If leased using a finance lease, tax relief can be claimed on the interest element of the lease payments and also on the accounting depreciation charge.

The trainee management accountant has begun evaluating the lease versus buy decision and has produced the following data. He is not confident that all this information is relevant to this decision.

Using only the relevant data, which of the following is correct?

Options:

The bank loan is $30,000 MORE expensive than the finance lease.

The bank loan is $20,000 LESS expensive than the finance lease.

The bank loan is $70,000 LESS expensive than the finance lease.

The bank loan is $120,000 LESS expensive than the finance lease.

Question 48

ART manufactures traditional scooters. It has an equity beta of 1.4 and is financed entirely by equity. It plans to continue to be all-equity financed in future.

It is considering producing a range of electric scooters

GGG is a comparable quoted electric scooter manufacturer GGG has an equity beta of 2 4 reflecting its high level of gearing (the ratio of debt to equity is VI using market values).

The risk-free rate is 5%, and the market premium is 6%. The rate of corporation tax is 20%

What is the recommended discount rate that ART should use to assess the project to manufacture electric scooters?

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Financial Strategy Questions and Answers

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CompTIA

Fortinet

Microsoft

Salesforce