F3 CIMA Financial Strategy Free Practice Exam Questions (2025 Updated)

A company's Board of Directors is considering raising a long-term bank loan incorporating a number of covenants.

The Board members are unsure what loan covenants involve. 

Which THREE of the following statements regarding loan covenants are true?

A company is planning to repurchase some of its shares. Relevant details are as follows:

   • 100 million shares in issue

   • Current share price $5

   • 5 million shares to be repurchased

   • 10% repurchase premium

   • Repurchased shares to be cancelled

What would you expect the share price after the repurchase to be?

Give your answer to two decimal places.

$ ?  

A large, quoted company that is all-equity financed is planning to acquire a smaller unquoted company that is also all-equity financed.

The acquiring company's directors are using the dividend valuation model to value the target company before making an offer.

Relevant data for the target company:

   • Dividends paid in the last financial year           $2 million

   • Book value of net assets                                     $15 million

   • Shares in issue                                                     1 million

The acquiring company's cost of capital is 10%.

Its directors believe they can improve the target company's performance in the long term.

They estimate there will be no growth in the first year of the acquisition but from year 2 onwards there will be a 4% growth each year in perpetuity.

What is the maximum price the acquiring company should offer for each of the shares in the target company? 

A company is considering a divestment via either a management buyout (MBO) or sale to a private equity purchaser. Which of the following is an argument in favour of the MBO from the viewpoint of the original company?

A company which is forecast to experience a strong growth in its profitability is evaluating a potential bond issue.

Which of the following changes in corporate income tax and in bond yields would make the bond issue more attractive to the company?

Company A has made an offer to acquire Company Z.  

Both companies are quoted and their current market share prices are:

   • Company A - $4

   • Company Z - $5

Shareholders in company Z have been given three alternative offers:

   • Cash of $5.50 per share

   • Share for share exchange on the basis of 3 for 2

   • 10.5% long dated bond for every 20 shares

The bond is has a nominal value of $100 and the expected yield on bonds of similar risk is 10%.

You are advising a Company Z shareholder on the three offers.

She requires a 15% premium if she is to accept the offer. 

In providing your advice, which of the following statements is correct?

A company has undertaken a transaction with its shareholders which has had the following impact on its financial statements:

   • Retained earnings has decreased

   • Share capital has increased

   • Earnings per share has decreased

   • The book value of equity is unchanged

The company has undertaken a: 

A company has:

   • A price/earnings (P/E) ratio of 10.

   • Earnings of $10 million.

   • A market equity value of $100 million.

The directors forecast that the company's P/E ratio will fall to 8 and earnings fall to $9 million.

Which of the following calculations gives the best estimate of new company equity value in $ million following such a change?

A)

B)

C)

D)

A company has in a 5% corporate bond in issue on which there are two loan covenants.

   • Interest cover must not fall below 3 times

   • Retained earnings for the year must not fall below $3.5 million

The Company has 200 million shares in issue.

The most recent dividend per share was $0.04.

The Company intends increasing dividends by 10% next year.

Financial projections for next year are as follows:

Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?

An unlisted company.

• Is owned by the original founders and members of their families

• Pays annual dividends each year depending on the cash requirements of the dominant shareholders.

• Has earnings that are highly sensitive to underlying economic conditions.

• Is a small business in a large Industry where there are listed companies with comparable capital structures

Which of the following methods is likely to give the most accurate equity value for this unlisted company?

Which THREE of the following would be of most interest to lenders deciding whether to provide long-term debt to a company?

A listed company has suffered a period of falling revenues and profit margins. It has been obliged to issue a profit warning to the market and its share price has fallen sharply. The company relies heavily on debt finance and is discussing with its banks possible refinancing options to assist with a restructuring programme.

Which THREE of the following are likely to be of MOST interest to the company's banks when they review the refinancing requests?

A government is currently considering the privatisation of the national airline. The shares are to be offered to the public via a fixed price Initial Public Offering (IPO).

Which THREE of the following statements are correct?

A company is funded by:

   • $40 million of debt (market value)

   • $60 million of equity (market value)

The company plans to:

   • Issue a bond and use the funds raised to buy back shares at their current market value.

   • Structure the deal so that the market value of debt becomes equal to the market value of equity.

According to Modigliani and Miller's theory with tax and assuming a corporate income tax rate of 20%, this plan would: 

TTT pic is a listed company. The following information is relevant:

TTT pic's board is considering issuing new 6% irredeemable debt to re-purchase equity. This is expected to change TTT pic's debt to equity mix to 40: 60 by market value. The corporate tax rate is 20%.

What will be TTT pic's WACC following this change in capital structure?

On 1 January 20X1 a company entered into a S200 million interest rate swap with a bank at a fixed rate of 4% against the 6-month risk-free rate to hedge the interest rale risk on a floating rate borrowing.

6-month risk-free rate was as follows:

What is the net settlement due under the swap contract on 1 July 20X1?

Company AAB is located in country A whose currency is the AS It has a subsidiary, BBA, located m country B that has the BS as its currency AAB has asked BBA to pay BS40 million surplus funds to AAB to assist with a planned new capital investment in country A The exchange rate today is AS1 = BS3

Tax regimes

• Company BBA pays withholding tax of 25% on all cash remitted to the parent company

• Company AAB pays tax of 10% on at cash received from its subsidiary

How much will company AAB have available for investment after receiving the surplus funds from BBA?

The competition authorities are investigating the takeover of Company Z by a larger company, Company Y.

Both companies are food retailers. 

The takeover terms involve using a part cash, part share exchange means of payment.

Company Z is resisting the bid, arguing that it undervalues its business, while lobbying extensively among politicians to sway public opinion against the bidder.

Which of the following actions by Company Y is most likely to persuade the competition authorities to approve the acquisition?

A company with 4 million shares in issue wishes to raise $4 million by means of a rights issue

The share price prior to the rights issue is $5.00.

Under the rights issue, 1 million new shares will be issued at $4.00.

When the rights issue is announced it is expected that the Theoretical Ex-rights Price (TERP) will be $4.80

The directors of the company are considering offering any shareholder who does not wish to take up the rights the opportunity to sell the rights back to the company for $1.00.

Which of the following is the most likely consequence of the directors offer?