Pass F3 Exam Latest Practice Questions Updated on Jun 01, 2026
CIMA F3 Study Guide Archives
NEW QUESTION # 207
A consultancy company is dependent for profits and growth on the high value individuals it employs.
The company has relatively few tangible assets.
Select the most appropriate reason for the net asset valuation method being considered unsuitable for such a company.
- A. It accounts for intangible assets at net realisable value.
- B. It does not account for the intangible assets.
- C. It does not account for tangible assets.
- D. It accounts for the intangible assets at historical value.
Answer: B
Explanation:
A net asset valuation is based mainly on the book value of tangible and recognised intangible assets in the statement of financial position. In a consultancy company, most of the value lies in human capital, know-how, reputation, client relationships, etc. These are usually not recognised as assets under accounting rules (they're internally generated intangibles).
So a net asset basis would seriously understate the true value of the company because it effectively ignores the main value driver. That's why:
A is correct - it does not account for the intangible assets (like human capital).
B and C are wrong - most of these intangibles aren't even on the balance sheet, so they aren't valued at historical or NRV.
D is wrong - tangible assets are included; the problem is that they are relatively unimportant here.
NEW QUESTION # 208
Company BBB has prepared a valuation of a competitor company, Company BBD. Company BBB is intending to acquire a controlling interest in the equity of Company BBD and therefore wants to value only the equity of Company BBD.
The directors of Company BBB have prepared the following valuation of Company BBD:
Value of Equity = 4.63 + 5.14 + 5.56 = S15.33 million
Additional information on Company BBD:
Which THREE of the following are weaknesses of the above valuation?
- A. The valuation is understated as the directors have failed to include a perpetuity factor in the calculations.
- B. The approach used calculates the value of the total entity not the value of equity.
- C. Free cash flows to all investors should be discounted at the cost of equity of 10% rather than WACC of
8%. - D. The valuation is understated as forecast future growth has been ignored beyond year 3.
- E. The valuation is overstated as the directors have failed to deduct tax from the free cash flows.
Answer: A,B,E
NEW QUESTION # 209
A venture capitalist invests in a company by means of buying:
* 9 million shares for $2 a share and
* 8% bonds with a nominal value of $2 million, repayable at par in 3 years' time.
The venture capitalist expects a return on the equity portion of the investment of at least 20% a year on a compound basis over the first 3 years of the investment.
The company has 10 million shares in issue.
What is the minimum total equity value for the company in 3 years' time required to satisify the venture capitalist's expected return?
Give your answer to the nearest $ million.
Answer:
Explanation:
$ million.
34, 35, 34000000, 35000000
NEW QUESTION # 210
The shares of a company in a high technology industry have been listed on a stock exchange for 10 years.
During this period, it has paid no dividends but invested all retained earnings in growth. The company is now entering a period of relatively stable growth and the directors are considering beginning to pay dividends They are reviewing the following suggestions made by members of the board:
* Pay cash dividends linked to growth in earnings
* Use a residual theory approach to establish cash dividends
* Issue scrip dividends (shares instead of cash)
* Continue to pay no dividends as dividends are irrelevant to the value of the company Which THREE of the following are correct statements for the directors to take into consideration when making a decision about future dividend policy?
- A. Shareholder preferences for cash or scrip dividends will be influenced by their tax positions
- B. Neither cash nor scrip dividends will have an effect on earnings per share
- C. Ignoring taxation and administrative costs, shareholders can provide their own dividends by selling shares in the market
- D. Modigliani and Miller argue that, ignoring taxation, as long as positive net present value projects are invested in, shareholder wealth will increase, regardless of dividend payments.
- E. The residual theory of dividends suggest that dividends should only be paid after all operating costs have been met.
Answer: A,C,D
NEW QUESTION # 211
Which TWO of the following situations offer arbitrage opportunities?
- A.
- B.
- C.
- D.
Answer: B
NEW QUESTION # 212
Select the category of risk for each of the descriptions below:
Answer:
Explanation:
NEW QUESTION # 213
A national rail operating company has made an offer to acquire a smaller competitor.
Which of the following pieces of information would be of most concern to the competition authorities?
- A. The acquisition is likely to result in significant redundancies of staff currently working for the smaller rail operator.
- B. The board informed a major institutional shareholder about the proposed acquisition before informing other shareholders.
- C. After the acquisition, the board proposes to withdraw some of the less profitable services.
- D. After the acquisition, the board proposes to increase prices on some routes not serviced by other rail operators.
Answer: D
Explanation:
Competition authorities focus on market power and the potential for abuse of a dominant position.
A is most concerning: raising prices on routes where there are no competing operators suggests the merged entity could exploit monopoly power.
B, C and D relate more to service rationalisation, disclosure/insider issues, and employment, which are not the core focus of competition law.
NEW QUESTION # 214
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?
- A. The bank loan is $30,000 MORE expensive than the finance lease.
- B. The bank loan is $120,000 LESS expensive than the finance lease.
- C. The bank loan is $20,000 LESS expensive than the finance lease.
- D. The bank loan is $70,000 LESS expensive than the finance lease.
Answer: D
NEW QUESTION # 215
A listed company in a high technology industry has decided to value its intellectual capital using the Calculated Intangible Value method (CIV).
Relevant data for the company:
* Pays corporate income tax at 30%
* Cost of equity is 9%, pre-tax cost of debt is 7% and the WACC is 8%
* The value spread has been calculated as $26 million
Calculate the CIV for the company.
- A. 228 million
- B. 325 million
- C. 531 million
- D. 289 million
Answer: A
NEW QUESTION # 216
Company A is located in Country A, where the currency is the A$.
It is listed on the local stock market which was set up 10 years ago.
It plans a takeover of Company B, which is located in Country B where the currency is the B$, and where the stock market has been operating for over 100 years.
Company A is considering how to finance the acquisition, and how the shareholders of Company B might respond to a share exchange or cash (paid in B$).
Which of the following is likely to explain why the shareholders of Company B would prefer a share exchange as opposed to a cash offer?
- A. It would avoid them being exposed to foreign currency risk.
- B. It would allow them to realise their investment and make a capital gain.
- C. It would enable them to benefit from the future performance of the combined entity.
- D. They would receive shares in a market that is likely to be more efficient.
Answer: C
NEW QUESTION # 217
On 1 January:
* Company ABB has a value of $55 million
* Company BBA has a value of $25 million
* Both companies are wholly equity financed
Company ABB plans to take over Company BBA by means of a share exchange Following the acquisition the post-tax cashflow of Company ABB for the foreseeable future is estimated to be $10 million each year The post-acquisition cost of equity is expected to be 10% What is the best estimate of the value of the synergy that would arise from the acquisition?
- A. $20 million
- B. $30 million
- C. $75 million
- D. $125 million
Answer: A
Explanation:
Pre-acquisition standalone values:
ABB = $55m
BBA = $25m
Total pre-deal value = $80m.
After the acquisition, ABB (the combined business) is expected to generate post-tax cash flows of $10m per year in perpetuity. Cost of equity = 10%, and the firm is all-equity financed, so:
Post-acquisition value=100.10=$100m\text{Post-acquisition value} = \frac{10}{0.10} = \$100\text{m}Post- acquisition value=0.1010=$100m Synergy value = value of combined firm # sum of standalone values:
Synergy=100#80=$20m\text{Synergy} = 100 - 80 = \$20\text{m}Synergy=100#80=$20m So the best estimate of the synergy from the acquisition is $20 million.
NEW QUESTION # 218
A company is located in a single country. The company manufactures electncal goods for export and for sale in its home country. When exporting, it invoices in its customers' currency. What currency risks is the company exposed to?
- A. Transaction and economic risks
- B. Translation and economic risks.
- C. Transaction risk only
- D. Transaction, economic and translation risks.
Answer: D
NEW QUESTION # 219
A company with a market capitalisation of S50million is considering raising $1 million debt to fund a new
10-year capital investment protect
The value of this issue is considered to be small in comparison to the company's market capitalisation The company is considering whether to raise the debt finance by either a "bond private placing' or a 'public bond issue.
Which THREE of the following statements are correct?
- A. An initial public bond issue can be arranged relatively quickly whereas a bond private placing can take up to a year to arrange.
- B. An average investor is made aware of a potential initial public bond issue whereas the average investor is only made aware of a bond private placing after it has occurred.
- C. The company's credit rating will be a key element in determining the interest rate payable and the potential success of either the public bond issue or the bond private placing
- D. An initial public bond issue does not need to be underwritten whereas a bond private placing must be underwritten.
- E. An initial public bond issue will be administratively complex and relatively expensive for the relatively small amount of debt being raised whereas a bond private placing will be relatively less complex
Answer: A,E
NEW QUESTION # 220
A private company manufactures goods for export, the goods are priced in foreign currency B$.
The company is partly owned by members of the founding family and partly by a venture capitalist who is helping to grow the business rapidly in preparation for a planned listing in three years' time.
The company therefore has significant long term exposure to the B$.
This exposure is hedged up to 24 months into the future based on highly probable forecast future revenue streams.
The company does not apply hedge accounting and this has led to high volatility in reported earnings.
Which of the following best explains why external consultants have recently advised the company to apply hedge accounting?
- A. To fully adopt IFRS in preparation for listing the company.
- B. To make it easier for the market to value the business when it is listed on the Stock Exchange.
- C. To ensure that the venture capitalist receives regular annual returns on its investment.
- D. To provide a more appropriate earnings figure for use in calculating the annual dividend.
Answer: B
Explanation:
Applying hedge accounting will better match the gains/losses on hedging instruments with the underlying forecast revenues, reducing artificial volatility in reported profit. This makes the performance figures more representative and therefore easier for the market to analyse and value when the company lists.
Option D is weaker because hedge accounting is optional under IFRS, and A and C do not address the key issue of earnings volatility and future market valuation.
NEW QUESTION # 221
A company is considering hedging the interest rate risk on a 3-year floating rate borrowing linked to the
12-month risk-free rate.
If the 12-month risk-free rate for the next three years is 2%, 3% and 4%, which of the following alternatives would result in the lowest average finance cost for the company over the three years?
- A. Enter into an interest rate swap at 3.1% fixed against 12-month risk-free rate.
- B. Enter into a zero-cost collar with a floor of 2.9% and a ceiling of 4%.
- C. Do not hedge.
- D. Enter into an interest rate cap at an annual premium of 0.533% and a cap of 3%,
Answer: C
NEW QUESTION # 222
Company S is planning to acquire Company T.
The shareholders in Company T will receive new shares in Company S in an all-share consideration.
Relevant information:
The shareholders in Company T want sufficient shares to receive a 25% premium on the pre-acquisition value of their shares, based on the pre-acquisition share price.
Which of the following share-for-share offers will achieve the desired result?
- A. 1 share in Company S for 2 shares in Company T
- B. 10 shares in Company S for 4 shares in Company T
- C. 2 shares in Company S for 1 share in Company T
- D. 1 share in Company S for 1 share in Company T
Answer: D
Explanation:
The pre-acquisition share prices are:
Company S: $5.00
Company T: $4.00
Shareholders in Company T want a 25% premium on the value of their shares, based on T's current price:
Required value per T share=4.00×1.25=$5.00\text{Required value per T share} = 4.00 \times 1.25 = \$5.00 Required value per T share=4.00×1.25=$5.00 Now value each offer using Company S's pre-acquisition share price of $5:
A). 2 S shares for 1 T share
Value received = 2×5=$102 \times 5 = \$102×5=$10 # 150% premium (too high)
B). 1 S share for 1 T share
Value received = 1×5=$51 \times 5 = \$51×5=$5 #
Premium =5#44=25%= \frac{5 - 4}{4} = 25\%=45#4=25% #
C). 1 S share for 2 T shares
That's 0.5 S per T # 0.5×5=$2.500.5 \times 5 = \$2.500.5×5=$2.50 # actually a discount
D). 10 S shares for 4 T shares
That's 2.5 S per T # 2.5×5=$12.502.5 \times 5 = \$12.502.5×5=$12.50 # huge premium (>200%) Only offer B gives T's shareholders exactly a 25% premium.
Correct answer: B - 1 share in Company S for 1 share in Company T.
NEW QUESTION # 223
WX, an advertising agency, has just completed the all-cash acquisition of a competitor, YZ. This was seen by the market as a positive strategic move byWX.
Which THREE of the following will WX's shareholders expect the company's directors to prioritise following the acquisition?
- A. The realisation of anticipated post-acquisition synergies.
- B. The development of a dividend policy to meet the expectations of the YZ's shareholders.
- C. The retention of YZ's key customers.
- D. The integration and retention of key employees of YZ.
- E. The regulatory approval required to complete the acquisition.
Answer: A,C,D
Explanation:
CIMA F3 emphasises that shareholders expect directors to focus on value creation after an acquisition, particularly in the areas that protect and enhance the cash flows and synergies that justified the deal.
Following an all-cash acquisition, the target's former shareholders have exited, so the acquirer's shareholders will not prioritise tailoring dividends to meet the target shareholders' preferences (B is not relevant). Also, the question states the acquisition has just been completed, so regulatory approval needed to complete the acquisition (C) is no longer a priority stage item. What matters immediately is executing post-deal integration to secure the expected benefits. First, directors must ensure integration and retention of key employees from the acquired firm (A), especially in service/knowledge businesses where people drive client relationships and operational capability. Second, they must protect revenues by retaining the acquired firm's key customers (D); losing customers can destroy acquisition value quickly. Third, they must deliver the deal logic by realising anticipated post-acquisition synergies (E), such as cost savings, higher capacity utilisation, cross-selling, and process improvements. These priorities align with F3's post-merger integration focus: preserve the earnings base, then convert strategic fit into measurable synergy cash flows.
NEW QUESTION # 224
Company A is based in country A with the AS as its functional currency. It expects to receive BS20 million from Company B in settlement of an export invoice.
The current exchange rate is A$1 =B$2 and the daily standard deviation of this exchange rate = 0 5% What is the one-day 95% VaR in AS?
- A. A$50,000
- B. A$164,500
- C. A$822,500
- D. A$82,250
Answer: D
NEW QUESTION # 225
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. 4.97, 3.98
- B. 4.97, 4.98
Answer: B
NEW QUESTION # 226
The two founding directors of an unlisted geared company want to establish its value as they are intending to approach a venture capitalist for additional funding.
The funding will be used to invest in a major new project which has very high growth potential. The directors intend to sell 10% of the company to the venture capitalist They have prepared the following current valuation of the company using the divided valuation model:
The following information is relevant.
* $60,000 is the most recent dividend paid.
* 4% is the average dividend growth over the last few years.
* 10% is an estimate of the company's cost of equity using the CAPM model with the industry average asset beta Which THREE of the following are weaknesses of the valuation method used in these circumstances?
- A. It is not an appropriate valuation method for a small, 10% equity stake
- B. CAPM cannot be used to estimate the cost of equity of an unlisted company.
- C. The industry average asset beta is not an appropriate beta to use in CAPM in this case.
- D. The company is unlikely to achieve constant growth in dividends year-on-year.
- E. Future dividend growth is unlikely to reflect historical dividend growth.
Answer: A,D,E
NEW QUESTION # 227
A company has just received a hostile bid. Which of the following response strategies could be considered?
- A. Revalue non-current assets
- B. Poison pill strategy
- C. Change the Articles of Association to amend voting rights
- D. Approach a White Knight
Answer: D
NEW QUESTION # 228
A listed company is planning to raise $21.6 million to finance a new project with a positive net present value of $5 million. The finance is to be raised via a rights issue at a 10% discount to the current share price. There are currently 100 million shares in issue, trading at $2.00 each.
Taking the new project into account, what would the theoretical ex-rights price be?
Give your answer to two decimal places.
Answer:
Explanation:
$ ?
2.02, 2.03
NEW QUESTION # 229
Which of the following statements about IFRS 7 Financial Instruments: Disclosures is true?
- A. IFRS 7 requires disclosures to be given for each separate class of financial instruments.
- B. IFRS 7 requires sensitivity analysis in relation to credit risk.
- C. The main requirement of IFRS 7 is for qualitative disclosures relating to financial instruments and market risks.
- D. IFRS 7 only applies to entities that are designated as financial institutions by a regulatory authority.
Answer: A
Explanation:
A is false: IFRS 7 applies to all entities that have financial instruments, not just regulated financial institutions.
B is true: IFRS 7 explicitly requires disclosures by class of financial instrument, so users can understand the nature and risks of different categories.
C is false: IFRS 7 requires both qualitative and quantitative disclosures, including carrying amounts, risk exposures, and sensitivity analyses.
D is false: sensitivity analysis is required for market risks (interest rate, currency, other price), not specifically credit risk.
So the correct statement is B.
NEW QUESTION # 230
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