Practice CIMA CIMAPRA19-F03-1 Exam Questions

On 31 October 20X3: • A company expected to agree a foreign currency transaction in January 20X4 for settlement on 31 March 20X4.   • The company hedged the currency risk using a forward contract at nil cost for settlement on 31 March 20X4.  • The transaction was correctly treated as a cash flow hedge in accordance with IAS 39 Financial Instruments: Recognition and Measurement. On 31 December 20X3, the financial year end, the fair value of the forward contract was $10,000 (asset). How should the increase in the fair value of the forward contract be treated within the financial statements for the year ended 31 December 20X3?

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: 

A company has 6 million shares in issue. Each share has a market value of $4.00. $9 million is to be raised using a rights issue. Two directors disagree on the discount to be offered when the new shares are issued. • Director A proposes a discount of 25%   • Director B proposes a discount of 30% Which THREE of the following statements are most likely to be correct?

A wholly equity financed company has the following objectives: 1. Increase in profit before interest and tax by at least 10% per year. 2. Maintain a dividend payout ratio of 40% of earnings per year. Relevant data: • There are 2 million shares in issue. • Profit before interest and tax in the last financial year was $5 million. • The corporate income tax rate is 30%. At the beginning of the current financial year, the company raised long term debt of $2 million at 10% interest each year.  Calculate the dividend per share that will be announced this year assuming the company achieves its objective of increasing profit before interest and tax by 10%.

When valuing an unlisted company, a P/E ratio for a similar listed company may be used but adjustments to the P/E ratio may be necessary. Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use?