Online Access Free CIMAPRA19-F03-1 Practice Test

A company is planning to issue a 5 year $100 million bond at a fixed rate of 6%.
It is also considering whether or not to enter into a 10 year $100 million swap to receive 5% fixed and pay Libor + 1% once a year.
The company predicts that Libor will be 4% over the life of the 5 years.
What is the impact of the swap on the company's annual interest cost assuming that the Libor prediction is correct?

• A.Increase by 1%.
• B.Fall by 2%.
• C.Fall by 1%.
• D.Remain the same.

Company T has 1,000 million shares in issue with a current share price of $10 each.
Company V has 300 million shares in issue with a current share price of $5 each.
Company T is considering acquiring Company V.
Total synergy gains of $100 million have been estimated.
The purchase of Company V's shares would be by cash at a 10% premium above the current share price.
In seeking approval for the acquisition, the likely reaction from T's shareholders will be:

• A.rejected as T's shareholders will see a decrease in their wealth overall of $50 million.
• B.accepted as there will be an increase in the value of the business of $1,500 million.
• C.accepted as there is $100 million of synergy which will all go to T's shareholders.
• D.rejected as T's shareholders will not be willing to pay more than $1,500 million for V.

The Board of Directors of Company T is considering a rights issue to fund a new investment opportunity which has a zero NPV.
The Board of Directors wishes to explain to shareholders what the theoretical impact on their wealth will be as a result of different possible actions during the rights issue.
Which THREE of the following statements in respect of theoretical shareholder wealth are true?

• A.If shareholders sell their entire rights entitlement there will be no impact on their wealth.
• B.If the shareholders allow their rights to lapse (do nothing) there will be no impact on their wealth.
• C.If shareholders partially exercise their rights and sell the remaining rights entitlement there will be no impact on their wealth.
• D.If the shareholders only partially exercise their rights and allow the remainder to lapse there will be no impact on their wealth.
• E.If shareholders exercise their full rights there will be no impact on their wealth.

Company W is a manufacturing company with three divisions, all of which are making profits:
* Division A which manufactures cars
* Division B which manufactures trucks
* Division C which manufactures agricultural machinery
Company W is facing severe competitive pressure in all of its markets, and is currently operating with a high level of gearing Company W's latest forecasts suggest that it needs to raise cash to avoid breaching loan covenants on its existing debt finance in 6 months' time In a recent strategy review. Divisions A and B were identified as being the core divisions of Company W The management of Division C is known to be interested in the possibility of a management buy-out.
Company Z is known to be interested in making a takeover bid for Company W's truck manufacturing division A rival to Company W has recently successfully demerged its business, this was well received by the Financial markets Which of the following exit strategies will be most suitable for company W?

• A.Management buy-out of Division C
• B.Sale of Division B to Company Z
• C.Demerger of Division C
• D.Closure of Division

The directors of the following four entities have been discussing dividend policy:

Which of these four entities is most likely to have a residual dividend policy?

• A.C
• B.D
• C.A
• D.B