Online Access Free CIMAPRA19-F03-1 Practice Test

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?

• A.The company will be in breach of the covenant in respect of interest cover only.
• B.The company will be in compliance with both covenants.
• C.The company will be in breach of both covenants.
• D.The company will breach the covenant in respect of retained earnings only.

A company's latest accounts show profit after tax of $20.0 million, after deducting interest of $5.0 million. The company expects earnings to grow at 5% per annum indefinitely.
The company has estimated its cost of equity at 12%, which is included in the company WACC of 10%.
Assuming that profit after tax is equivalent to cash flows, what is the value of the equity capital?
Give your answer to the nearest $ million.

Which of the following best explains why the interest rate parity model is highly effective in practice?

• A.Any divergence from parity can be observed by the market and corrected by arbitrage
• B.Governments actively manage their exchange rates so that parity holds
• C.Speculative forces drive the interest rates and exchange rates together to achieve parity.
• D.Divergence from parity is impossible because exchange rates drive interest rates

Listed company R is in the process of making a cash offer for the equity of unlisted company S.
Company R has a market capitalisation of $200 million and a price/earnings ratio of 10.
Company S has a market capitalisation of $50 million and earnings of $7 million.
Company R intends to offer $60 million and expects to be able to realise synergistic benefits of $20 million by combining the two businesses. This estimate excludes the estimated $8 million cost of integrating the two businesses.
Which of the following figures need to be used when calculating the value of the combined entity in $ millions?

• A.7, 10, 20, 50, 200
• B.8, 20, 50, 200
• C.20, 50, 60, 200
• D.8, 20, 50, 60, 200

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.A financial covenant usually requires the company to adhere to specific financial conditions or targets.
• B.A positive loan covenant would require the company to undertake specific actions.
• C.A covenant gives the financial institution the right but not the obligation to convert debt into equity in a case of non-compliance.
• D.A loan covenant has no contractually binding obligations.
• E.A restrictive covenant prohibits the company from conducting certain actions without the approval of the lending institution.