Online Access Free F3 Practice Test

A listed company is planning a share repurchase.
The following data applies:
* There are 10 million shares in issue
* The share repurchase will involve buying back 20% of the shares at a price of $0.75
* The company is holding $2 million cash
* Earnings for the current year ended are $2 million
The Directors are concerned about the impact that this repurchase programme will have on the company's cash balance and current year earnings per share (EPS) ratio.
Advise the directors which of the following statements is correct?

• A.The cash balance will decrease by 75% and EPS will decrease by 25%.
• B.The cash balance will decrease by 20% and the EPS will increase by 25%.
• C.The cash balance will decrease by 20% and the EPS will decrease by 25%.
• D.The cash balance will decrease by 75% and EPS will increase by 25%.

A listed company in a high growth industry, where innovation is a key driver of success has always operated a residual dividend policy, resulting in volatility in dividends due to periodic significant investments in research and development.
The company has recently come under pressure from some investors to change its dividend policy so that shareholders receive a consistent growing dividend. In addition, they suggested that the company should use more debt finance.
If the suggested change is made to the financial policies, which THREE of the following statements are true?

• A.There may be a change to the shareholder profile due to 'the clientele effect'.
• B.The company's financial risk will increase due to its increased use of debt finance.
• C.The directors will not have to take shareholder dividend preferences into consideration in future.
• D.It may give a signal to the market that the company is entering a period of stable growth.
• E.Retained earnings have a lower cost than debt finance.

A company's current earnings before interest and taxation are $5 million.
These are expected to remain constant for the forseeable future.
The company has 10 million shares in issue which currently trade at $3.60.
It also has a $10 million long term floating rate loan.
The current interest rate on this loan is 5%.
The company pays tax at 20%.
The company expects interest rates to increase next year to 6% and it's Price/Earnings (P/E) ratio to move to
9.5 times by the end of next year.
What percentage reduction in the share price will occur by the end of next year if the interest rate increase and the P/E movement both occur?

• A.Reduction of 0%
• B.Reduction of 7%
• C.Reduction of 5%
• D.Reduction of 1%

Company A is a listed company that produces pottery goods which it sells throughout Europe. The pottery is then delivered to a network of self employed artists who are contracted to paint the pottery in their own homes.
Finished goods are distributed by network of sales agents.The directors of Company A are now considering acquiring one or more smaller companies by means of vertical integration to improve profit margins.
Advise the Board of Company A which of the following acquisitions is most likely to achieve the stated aim of vertical integration?

• A.A company in a similar market to Company A.
• B.A company that produces accessories.
• C.A pottery factory in the Middle East.
• D.A listed international logistics firm.

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 1 share 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 2 shares in Company T