CIMA F3 Exam Prep
F3 Financial Strategy (Page 3 )

Updated On: 20-Aug-2026

Company A, a listed company, plans to acquire Company T, which is also listed.  Additional information is:   
* Company A has 100 million shares in issue, with market price currently at $8.00 per share.   
* Company T has 90 million shares in issue,. with market price currently at $5.00 each share.   
* Synergies valued at $60 million are expected to arise from the acquisition.   
* The terms of the offer will be 2 shares in A for 3 shares in B.
Assuming the offer is accepted and the synergies are realised, what should the post-acquisition price of each of Company A's shares be?
Give your answer to two decimal places.

  1. 8.19, 8.18
  2. 8.19, 6.18

Answer(s): A



A company is financed as follows:   
* 400 million $1 shares quoted at $3.00 each.   
* $800 million 5% bonds quoted at par. The company plans to raise $200 million long term debt to finance a project with a net present value of $100 million. The bank that is providing the debt is insisting on a maximum gearing level covenant.   Gearing will be based on market values and calculated as debt/(debt + equity).
What is the lowest figure for the gearing covenant that the bank could impose without the company breaching the agreement?

  1. 43%
  2. 44%
  3. 45%
  4. 46%

Answer(s): B



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.

  1. 4.97, 4.98
  2. 4.97, 3.98

Answer(s): A



Hospital X provides free healthcare to all members of the community, funded by the central Government. Hospital Y provides healthcare which has to be paid for by the individual patients. It is a listed company, owned by a large number of shareholders.  In comparing the above two organisations and their objectives, which THREE of the following statements are correct?

  1. X is a not-for-profit organisation while Y is a for-profit organisation.
  2. X and Y have the same primary financial objective - to maximise shareholder wealth.
  3. The performance of X will be appraised primarily on the basis of value for money.
  4. Only Y is likely to have a mixture of financial and non-financial objectives.
  5. X and Y will have the same primary non financial objective - provision of quality of health care.

Answer(s): E



Companies A, B, C and D.   
* are based in a country that uses the K$ as its currency.
* have an objective to grow operating profit year on year.   
* have the same total levels of revenue and cost.   
* trade with companies or individuals in the eurozone.  All import and export trade with companies or individuals in the eurozone is priced in EUR.   Typical import/export trade for each company in a year are as follows:

 Which company's growth objective is most sensitive to a movement in the EUR/K$ exchange rate?

  1. Company A
  2. Company B
  3. Company C
  4. Company D

Answer(s): B



A company has a cash surplus which it wishes to distribute to shareholders by a share repurchase rather than paying a special dividend.
Which THREE of the following statements are correct?

  1. The payment of a special dividend could raise shareholders' expectations of similar distributions in the future, unlike a share repurchase.
  2. The share repurchase could send a negative signal to shareholders as it could be interpreted as a failure of management to find suitable investment opportunities.
  3. Determination of the repurchase price will be easy as shareholders will insist on receiving the open market price.
  4. Different tax regimes could result in shareholders having a preference for a share repurchase due to the often more preferential tax treatment of capital gains.
  5. The share repurchase, if approved by the shareholders, will be binding on all of the company's shareholders.

Answer(s): A,B,D



A company's gearing (measured as debt/(debt + equity)) is currently 60% and it is investigating whether an optimal gearing structure exists within the industry. It has analysed the capital structure of similar companies in the industry and it would appear that there is evidence supporting the traditional theory of capital structure. Companies with the lowest WACC in the industry have gearing of around 45% to 50%.
Which of the following actions would result in the company achieving a more optimal capital structure?

  1. Undertaking a rights issue of equity to repay some of its debt.
  2. Refinancing to replace some of its short term debt with long term debt.
  3. Increasing the level of dividend to return more cash to shareholders.
  4. Using retained cash to undertake a buyback of some of its equity.

Answer(s): A



Company E is a listed company. Its directors are valuing a smaller listed company, Company F, as a possible acquisition. The two companies operate in the same markets and have the same business risk.
Relevant data on the two companies is as follows:

Both companies are wholly equity financed and both pay corporate tax at 30%.
The directors of Company E believe they can "bootstrap" Company F's earnings to improve performance.
Calculate the maximum price that Company E should offer to Company F's shareholders to acquire the company.
Give your answer to the nearest $million.

  1. 3,150
  2. 1,890
  3. 4,500
  4. 2,700

Answer(s): A



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