CIMA F3 Exam Prep
F3 Financial Strategy (Page 5 )

Updated On: 20-Aug-2026

A company currently has a 6.25% fixed rate loan but it wishes to change the interest style of the loan to variable by using an interest rate swap directly with the bank.
The bank has quoted the following swap rate:   
* 5.50% - 5.55% in exchange for LIBOR LIBOR is currently 5%.
If the company enters into the swap and LIBOR remains at 5%, what will the company's interest cost be?

  1. 5.00%
  2. 5.75%
  3. 5.70%
  4. 6.25%

Answer(s): B



Which of the following explains an aim of integrated reporting in accordance with The International <IR> Framework as issued by the International Integrated Reporting Council?

  1. To highlight the need for greater reporting of performance to stakeholders in a greater level of detail than at present.
  2. To support decision making and actions that focus on creating value over the short, medium and long term.
  3. To integrate the various accepted accounting practices of member bodies into a single, unified code of accounting principles.
  4. To highlight the separation of strategy, governance and financial performance in a social, environmental and economic context.

Answer(s): B



Company R is a major food retailer.  It wishes to acquire Company S, a food manufacturer. Company S currently supplies many stores owned by Company R with food products that it manufactures. Company S is of similar size to Company R but has a lower credit rating.
Which of the following is most likely to be a synergistic benefit to R on purchasing S?

  1. Savings due to a reduction in purchase costs and more control over the value chain.
  2. Cost savings due to reducing the range of products manufactured by Company S.
  3. Lower cost of borrowing due to the acquistion of a company with a different credit rating.
  4. Reduced competition resulting in the ability to raise retail selling prices for food products.

Answer(s): A



Company C has received an unwelcome takeover bid from Company P. Company P is approximately twice the size of Company C based on market capitalisation. Although the two companies have some common business interests, the main aim of the bid is diversification for Company P. The offer from Company P is a share exchange of 2 shares in Company P for 3 shares in Company C. There is a cash alternative of $5.50 for each Company C share. Company C has substantial cash balances which the directors were planning to use to fund an acquisition. These plans have not been announced to the market.
The following share price information is relevant. All prices are in $.

Which of the following would be the most appropriate action by Company C's directors following receipt of this hostile bid?

  1. Write to shareholders explaining fully why the company's share price is under valued.
  2. Change the Articles of Association to increase the percentage of shareholder votes required to approve a takeover.
  3. Pay a one-off special dividend.
  4. Refer the bid to the country's competition authorities.

Answer(s): A



A company has:   
* 10 million $1 ordinary shares in issue    
* A current share price of $5.00 a share   
* A WACC of 15% The company holds $10 million in cash. No interest is earned on this cash. It will invest this in a project with an expected NPV of $4 million.
In a semi-strong efficient stock market, which of the following is the most likely share price immediately after the announcement of the new investment?

  1. $5.40 
  2. $6.40
  3. $6.80
  4. $5.30

Answer(s): A



The following information relates to Company A's current capital structure:

Company A is considering a change in the capital structure that will increase gearing to 30:70 (Debt:Equity). 
The risk -free rate is 3% and the return on the market portfolio is expected to be 10%. The rate of corporate tax is 25%
Using the Capital Asset Pricing Model, calculate the cost of equity resulting from the proposed change to the capital structure.

  1. 11.4%
  2. 12.3%
  3. 9.3%
  4. 10.1%

Answer(s): B



A new company was set up two years ago using the personal financial resources of the founders. These funds were used to acquire suitable premises. The company has entered into a long-term lease on the premises which are not yet fully fitted out. The founders are considering requesting loan finance from the company's bank to fund the purchase of custom-made advanced technology equipment. No other companies are using this type of equipment. The company expects to continue to be profitable for the forseeable future. It re-invests some of its surplus cash in on-going essential research and development.
Which THREE of the following features are likely to be considered negatives by the bank when assessing the company's credit-worthiness?

  1. The equipment is advanced technology custom-made equipment. 
  2. The company will continue to remain profitable and to generate net cash.
  3. The company premises are on a long-term lease but are not yet fully fitted out.
  4. The founders invested their personal financial resources in the company.
  5. Essential on-going research and development expenditure is required.

Answer(s): A,C,E



Company Y plans to diversify into an activity where Company X has an equity beta of 1.6, a debt beta of zero and gearing of 50% (debt/debt plus equity). The risk-free rate of return is 5% and the market portfolio is expected to return 10%. The rate of corporate income tax is 30%.
What would be the risk-adjusted cost of equity if Company Y has 60% equity and 40% debt?

  1. 11.6%
  2. 11.9%
  3. 9.1%
  4. 13%

Answer(s): B



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