CIMA F3 Exam Prep
F3 Financial Strategy (Page 7 )

Updated On: 20-Aug-2026

Which THREE of the following are considered in detail in IFRS 7 Financial Instruments: Disclosures?

  1. Credit risk
  2. Business risk
  3. Market risk
  4. Enterprise risk
  5. Liquidity risk

Answer(s): A,C,E



Two companies that operate in the same industry have different Price/Earnings (P/E) ratios as follows:

Which of the following is the most likely of the different P/E ratios?

  1. Company B has a greater profit this year than Company
  2. Company B has higher business risk than Company A.
  3. Company B has higher expected future growth than Company A.
  4. Company B has higher gearing than Company A.

Answer(s): C



A company is owned by its five directors who want to sell the business.   Current profit after tax is $750,000.   The directors are currently paid minimal salaries, taking most of their incomes as dividends. After the company is sold, directors' salaries will need to be increased by $50,000 each year in total. A suitable Price/Earnings (P/E) ratio is 7, and the rate of corporate tax is 20%.
What is the value of the company using a P/E valuation?

  1. $4,900,000
  2. $5,250,000
  3. $5,530,000
  4. $4,970,000

Answer(s): D



Company A is unlisted and all-equity financed. It is trying to estimate its cost of equity. 
The following information relates to another company, Company B, which operates in the same industry as Company A and has similar business risk:
Equity beta = 1.6       Debt:equity ratio  40:60 The rate of corporate income tax is 20%. The expected premium on the market portfolio is 7% and the risk-free rate is 5%.
What is the estimated cost of equity for Company A?
Give your answer to one decimal place.
 ? % 

  1. 12.3, 12.30
  2. 11.3, 12.30

Answer(s): A



A company intends to sell one of its business units, Company R by a management buyout (MBO). A selling price of $100 million has been agreed. The managers are discussing with a bank and a venture capital company (VCC) the following financing proposal:

The VCC requires a minimum return on its equity investment in the MBO of 30% a year on a compound basis over 5 years.
What is the minimum TOTAL equity value of Company R in 5 years time in order to meet the VCC's required return?
Give your answer to one decimal place.
$  ? million 

  1. 111.4, 111, 111.0, 111.1, 111.2, 111.3, 111.5, 111.6, 111.7
  2. 111.4, 111, 111.0, 111.1, 111.2, 111.3, 111.5, 111.6, 111.8

Answer(s): A



Company A is a large listed company, with a wide range of both institutional and private shareholders.  It is planning a takeover offer for Company B. Company A has relatively low cash reserves and its gearing ratio of 40% is higher than most similar companies in its industry.
Which TWO of the following would be the most feasible ways of Company A structuring an offer for Company B?

  1. Cash offer, funded by borrowings.
  2. Share for share exchange.
  3. Cash offer, funded from existing cash resources.
  4. Cash offer, funded by a rights issue.
  5. Debt for share exchange.

Answer(s): B,D



Company M plans to bid for Company J. Company M has 20 million shares in issue and a current share price of $10.00 before publicly announcing the planned takeover. Company J has 10 million shares in issue and a current share price of $4.00. The directors of Company M are considering an all-share bid of 1 Company M shares for 2 Company J shares. Synergies worth $20m are expected from the acquisition.
What is the likely change in wealth for Company M's shareholders (in total) if the bid is accepted?
Give your answer to the nearest $ million.
$  ? million 

  1. 8
  2. 6

Answer(s): A



Company A plans to acquire Company B. Both firms operate as wholesalers in the fashion industry, supplying a wide range of ladies' clothing shops. Company A sources mainly from the UK, Company B imports most of its supplies from low-income overseas countries. Significant synergies are expected in management costs and warehousing, and in economies of bulk purchasing.
Which of the following is likely to be the single most important issue facing Company A in post-merger integration?

  1. Identifying and removing surplus staff.
  2. Understanding the management information system of the acquired firm.
  3. Discussions with representatives from key customer accounts.
  4. Discussions with anti-poverty campaigning groups.

Answer(s): B



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