Online Access Free CIMAPRA19-F03-1 Exam Questions

A company is considering whether to lease or buy an asset.
The following data applies:
* The bank will charge interest at 7.14% per annum
* The asset will cost $1 million
* Tax-allowable depreciation is available on a straight line basis over 5 years
* There is no residual value
* Corporate tax is paid at 30% in the year when the profit is earned
What is the NPV of the buy option?
Give your answer to the nearest $000.

Listed Company A has prepared a valuation of an unlisted company. Company B. to achieve vertical integration Company A is intending to acquire a controlling interest in the equity of Company B and therefore wants to value only the equity of Company B.
The assistant accountant of Company A has prepared the following valuation of Company B's equity using the dividend valuation model (DVM):
Where:
* S2 million is Company B's most recent dividend
* 5% is Company B's average dividend growth rate over the last 5 years
* 10% is a cost of equity calculated using the capital asset pricing model (CAPM), based on the industry average beta factor

Which THREE of the following are valid criticisms of the valuation of Company B's equity prepared by the assistant accountant?

• A.An unlisted company cannot use the capital asset pricing model to calculate its cost of equity
• B.The 5% growth rate may not reflect the future growth of Company B.
• C.It is better to use the present value of earnings rather than present value of dividends to value a controlling interest
• D.The beta factor used may not reflect Company B's financial risk.
• E.The DVM calculation should use Company A's cost of equity rather than Company B's cost of equity

ZZZ wishes to borrow at a floating rate and has been told that it can use swaps to reduce the effective interest rate it pays. ZZZ can borrow floating at the risk-free rate + 1, and fixed at 10%.
Which of the following companies would be the most appropriate for ZZZ to enter into a swap with?

• A.Company BBA - it can borrow floating at risk-free rate +VA and fixed at 12%
• B.Company DDA - it can borrow at risk-free rate + 1 Vz and fixed at 10.5%
• C.Company CCA - it can borrow at risk-free rate + Y% and fixed at 9%
• D.Company AAB - it can borrow floating at risk-free rate + % and fixed at 9.5%

A listed company has recently announced a profit warning.
The company's share price fell 20% on the day of the announcement but had been fairly static in the weeks leading up to the announcement.
Which form of efficient market is most likely to be indicated by this share price movement?

• A.Weak form
• B.Semi-strong form
• C.Strong form
• D.Random walk

A listed company with a growing share price plans to finance a four-year research project with debt.
The main criterion for the finance is to minimise the annual cashflow payments on the debt.
The research will be sold at the end of the project.
Which of the following would be the most suitable financing method for the company?

• A.Finance lease
• B.Standard bonds
• C.Bonds with warrants
• D.Bank loan