Online Access Free F3 Exam Questions

The directors of a multinational group have decided to sell off a loss-making subsidiary and are considering the following methods of divestment:
1. Trade sale to an external buyer
2. A management buyout (MBO)
The MBO team and the external buyer have both offered the same price to the parent company for the subsidiary.
Which of the following is an advantage to the parent company of opting for a MBO compared to a trade sale as the preferred method of divestment?

• A.Avoid a hostile reaction from key management.
• B.Raise the cash more quickly.
• C.Focus on the core competencies of the business
• D.Retain the know edge of key management.

LPM Company is based in Country C. whose currency is the CS
It has entered Into a contract to buy a machine in three months' time. The supplier is overseas and the payment is to be made in a different currency from the CS The treasurer at LPM Company is considering using a money market hedge to manage the transaction risk associated with a payment.
The assumptions of interest rate parity apply
Which THREE of the following statements concerning the use of a money market hedge for this supplier payment are correct?

• A.It can be tailored to match the size of the payment
• B.It manages transaction risk
• C.It offers a significantly better outcome than a forward contract
• D.Any opportunity to benefit from future exchange rate movements is lost.
• E.lt avoids the need to find immediate finance

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?

• A.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.
• B.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.
• C.Determination of the repurchase price will be easy as shareholders will insist on receiving the open market price.
• D.The share repurchase, if approved by the shareholders, will be binding on all of the company's shareholders.
• E.The payment of a special dividend could raise shareholders' expectations of similar distributions in the future, unlike a share repurchase.

An unlisted software development company has recently reported disappointing results. This was partly due to weak economic conditions but also because of its poor competitive position. The company has a number of exciting development opportunities which would enable it to achieve significant future growth. The company's growth potential has been hindered by its inability to secure sufficient new finance.
To enable the company raise new finance the Directors are considering working forwards an IPO in 10 years and accepting finance from a venture capitalist in order support in the intervening period.
The directors are keen to retain a controlling stake in the company and full representation on the board. They therefore require venture capitalists to provide funds as a mix of debt and equity and not soley equity finance.
Which THREE of the following are most likely to disrupt the directors' plans to use venture capital finance?

• A.Venture capitalists only provide equity finance and will therefore not be interested in providing a combination of debt and equity finance.
• B.Venture capitalists always require ownership of more than 50% of the shares in a company to ensure control.
• C.The venture capital finance offered is much more expensive than expected.
• D.Venture capitalists normally expect an exit strategy sconer than the planned IPO in 10 years'time.
• E.Venture capitalists normally expect at least one seat on the board.

Which TWO of the following statements about debt instruments are correct?

• A.If corporation tax rates rise, the tax shield effect on debenture interest will be reduced.
• B.The true cost of servicing debt instruments to the company is the post-tax cost of debt.
• C.Changes in corporation tax rates will have no effect on the tax shield of fixed rate debentures.
• D.A zero coupon will eliminate the tax shield effect on debt payments.