New (2026) CIMA CIMAPRA19-F03-1 Exam Dumps
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The CIMA CIMAPRA19-F03-1 exam is computer-based and consists of 90 multiple-choice questions. Candidates have three hours to complete the exam, and a passing score is 70%. CIMAPRA19-F03-1 exam is administered at authorized testing centers around the world, and candidates can register online through the CIMA website.
NEW QUESTION # 143
A listed company in a high technology industry has decided to value its intellectual capital using the Calculated Intangible Value method (CIV).
Relevant data for the company:
* Pays corporate income tax at 30%
* Cost of equity is 9%, pre-tax cost of debt is 7% and the WACC is 8%
* The value spread has been calculated as $26 million
Calculate the CIV for the company.
- A. 325 million
- B. 531 million
- C. 228 million
- D. 289 million
Answer: C
NEW QUESTION # 144
A company has stable earnings of S2 million and its shares are currently trading on a price earnings multiple {PIE) of 10 times. It has10 million shares in issue.
The company is raising S4 million debt finance to fund an expansion of its existing business which is forecast to increase annual earnings straight away by 25% and then remain at that level for the foreseeable future. The corporation tax rate is 20%. It is expected that the P/E will reduce to 8 times over the next year.
What is the most likely change in shareholder wealth resulting from this plan?
- A. Shareholder wealth will increase by $5 million
- B. No change in shareholder wealth.
- C. Shareholder wealth will increase by $3.2 million.
- D. Shareholder wealth will increase by $4 million.
Answer: D
NEW QUESTION # 145
A company has stable earnings of S2 million and its shares are currently trading on a price earnings multiple
{PIE) of 10 times. It has10 million shares in issue.
The company is raising S4 million debt finance to fund an expansion of its existing business which is forecast to increase annual earnings straight away by 25% and then remain at that level for the foreseeable future. The corporation tax rate is 20%. It is expected that the P/E will reduce to 8 times over the next year.
What is the most likely change in shareholder wealth resulting from this plan?
- A. Shareholder wealth will increase by $5 million
- B. Shareholder wealth will increase by $4 million.
- C. No change in shareholder wealth.
- D. Shareholder wealth will increase by $3.2 million.
Answer: C
Explanation:
Current situation:
Earnings = $2m
P/E = 10 # Market value = 2 × 10 = $20m
After expansion:
Earnings increase by 25% # new earnings = 2 × 1.25 = $2.5m
New P/E = 8 # New market value = 2.5 × 8 = $20m
Shareholder wealth (equity value) stays at $20m, so the **most likely change is:
D). No change in shareholder wealth.**
NEW QUESTION # 146
ADC is planning to acquire DEF in order to benefit from the expertise of DEF's owner 'managers Both are Listed companies. ADC is trying to decide whether to offer cash or shares in consideration for DEF's shares.
Which THREE of the following are advantages to ABC of offering shares to acquire CEF?
- A. It preserves liquidity
- B. It results in a tax saving for ABC.
- C. It shares tie benefits of future growth with the DCT shareholder.
- D. It dilutes ownership in ABC.
- E. The risk of poor future performance of the acquisition is shared with the DEF company shareholder.
- F. It incentivises DEF to continue creating value for the combined group
Answer: C,E,F
NEW QUESTION # 147
A company with 4 million shares in issue wishes to raise $4 million by means of a rights issue
The share price prior to the rights issue is $5.00.
Under the rights issue, 1 million new shares will be issued at $4.00.
When the rights issue is announced it is expected that the Theoretical Ex-rights Price (TERP) will be $4.80
The directors of the company are considering offering any shareholder who does not wish to take up the rights the opportunity to sell the rights back to the company for $1.00.
Which of the following is the most likely consequence of the directors offer?
- A. The directors offer will increase demand for the shares and as a consequence the share price will rise above the theoretical ex-rights price.
- B. It will result in fewer shareholders taking up the rights and as a consequence less cash will be raised from the rights issue
- C. It will encourage more shareholders to sell their lights on the open market.
- D. It will have no effect on the take up of the rights because shareholder wealth will be the same whether the rights are taken up or sold back to the company
Answer: B
NEW QUESTION # 148
An unlisted software development business is to be sold by its founders to a private equity house following the initial development of the software. The business has not yet made a profit but significant profits are expected for the next three years with only negligible profits thereafter. The business owns the freehold of the property from which it operates. However, it is the industry norm to lease property.
Which THREE of the following are limitations to the validity of using the Calculated Intangible Value (CIV) method for this business?
- A. Significant profits are forecast for the next three years with only negligible profits thereafter.
- B. The CIV method cannot be applied to an unlisted company.
- C. The business owns the freehold property from which it operates.
- D. The business has not yet made a profit.
- E. The intellectual property representing the software development has not been included in the accounts.
Answer: C,D,E
NEW QUESTION # 149
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. lt avoids the need to find immediate finance
- B. Any opportunity to benefit from future exchange rate movements is lost.
- C. It can be tailored to match the size of the payment
- D. It offers a significantly better outcome than a forward contract
- E. It manages transaction risk
Answer: C,D,E
NEW QUESTION # 150
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?
- A. Essential on-going research and development expenditure is required.
- B. The company will continue to remain profitable and to generate net cash.
- C. The equipment is advanced technology custom-made equipment.
- D. The founders invested their personal financial resources in the company.
- E. The company premises are on a long-term lease but are not yet fully fitted out.
Answer: A,C,E
Explanation:
Negatives for the bank:
A). Advanced, custom-made tech equipment - poor resale value and high obsolescence risk, weak security.
C). Premises on a long-term lease and not fully fitted out - limited asset security; further capital outlay still needed.
E). Essential ongoing R&D - continuing cash demands and uncertainty of returns.
Positives, so not negatives:
B). Continuing profitability and net cash generation - good for servicing debt.
D). Founders' personal investment - shows commitment and loss-sharing; strengthens equity base.
NEW QUESTION # 151
A company has forecast the following results for the next financial year:
The following is also relevant:
* Profit after tax for the year can be assumed to be equivalent to free cash flow for the year.
* Debt finance comprises a $10 million floating rate loan which currently carries an interest rate of 5%.
* $400,000 investment in non-current assets is required to achieve required growth, all of which is to financed from next year's free cash flow.
* The company plans to pay a dividend of $150,000 next year, financed from next year's free cash flow.
The company is concerned that interest rates could rise next year to 6% which could then affect their investment plans.
If interest rates were to rise to 6% and the company wishes to maintain its dividend amount, the planned investment expenditure will decrease by:
- A. $50,000
- B. $75,000
- C. $25,000
- D. $100,000
Answer: C
NEW QUESTION # 152
A company is planning a share repurchase programme with the following details:
* Repurchased shares will be immediately cancelled.
* The shares will be purchased at a premium to the market share price.
The current market share price is greater than the nominal value of the shares.
Which of the following statements about the impact of the share repurchase programme on the company's financial statements is correct?
- A. The premium to the nominal value would be charged to retained earnings.
- B. The total value of the equity in its Statement of Financial Position would remain unchanged.
- C. The share capital figure would reduce by the nominal value of the shares purchased.
- D. The premium to the market value would be charged to the Income Statement.
Answer: C
Explanation:
The company is repurchasing and cancelling its own shares.
When shares are cancelled:
Share capital is reduced by the nominal value of the shares bought back. # Any amount paid above nominal value reduces equity reserves (such as share premium and/or retained earnings), but it does not go through the Income Statement.
Total equity does decrease by the full repurchase amount (so option C is wrong).
No element of the repurchase (including any "premium to market value") is treated as an expense in the Income Statement under IFRS - it's purely an equity transaction (so D is wrong).
Option A is too specific and not strictly correct, because the premium over nominal is not necessarily all charged only to retained earnings - it can also be charged to share premium / other reserves.
So the one fully correct statement is:
B). The share capital figure would reduce by the nominal value of the shares purchased.
NEW QUESTION # 153
A large, listed company is planning a major project that should greatly improve its share price in the long term.
These plans require a significant capital cost that the company plans to finance by debt.
All of the debt options being considered are for the same duration of time.
Which of the following sources of debt finance is likely to be the most expensive for the company over the full term of the debt?
- A. Convertible bonds
- B. Bank loan
- C. Bonds
- D. A finance lease
Answer: A
Explanation:
All the options are debt with the same maturity, but convertible bonds include an equity conversion option for investors. Because of that option, the coupon rate at issue is usually lower than on straight bonds or bank loans. However, CIMA F3 emphasises that if the company's share price is expected to rise significantly (as in this question, where the project should greatly improve the share price), holders are very likely to convert.
When conversion happens, the company settles the debt by issuing shares that, at that point, are worth much more than the original debt value. The effective total cost of finance (interest paid plus the value of equity given up) can end up higher than for ordinary bonds, leases, or bank loans over the full term.
Therefore, given the expectation of a strong future share price, the source of debt finance likely to be most expensive over the full term is:
NEW QUESTION # 154
A company is planning a share buyback. In which of the following circumstances would a share buyback be appropriate?
- A. The company wants to reduce its gearing.
- B. The company wants to reduce the nominal value of its shares to make them more marketable.
- C. The country in which the company operates taxes capital gains at a higher rate than income.
- D. The company has a one off cash surplus and no available investment opportunities.
Answer: D
Explanation:
A buyback is appropriate when the company has a one-off cash surplus and no good investment opportunities.
NEW QUESTION # 155
The ex div share price of a company's shares is $2.20.
An investor in the company currently holds 1,000 shares.
The company plans to issue a scrip dividend of 1 new share for every 10 shares currently held.
After the scrip dividend, what will be the total wealth of the shareholder?
Give your answer to the nearest whole $.
$ ? .
- A. 0
- B. 1
Answer: A
NEW QUESTION # 156
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?
- A. $5,530,000
- B. $4,900,000
- C. $5,250,000
- D. $4,970,000
Answer: D
NEW QUESTION # 157
NNN is a company financed by both equity and debt. The directors of NNN wish to calculate a valuation of the company's equity and at a recent board meeting discussed various methods of business valuation.
Which THREE of the following are appropriate methods for the directors of NNN to use in this instance?
- A. Cash flow to all investors discounted at WACC less the value of debt.
- B. Cash flow to equity discounted at the cost of equity less the value of debt.
- C. Cash flow to all investors discounted at WACC.
- D. Total earnings multiplied by a suitable price-earnings ratio.
- E. Cash flow to equity discounted at the cost of equity.
Answer: A,D,E
NEW QUESTION # 158
A company has accumulated a significant amount of excess cash which is not required for investment for the foreseeable future.
It is currently on deposit, earning negligible returns.
The Board of Directors is considering returning this excess cash to shareholders using a share repurchase programme.
The majority of shareholders are individuals with small shareholdings.
Which THREE of the following are advantages of the company undertaking a share repurchase programme?
- A. It reduces excess cash which might have been attractive to predators.
- B. It reduces the amount of cash for potential future investment opportunities.
- C. The earnings per share should increase for the shareholders who do not sell their shares.
- D. Individual shareholders can realise their investment if they wish.
- E. Institutional investors generally prefer a constant predictable income in the form of dividends.
Answer: A,C,D
NEW QUESTION # 159
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?
- A. Identifying and removing surplus staff.
- B. Discussions with representatives from key customer accounts.
- C. Understanding the management information system of the acquired firm.
- D. Discussions with anti-poverty campaigning groups.
Answer: C
NEW QUESTION # 160
Clinic A provides free healthcare to all members of the community, funded by the central Government.
Clinic B 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?
- A. Clinic A is a not-for-profit organisation while Y is a for-profit organisation.
- B. Clinic B is likely to have a mixture of financial and non-financial objectives.
- C. Clinic A and B have the same primary financial objective - to maximise shareholder wealth.
- D. Clinic A and B will have the same primary non financial objective - provision of quality of health care.
- E. The performance of X will be appraised primarily on the basis of value for money.
Answer: D
NEW QUESTION # 161
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.
$ ? .
- A. 8.19, 6.18
- B. 8.19, 8.18
Answer: B
NEW QUESTION # 162
A company has a 4% corporate bond in issue on which there are two loan covenants.
* Interest cover must not fall below 4 times
* Retained earnings for the year must not fall below S5 00 million
The Company has 100 million shares in issue. The most recent dividend per share was $0 10 The Company intends increasing dividends by 8% next year.
Financial projections tor next year are as follows:
Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?
- A. The company will be in breach of both covenants
- B. The company will be in compliance with both covenants.
- C. The company will be in breach of the covenant in respect of interest cover only.
- D. The company will breach the covenant in respect of retained earnings only.
Answer: D
Explanation:
This question examines loan covenant compliance, a topic covered in CIMA F3 under Debt Finance, Financial Risk, and Dividend Policy. Loan covenants are contractual restrictions imposed by lenders to protect their interests. Breaching a covenant can trigger penalties or loan repayment demands, so directors must assess compliance carefully using projected financial information.
The company has two covenants:
* Interest cover must not fall below 4 times
* Retained earnings for the year must not fall below $5.00 million
Step 1: Interest Cover Covenant
CIMA F3 defines interest cover as:
From the projections:
* EBIT = $25.00 million
* Interest = $3.20 million
Since 7.8 > 4, the company meets the interest cover covenant.
Step 2: Retained Earnings Covenant
Earnings after tax are projected at $15.26 million.
The most recent dividend per share is $0.10, and dividends are planned to increase by 8%:
With 100 million shares in issue:
Retained earnings for the year:
Since $4.46 million < $5.00 million, the company breaches the retained earnings covenant.
Conclusion (CIMA F3 Interpretation)
* Interest cover covenant: Complied with
* Retained earnings covenant: Breached
Under CIMA F3 guidance, directors must recognise that even when profitability appears strong, dividend policy can cause covenant breaches if distributions are excessive.
NEW QUESTION # 163
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