[Apr-2026] CIMA F3 DUMPS WITH REAL EXAM QUESTIONS
2026 New Dumpexams F3 PDF Recently Updated Questions
NEW QUESTION # 54
Which of the following statements are true with regard to interest rate swaps?
Select ALL that apply.
- A. When interest rates are falling the risk of default by the fixed interest rate payer is low.
- B. Risk of default is high from the floating interest rate payer if interest rates rise.
- C. An interest rate swap is an external hedging technique.
- D. An nicest rate swap is an internal hedging technique.
- E. Some companies interest rate swap to deliberately increase their risks because they believe that they are better at predicting future interest rates than the market.
Answer: C,E
Explanation:
Interest rate swaps are covered in CIMA F3 under risk management and derivative instruments, specifically as tools for managing interest rate risk. An interest rate swap is an agreement between two parties to exchange interest payment obligations, typically swapping fixed-rate interest payments for floating-rate payments, or vice versa, on a notional principal amount.
Option A is TRUE.
CIMA F3 recognises that although swaps are primarily used for hedging, some companies may enter into interest rate swaps for speculative or risk-taking purposes. If management believes it has superior forecasts of future interest rate movements compared to the market, it may deliberately increase exposure to interest rate risk by swapping into floating rates or fixed rates accordingly. This behaviour is discussed in F3 as speculation rather than pure hedging.
Option E is TRUE.
An interest rate swap is an external hedging technique. CIMA F3 clearly distinguishes between:
Internal hedging (e.g. matching assets and liabilities, netting, leading and lagging), and External hedging, which involves using financial instruments with third parties, such as forwards, futures, options and swaps.
Since a swap involves a counterparty (often a bank or financial institution), it is classified as an external hedge.
The remaining options are incorrect:
B is FALSE. Default risk does not automatically become "high" for the floating-rate payer when interest rates rise; it depends on the firm's overall financial strength and cash flows. Rising rates increase payments, but not necessarily default risk to a high level.
C is FALSE. When interest rates fall, the fixed-rate payer is at a disadvantage (paying above-market rates), which may increase rather than reduce financial strain.
D is FALSE. An interest rate swap is not an internal hedging technique; it requires an external counterparty.
NEW QUESTION # 55
The competition authorities are investigating the takeover of Company Z by a larger company, Company Y.
Both companies are food retailers.
The takeover terms involve using a part cash, part share exchange means of payment.
Company Z is resisting the bid, arguing that it undervalues its business, while lobbying extensively among politicians to sway public opinion against the bidder.
Which of the following actions by Company Y is most likely to persuade the competition authorities to approve the acquisition?
- A. Company Y guarantees to preserve employment at its cental distribution depot.
- B. Company Y increases the cash element of its bid offer.
- C. Company Y agrees to dispose of specified outlets which geographically overlap those of Company Z.
- D. Company Y undertakes to pass on any cost savings to customers.
Answer: C
NEW QUESTION # 56
A company is funded by:
* $40 million of debt (market value)
* $60 million of equity (market value)
The company plans to:
* Issue a bond and use the funds raised to buy back shares at their current market value.
* Structure the deal so that the market value of debt becomes equal to the market value of equity.
According to Modigliani and Miller's theory with tax and assuming a corporate income tax rate of 20%, this plan would:
- A. increase the market value of the company's equity.
- B. decrease the company's equity beta.
- C. increase shareholder wealth.
- D. increase the company's asset beta.
Answer: C
Explanation:
According to Modigliani and Miller with tax, the value of a levered firm is:
VL=VU+Tc×DV_L = V_U + T_c \times DVL=VU+Tc×D
where TcT_cTc is the corporate tax rate and DDD is the market value of debt. With corporate income tax, interest is tax-deductible, so increasing debt creates a tax shield and increases total firm value.
Initially:
Debt = 40
Equity = 60
Total value = 100
Tax rate = 20%.
If the company increases debt and uses the proceeds to buy back shares until debt equals equity, then:
New structure: D=ED = ED=E
Total firm value rises because Tc×DT_c \times DTc×D increases.
The extra value (PV of the additional tax shield) accrues to shareholders, even though the accounting market value of equity after the buyback may fall in absolute terms; shareholders have also received cash from the buyback, so their total wealth increases.
Business risk (and therefore asset beta) is unchanged; however equity beta would rise, not fall, because of higher financial leverage. Therefore the only correct statement is that the plan would increase shareholder wealth - answer C.
NEW QUESTION # 57
A listed company is financed by debt and equity.
If it increases the proportion of debt in its capital structure it would be in danger of breaching a debt covenant imposed by one of its lenders.
The following data is relevant:
The company now requires $800 million additional funding for a major expansion programme.
Which of the following is the most appropriate as a source of finance for this expansion programme?
- A. Bank overdraft
- B. Rights issue
- C. Retained earnings
- D. Private placement of a bond
Answer: B
NEW QUESTION # 58
A listed company follows a policy of paying a constant dividend. The following information is available:
* Issued share capital (nominal value $0.50) $60 million
* Current market capitalisation $480 million
The shareholders are requesting an increased dividend this year as earnings have been growing. However, the directors wish to retain as much cash as possible to fund new investments. They therefore plan to announce a
1-for-10 scrip dividend to replace the usual cash dividend.
Assuming no other influence on share price, what is the expected share price following the scrip dividend?
Give your answer to 2 decimal places.
$ ?
Answer:
Explanation:
3.64, 3.63, 3.65
NEW QUESTION # 59
Which THREE of the following methods of business valuation would give a valuation of the equity of an entity, rather than the value of the whole entity?
- A. Total earnings x appropriate price-earnings ratio.
- B. Forecast future cash flows to equity, discounted at the cost of equity.
- C. Expected dividend in one year's time / (cost of equity - growth rate).
- D. Forecast future cash flows to all Investors, discounted at the weighted average cost of capital.
- E. Non-current assets, plus current assets, minus current liabilities
Answer: A,B,C
NEW QUESTION # 60
Which THREE of the following statements are true of a money market hedge?
- A. They may be a little more flexible in comparison to a forward contract.
- B. They offer roughly the same outcome as a forward contract.
- C. They are more complex than forward contracts.
- D. They leave the company exposed to currency risks.
- E. They are easy to set up.
Answer: A,B,C
Explanation:
In CIMA F3, a money market hedge is a contractual-style hedge created using the spot rate today plus borrowing/lending in the two currencies to lock in a known domestic-currency outcome for a future foreign- currency receipt or payment. Under interest rate parity, the synthetic forward rate implied by money-market borrowing and lending is broadly consistent with the forward market, so the hedge typically delivers roughly the same outcome as a forward contract (A). Unlike leaving the position unhedged, the money market hedge does not leave the company exposed to currency risk once set up because the future cash flows are effectively fixed through today's borrow/lend transactions (so B is false). Because a money market hedge can be tailored using available loan/deposit maturities and amounts (and can sometimes be implemented when a forward is unavailable or less convenient), it may be a little more flexible than a forward in practical terms (C).
However, it requires multiple steps-borrow or invest, convert at spot, and invest/repay-so it is more complex than a forward contract (D). "Easy to set up" is not usually considered a defining advantage versus forwards because it depends on access to credit lines and money-market instruments (so E is not selected).
NEW QUESTION # 61
Company A, a listed company, plans to acquire Company T, which is also listed.
Additional information is:
* Company A has 150 million shares in issue, with market price currently at $7.00 per share.
* Company T has 120 million shares in issue,. with market price currently at $6.00 each share.
* Synergies valued at $50 million are expected to arise from the acquisition.
* The terms of the offer will be 2 shares in A for 3 shares in T.
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.
Answer:
Explanation:
8.24
NEW QUESTION # 62
A company wishes to raise new finance using a rights issue. The following data applies:
* There are 10 million shares in issue with a market value of $4 each
* The terms of the rights will be 1 new share for 4 existing shares held
* After the rights issue, the theoretical ex-rights price (TERP) will be $3.80 Assuming all shareholders take up their rights, how much new finance will be raised ?
Give your answer to one decimal place.
Answer:
Explanation:
$ ? million
7.5, 7.50
NEW QUESTION # 63
Select the category of risk for each of the descriptions below:
Answer:
Explanation:
NEW QUESTION # 64
A company's directors plan to increase gearing to come in line with the industry average of 40%. They need to know what the effect will be on the company's WACC.
According to traditional theory of gearing the WACC is most likely to:
Answer:
Explanation:
Explanation
increase
NEW QUESTION # 65
A private company was formed five years ago and is currently owned and managed by its five founders. The founders, who each own the same number of shares have generally co-operated effectively but there have also been a number of areas where they have disagreed
The company has grown significantly over this period by re-investing its earnings into new investments which have produced excellent returns
The founders are now considering an Initial Public Offering by listing 70% of the shares on the local stock exchange
Which THREE of the following statements about the advantages of a listing are valid?
- A. Increases dividend payouts
- B. Increases the profile and reputation of the business.
- C. Helps access to wider sources of finance.
- D. Provides an exit route for the founders
- E. Reduces agency conflict
Answer: B,C,D
NEW QUESTION # 66
A company's current earnings before interest and taxation are $5 million.
These are expected to remain constant for the forseeable future.
The company has 10 million shares in issue which currently trade at $3.60.
It also has a $10 million long term floating rate loan.
The current interest rate on this loan is 5%.
The company pays tax at 20%.
The company expects interest rates to increase next year to 6% and it's Price/Earnings (P/E) ratio to move to 9.5 times by the end of next year.
What percentage reduction in the share price will occur by the end of next year if the interest rate increase and the P/E movement both occur?
- A. Reduction of 0%
- B. Reduction of 7%
- C. Reduction of 5%
- D. Reduction of 1%
Answer: B
NEW QUESTION # 67
A company has 6 million shares in issue. Each share has a market value of $4.00.
$9 million is to be raised using a rights issue.
Two directors disagree on the discount to be offered when the new shares are issued.
* Director A proposes a discount of 25%
* Director B proposes a discount of 30%
Which THREE of the following statements are most likely to be correct?
- A. More shares will be issued under Director B's proposal than under Director A's proposal.
- B. Shareholder wealth will be higher under Director A's proposal than under Director B's proposal.
- C. The terms of the rights issue will be one new share for every two existing shares under Director A's proposal.
- D. The rights issue price will be $3.00 under Director A's proposal.
- E. The theoretical ex-rights price will be higher under Director B's proposal than under Director A's proposal.
Answer: A,C,D
NEW QUESTION # 68
A publicly funded school is focused on providing Value for Money
It pays its leaching staff less than other schools, because class sizes are generally smaller than elsewhere Despite some staff demotivation from low pay, exam pass rates are high given the close one-to-one attention many pupils receive.
On which aspect of Value for Money is the school underperforming?
- A. Effectiveness
- B. Efficiency
- C. Economy
- D. Environmental
Answer: C
NEW QUESTION # 69
Which of the following is NOT an advantage of a share repurchase?
- A. To reduce the cost of capital of a company by increasing the gearing level.
- B. To enable the company to retain cash in the business for reinvestment
- C. To allow investors to sell shares if no active market currently exists
- D. To return surplus cash to shareholders by avoiding a one-off dividend
Answer: B
NEW QUESTION # 70
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. Retain the know edge of key management.
- B. Avoid a hostile reaction from key management.
- C. Focus on the core competencies of the business
- D. Raise the cash more quickly.
Answer: B
NEW QUESTION # 71
A financial services company reported the following results in its most recent accounting period:
The company has an objective to achieve 5% earnings growth each year. The directors are discussing how this objective might be achieved next year.
Revenues have been flat over the last couple of years as the company has faced difficult trading conditions.
Revenue is expected to stay constant in the coming year and so the directors are focussing efforts on reducing costs in an attempt to achieve earnings growth next year.
Interest costs will not change because the company's borrowings are subject to a fixed rate of interest.
What operating profit margin will the company have to achieve next year in order to just achieve its 5% earnings growth objective'?
- A. 58.0%
- B. 60.0%
- C. 58.5%
- D. 55.8%
Answer: A
NEW QUESTION # 72
When valuing an unlisted company, a P/E ratio for a similar listed company may be used but adjustments to the P/E ratio may be necessary.
Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use?
- A. The forecast earnings growth being relatively higher in the unlisted company.
- B. Unlisted companies being generally smaller and less established.
- C. Control premium not being included within the proxy p/e ratio used.
- D. A lower level of scrutiny and regulation for unlisted companies.
- E. The relative lack of marketability of unlisted company shares.
- F. A profit item within the unlisted company's latest earnings which will not reoccur.
Answer: B,D,E
Explanation:
When valuing an unlisted company using a P/E ratio from a similar listed company, we normally reduce the proxy P/E to reflect the extra risk and reduced attractiveness of the unlisted investment.
A). Relative lack of marketability - Unlisted shares are harder to sell and usually take longer to realise, so investors demand a higher return, i.e. a lower P/E. #
B). Lower level of scrutiny and regulation - Unlisted companies face less disclosure and governance requirements, so information risk is higher. Greater risk # lower valuation multiple # reduced P/E. #
C). Smaller and less established - Unlisted companies tend to be smaller, less diversified and less stable, so investors again expect a higher return, implying a lower P/E. #
D). Control premium not included - If the proxy P/E excludes a control premium but you are valuing a controlling stake, you would increase the P/E, not reduce it. #
E). Higher forecast earnings growth - Higher expected growth justifies a higher P/E, not a lower one. #
F). One-off profit item in latest earnings - This should be dealt with by adjusting the earnings, not by cutting the P/E multiple. # So the three factors justifying a reduction in the proxy P/E are A, B and C.
NEW QUESTION # 73
A national rail operating company has made an offer to acquire a smaller competitor.
Which of the following pieces of information would be of most concern to the competition authorities?
- A. The acquisition is likely to result in significant redundancies of staff currently working for the smaller rail operator.
- B. After the acquisition, the board proposes to withdraw some of the less profitable services.
- C. The board informed a major institutional shareholder about the proposed acquisition before informing other shareholders.
- D. After the acquisition, the board proposes to increase prices on some routes not serviced by other rail operators.
Answer: D
Explanation:
Competition authorities focus on market power and the potential for abuse of a dominant position.
A is most concerning: raising prices on routes where there are no competing operators suggests the merged entity could exploit monopoly power.
B, C and D relate more to service rationalisation, disclosure/insider issues, and employment, which are not the core focus of competition law.
NEW QUESTION # 74
A company's statement of financial position includes non-current assets which are leased, the tax regime follows the accounting treatment.
Which cash flows should be discounted when evaluating the cost of lease finance?
- A. Lease payments, implied interested and straight-line accounting deprediation.
- B. Lease payments and implied interest.
- C. Lease payments and straight-line accounting depreciation.
- D. Lease payments, tax relief on implied interest and tax relief on straight-line account depreciation.
Answer: D
Explanation:
When valuing lease finance you discount actual cash flows only.
The cash outflow is the lease payment itself.
Because the tax regime follows the accounting treatment, the lessee gets tax relief on:
the implied interest component of the lease, and
the depreciation (straight-line) charged on the leased asset.
These tax reliefs are cash inflows (reduced tax paid) and must also be included in the discounted cash-flow calculation. Interest and depreciation themselves are not cash flows; only their associated tax shields are.
NEW QUESTION # 75
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?
- A. Refer the bid to the country's competition authorities.
- B. Write to shareholders explaining fully why the company's share price is under valued.
- C. Change the Articles of Association to increase the percentage of shareholder votes required to approve a takeover.
- D. Pay a one-off special dividend.
Answer: B
NEW QUESTION # 76
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. Institutional investors generally prefer a constant predictable income in the form of dividends.
- B. It reduces excess cash which might have been attractive to predators.
- C. Individual shareholders can realise their investment if they wish.
- D. The earnings per share should increase for the shareholders who do not sell their shares.
- E. It reduces the amount of cash for potential future investment opportunities.
Answer: B,C,D
NEW QUESTION # 77
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