Question 1

A company has:

• 10 million $1 ordinary shares in issue

• A current share price of $5.00 a share

• A WACC of 15%

The company holds $10 million in cash. No interest is earned on this cash.

It will invest this in a project with an expected NPV of $4 million.

In a semi-strong efficient stock market, which of the following is the most likely share price immediately after

the announcement of the new investment?

Options :

A : $5.40

B : $6.40

C : $6.80

D : $5.30

Answer: A

Question 2

The Treasurer of Z intends to use interest rate options to set an interest rate cap on Z’s borrowings. Which of the following statement is correct?

Options :

A : The Treasurer should buy an interested rate floor and sell an interested cap ta the same time

B : The Treasurer will retain the benefit of movcTcnt3 in interest ratc3 below the floor limit.

C : The cost of a collar is lower than the cost of a cap a one.

D : The Treasurer will have to negotiate the options with Z-s Dark

Answer: C

Question 3

Company X is based in Country A, whose currency is the A$.

It trades with customers in Country B, whose currency is the B$.

Company X aims to maintain its revenue from exports to Country B at 25% of total revenue.

Company A has the following forecast revenue:

The forecast revenue from Country B has assumed an exchange rate of A$1/B$2, that is A$1 = B$2.

If the B$ depreciates against the A$ by 10%, the ratio of revenue generated from Country B as a percentage of

total revenue will:

Options :

A : fall to 23.3%.

B : rise to 27.0%.

C : rise to 30.3%.

D : fall to 22.7%.

Answer: A

Question 4

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?

Options :

A : Individual shareholders can realise their investment if they wish.

B : The earnings per share should increase for the shareholders who do not sell their shares.

C : It reduces excess cash which might have been attractive to predators.

D : It reduces the amount of cash for potential future investment opportunities.

E : Institutional investors generally prefer a constant predictable income in the form of dividends.

Answer: A,B,C

Question 5

An entity prepares financial statements to 31 December each year. The following data applies:

1 December 20X0

• The entity purchased some inventory for $400,000.

• In order to protect the inventory against adverse changes in fair value the entity entered into a futures

contract to sell the inventory for a fixed price on 31 January 20X1.

• The entity designated this contract as a fair value hedge of the value of the inventory.

31 December 20X0

• The inventory had a fair value of $480,000 and the futures contract had a fair value of $75,000 (a financial

liability).

What will be the impact on the statement of profit or loss and other comprehensive income for the year ended

31 December 20X0 in respect of the change in the value of the inventory and the futures contract?

Options :

A : A loss of $75,000 will be recognised in profit or loss.

B : A loss of $75,000 will be recognised in other comprehensive income.

C : A net gain of $5,000 will be recognised in profit or loss.

D : A net gain of $5,000 will be recognised in other comprehensive income.

Answer: C

Free CIMAPRO19-F03-1-ENG Mock Exam – Practice Online Confidently

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