Question 1

A company is preparing an integrated report according to the International <IR> Framework as issued by the

International Integrated Reporting Council.

Which THREE of the following should be included in the report?

Options :

A : An explanation of how the organisation-s governance structure supports its ability to create value in the short, medium and long term.

B : A detailed analysis of the organisation-s business model.

C : The challenges and uncertainties that the organisation is likely to encounter in pursuing its strategy.

D : A comparison of the key elements of its financial statements with those of its main competitor.

E : A summary of the key issues discussed by directors in main board meetings.

Answer: A,B,C

Question 2

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 3

A company is undertaking a lease-or-buy evaluation, using the post-tax cost of bank borrowing as the discount

rate.

Details of the two alternatives are as follows:

Buy option:

• To be financed by a bank loan

• Tax depreciation allowances are available on a reducing-balance basis

• Assets depreciated on a straight-line basis

Lease option:

• Finance lease

• Maintenance to be paid by the lessee

• Tax relief available on interest payments and book depreciation

Which THREE of the following are relevant cashflows in the lease-or-buy appraisal?

Options :

A : Tax relief on tax depreciation allowances

B : Bank loan payments

C : Maintenance payments

D : Lease payments

E : Tax relief on the book depreciation

Answer: A,D

Question 4

Company A is planning to acquire Company B at a price of $ 65 million by means of a cash bid.

Company A is confident that the merged entity can achieve the same price earnings ratio as that of Company

A.

What does Company A expect the value of the merged entity to be post acquisition?

Options :

A : $122.5 million

B : $156.0 million

C : $187.5 million

D : $207.0 million

Answer: A

Question 5

Company C is a listed company. It is currently considering the acquisition of Company D. The original

founder of Company C currently owns 52% of the shares.

Alternative forms of consideration for Company D being considered are as follows:

• Cash payment, financed by new borrowing

• issue of new shares in Company C

Which of the following is an advantage of a cash offer over a share-for exchange from the viewpoint of the

original founder of Company C?

Options :

A : A share for share exchange would result in a significant change in control of Company C whereas a cash offer would not

B : A share-for-share exchange would require the approval shareholders in Company C but a cash offer would not.

C : A share-for-share exchange would require the approval of the Competition Authorities but a cash offer would not.

D : A cash offer would result in a lower gearing ratio therefore reduce the weighted overage cost of capital whereas a cash offer would not

Answer: A

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

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