CIMA F3 - Financial Strategy

Formed in 2010, the International Integrated Reporting Council

The primary purpose of the IIRC's framework is to help enable an organisation to communicate which of the following'?

An all-equity financed company currently generates total revenue of $50 million.

Its current profit before interest and taxation (PBIT) is $10 million. 

Due to difficult trading conditions, the company expects its total revenue to be constant next year, although some margins will reduce.

It forecasts next year's PBIT will fall to 18% on 40% of its revenue, but that the PBIT on the other 60% of its revenue will be unaffected.

The rate of corporate tax is 20%.

 

What is the forecast percentage reduction in next year's Earnings?

A Venture Capital Fund currently holds a significant  shareholding in a large private company as a result of funding a recent management buyout. It plans to exit this investment in 5 years time at a significant profit.

 

Which THREE of the following exit mechanisms are most likely to be preferred by the Venture Capital Fund?

G pic wishes to borrow $5 million in 6 months, for a period of 3 months. A bank has quoted the following Forward Rate Agreement (FRA) rales:

3 v 9 6.55%-6.70% 6v9 6.70%-6 90%.

G pic can borrow at 0 75% above base rate, and the base rate is currently 6.25% Concerned that base rates may rise, G pic decides that it will hedge using an FRA

At the settlement date for the FRA, the base rate has risen to 7.50%

What is the effective interest rate paid by G pic for its borrowing?

Which of the following is NOT an advantage of a share repurchase?

A company is based in Country Y whose functional currency is Y$. It has an investment in Country Z whose functional currency is Z$.

This year the company expects to generate Z$ 10 million profit after tax.

Tax Regime:

   • Corporate income tax rate in country Y is 50%

   • Corporate income tax rate in country Z is 20%

   • Full double tax relief is available

Assume an exchange rate of Y$ 1 = Z$ 5.

 

What is the expected profit after tax in Y$ if the Z$ profit is remitted to Country Y?

A company's Board of Directors is assessing the likely impact of financing future new projects using either equity or debt.

The directors are uncertain of the effects on key variables.

 

Which THREE of the following statements are true?

Z wishes to borrow at a floating rate and has been told that it can use swaps to reduce the effective interest rate it pays. Z can borrow floating at Libor ' 1, and fixed at 10%.

Which of the following companies would be the most appropriate for Z to enter into a swap with?

The long-term prospects for inflation in the UK and the USA are 1% and 4% per annum respectively.

The GBP/USD spot rate is currently GBP/USD1.40

Using purchasing power parity theory, what GBP/USD spot rate would you expect to see in six months’ time?

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?