CIMA F3 Exam With Confidence Using Practice Dumps

6.0% p.a.The company:Borrows from bank P at Libor + 3%Enters a swap with bank Q: pay fixed 4.5%, receive Libor + 1.5%Combine the cash flows:Pay Libor + 3% (loan)Pay 4.5% (swap fixed leg)Receive Libor + 1.5% (swap floating leg)Net cost:(Libor+3%)+4.5%−(Libor+1.5%)=3%+4.5%−1.5%=6.0%(\text{Libor} + 3\%) + 4.5\% - (\text{Libor} + 1.5\%) = 3\% + 4.5\% - 1.5\% = 6.0\%(Libor+3%)+4.5%−(Libor+1.5%)=3%+4.5%−1.5%=6.0% So the hedged borrowing rate is:

6.0% p.a.

4.8, 4.7, 4.9, 5.0, 4.6, 4.80, 4.70, 4.90, 5.00, 4.60%Current forecast profit after tax = $75mPlanned uses of cash next year:Dividends = $20mInvestment = $40mTotal required = $60mSo profit (and cash) can fall by at most 75 − 60 = $15m before these plans are affected.Let xxx = proportionate reduction in operating activity (and hence in revenue and variable costs).Revenue = 520(1 − x)Operating costs: fixed = 75% of 400 = 300; variable = 25% of 400 = 100(1 − x)Profit from operations = 520(1 − x) − 100(1 − x) − 300= 420(1 − x) − 300= 120 − 420xProfit before tax = (120 − 420x) − 20 = 100 − 420xProfit after tax = (100 − 420x) × (1 − 0.25)= 0.75(100 − 420x)= 75 − 315xSet this equal to the minimum acceptable profit (60):75 − 315x = 60315x = 15x=15/315=1/21≈0.0476x = 15 / 315 = 1/21 ≈ 0.0476x=15/315=1/21≈0.0476So the maximum reduction in operating activity is about 4.8%.

4.8%