CIMA F3 Exam With Confidence Using Practice Dumps

The table below shows the forecast for a company's next financial year:

The forecast incorporates the following assumptions:

   • 25% of operating costs are variable

   • Debt finance comprises a $400 million fixed rate loan at 5%

   • Corporate income tax is paid at 25%

The company plans to do the following next year from the forecast earnings on the assumption that earnings will be equivalent to free cash flow: 

   • Pay a total dividend of $20 million

   • Invest $40 million in new projects

What is the maximum % reduction in operating activity that could occur next year before the company's dividend and investment plans are affected?

Give your answer to the nearest 0.1%.

A listed company in a high growth industry, where innovation is a key driver of success has always operated a residual dividend policy, resulting in volatility in dividends due to periodic significant investments in research and development.

The company has recently come under pressure from some investors to change its dividend policy so that shareholders receive a consistent growing dividend. In addition, they suggested that the company should use more debt finance. 

 If the suggested change is made to the financial policies, which THREE of the following statements are true?

Company A is located in Country A, where the currency is the A$.

It is listed on the local stock market which was set up 10 years ago.

It plans a takeover of Company B, which is located in Country B where the currency is the B$, and where the stock market has been operating for over 100 years.

Company A is considering how to finance the acquisition, and how the shareholders of Company B might respond to a share exchange or cash (paid in B$).

Which of the following is likely to explain why the shareholders of Company B would prefer a share exchange as opposed to a cash offer?