CIMA F3 Exam With Confidence Using Practice Dumps

The company is deciding between:

Selling the business via a Management Buyout (MBO), or

Selling to an external private equity (PE) buyer.

From the original company’s viewpoint, an advantage of an MBO is:

The buyers are the existing management team. Relationships already exist, and there’s usually more trust and alignment.

Post-divestment, the original company may still trade with the divested unit (e.g., as a supplier or customer). Cooperation tends to be better with a familiar internal team than with an external PE house whose primary focus is financial returns.

Why the others are wrong:

B. Enhanced big data opportunities – unrelated to the divestment method.

C. Improved relationships with MBO team in the event of a sale to PE – logically inconsistent; if sold to PE, it’s not an MBO.

D. Higher price due to synergistic benefits – PE typically looks for financial engineering and operational improvements, not classic corporate synergies. You are more likely to see synergy premia when selling to a trade buyer, not in an MBO.

So the key pro-MBO argument here is better cooperation post divestment → A.

Workings (Modigliani & Miller with tax):

Current (unlevered) cost of capital ku=9%k_u = 9\%ku​=9%

Cost of debt kd=3%k_d = 3\%kd​=3%

Tax rate T=25%T = 25\%T=25%

Target D/E=1/2=0.5D/E = 1/2 = 0.5D/E=1/2=0.5

Formula with tax:

ke=ku+(ku−kd)(1−T)DEk_e = k_u + (k_u - k_d)(1-T)\frac{D}{E}ke​=ku​+(ku​−kd​)(1−T)ED​ ke=9%+(9%−3%)×0.75×0.5=9%+6%×0.375=9%+2.25%=11.25%≈11.3%k_e = 9\% + (9\% - 3\%) \times 0.75 \times 0.5 = 9\% + 6\% \times 0.375 = 9\% + 2.25\% = 11.25\% \approx 11.3\%ke​=9%+(9%−3%)×0.75×0.5=9%+6%×0.375=9%+2.25%=11.25%≈11.3%

So the nearest option is 11.3% (C).