CIMA F3 Exam With Confidence Using Practice Dumps

PPP says identical goods should cost the same when prices are expressed in a common currency, but in reality transport costs, taxes, tariffs, and market imperfections can allow differences to persist.

Answer: C. Economic forces should eliminate the price difference, but imperfections may permit it to persist.

The question asks for advantages to the acquiring company (ADC/ABC) of using shares rather than cash to pay for DEF.

C. It incentivises DEF to continue creating value for the combined group

If DEF’s shareholders (and possibly managers) receive shares in ADC, they now own part of the combined business. That aligns their interests with ADC’s existing shareholders and encourages them to help grow the value of the group.

E. The risk of poor future performance of the acquisition is shared with the DEF company shareholder.

If ADC pays with shares, DEF’s shareholders share in both the upside and downside. If the acquisition underperforms, the fall in value is shared instead of all the risk resting on ADC’s original shareholders. That’s an advantage for ADC.

F. It preserves liquidity

Paying with shares means ADC does not need to use up cash or raise new debt. This preserves cash balances and borrowing capacity, which is a clear advantage.

Why not the others?

A (sharing benefits of future growth with DEF shareholders) is actually a cost from ADC’s existing shareholders’ viewpoint – they give away more of the upside.

B dilution of ownership is also a disadvantage, not an advantage.

D a tax saving for ABC – the tax impact is usually more relevant for sellers or when using debt, not typically a direct advantage of share consideration to the acquirer.

Current dividend = $6m.

Target dividend in 5 years:

6×1.105=6×1.61051≈9.66m6 \times 1.10^5 = 6 \times 1.61051 \approx 9.66\text{m}6×1.105=6×1.61051≈9.66m.

Project profit in 5 years:

Sales: 100×1.085≈146.93m100 \times 1.08^5 \approx 146.93\text{m}100×1.085≈146.93m

Costs: 80×1.055≈102.10m80 \times 1.05^5 \approx 102.10\text{m}80×1.055≈102.10m

Profit ≈ 146.93−102.10=44.83m146.93 - 102.10 = 44.83\text{m}146.93−102.10=44.83m

Required payout ratio in 5 years:

9.66/44.83≈0.2169.66 / 44.83 \approx 0.2169.66/44.83≈0.216 → about 21.6%.

Closest option: A. 21.7%