F3 Questions Bank

Financial Strategy Questions and Answers

Question 113

Company Z has just completed the all-cash acquisition of Company A.

Both companies operate in the advertising industry.

The market considered the acquisition a positive strategic move by Company Z.

Which THREE of the following will the shareholders of Company Z expect the company's directors to prioritise following the acquisition?

Options:

The realisation of anticipated post-acquisition synergies.

The development of a dividend policy to meet the expectations of the target company shareholders.

The integration and retention of key employees.

The regulatory approval required to complete the acquisition.

The retention of key customers of the acquired company.

Question 114

An entity prepares financial statements to 30 June.

During the year ended 30 June 20X2 the following events occurred:

1 July 20X1

• The entitiy borrowed $100 million at a variable rate of interest.

• In order to protect itself against the variability of its interest cashflows, the entity entered into a pay-fixed-receive-variable interest swap with annual settlements. The fair value of the swap on this date was zero.

30 June 20X2

• The entity received a net settlement of $2 million under the swap. After this net settlement, the fair value of the swap was $5 million - a financial asset.

The entity decides to use hedge accounting for this arrangement and has designated it as a cash flow hedge. The swap is a perfect hedge of the variability of the cash interest payments.

Which of the following describes the treatment of the settlement and the change in the fair value of the swap in the statement of profit or loss and other comprehensive income for the year ended 30 June 20X2?

Options:

$7 million is recognised in profit or loss.

$7 million is recognised in other comprehensive income.

$2 million is recognised in profit or loss and $5 million is recognised in other comprehensive income.

$5 million is recognised in profit or loss and $2 million is recognised in other comprehensive income.

Question 115

VVV has a floating rate loan that it wishes to replace with a fixed rate. The cost of the existing loan is the risk-free rate + 3%. VW would have to pay a fixed rate of 7% on a fixed rate loan VVVs bank has found a potential counterparty for a swap arrangement.

The counterparty wishes to raise a variable rate loan It would pay the risk-free rate +1 % on a variable rate loan and 8% on a fixed rate.

The bank will require 10% of the savings from the swap and WV and the counterparty will share the remaining saving equally.

Calculate VWs effective rate of interest from this swap arrangement.

Options:

VVV would pay 5.2%

VVV would pay 5.65%

VVV would pay the risk-free rate + 1 %

VVV would pay 5.5%

Question 116

The Treasurer of Z intends to use interest rate options to set an interest rate cap on Z’s borrowings.

Which of the following statement is correct?

Options:

The Treasurer should buy an interested rate floor and sell an interested cap ta the same time

The Treasurer will retain the benefit of movements in interest rates below the floor limit.

The cost of a collar is lower than the cost of a cap a one.

The Treasurer will have to negotiate the options with Z's bank.

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Financial Strategy Questions and Answers

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