CIMA F3 Financial Strategy-Exam Kit PDF
Preview CIMA F3 Financial Strategy-Exam Kit
CIMA Exam Practice Kit F3 – Financial Strategy This page intentionally left blank CIMA Exam Practice Kit F3 – Financial Strategy John Ogilvie Amsterdam • Boston • Heidelberg • London • New York • Oxford Paris • San Diego • San Francisco • Singapore • Sydney • Tokyo CIMA Publishing An imprint of Elsevier Linacre House, Jordan Hill, Oxford OX2 8DP 30 Corporate Drive, Burlington, MA 01803 Copyright © 2009, Elsevier Ltd. All rights reserved No part of this publication may be reproduced in any material form (including photocopying or storing in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication) without the written permission of the copyright holder except in accordance with the provisions of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London, England W1T 4LP. Applications for the copyright holder’s written permission to reproduce any part of this publication should be addressed to the publisher Permissions may be sought directly from Elsevier’s Science and Technology Rights Department in Oxford, UK: phone: ((cid:2)44)-(0) 1865 843830; fax: ((cid:2)44)-(0) 1865 853333; e-mail: [email protected]. You may also complete your request on-line via the Elsevier homepage (http://www.elsevier.com), by selecting ‘Customer Support’ and then ‘Obtaining Permissions’ Notice No responsibility is assumed by the publisher for any injury and/or damage to persons or property as a matter of products liability, negligence or otherwise, or from any use or operation of any methods, products, instructions or ideas contained in the material herein. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book is available from the Library of Congress 978–1–85617–789–4 For information on all CIMA Publications visit our website at www.elsevierdirect.com Typeset by Macmillan Publishing Solutions (www.macmillansolutions.com) Printed and bound in Hungary 09 10 11 11 10 9 8 7 6 5 4 3 2 1 Working together to grow libraries in developing countries www.elsevier.com | www.bookaid.org | www.sabre.org Contents Syllabus Guidance, Learning Objectives and Verbs xi Paper F3 – Financial Strategy xv Examination Techniques xxi Part 1 Formulation of Financial Strategy 1 1 Formulation of Financial Strategy 3 Financial and non-financial objectives 5 The three key decisions of financial management 5 Dividend policy and dividend decisions 6 External constraints on financial strategy 6 Use of financial analysis 6 Profitability ratios 6 Modelling and forecasting cash flows and financial statements 7 Sensitivity analysis 7 Questions 8 Question 1 – Objectives 8 Question 2 – Educational 8 Question 3 – Police 9 Question 4 – Healthcare 10 Question 5 – RJ 11 Answers 14 Question 1 – Objectives 14 Question 2 – Educational 15 Question 3 – Police 17 Question 4 – Healthcare 18 Question 5 – RJ 20 Part 2 Financial Management 25 2 Financial Management 27 Investor ratios 29 Operating cycle 29 Working capital management strategies 30 Operation of the securities markets 30 Efficient market hypothesis 30 v vi Contents The role of the treasury function 30 Questions 31 Question 1 – ZX Inc. 31 Question 2 – UR 32 Question 3 – Hotel (Practice Question) 33 Question 4 – ML 33 Question 5 – XYZ training 34 Question 6 35 Answers 38 Question 1 – ZX Inc. 38 Question 2 – UR 40 Question 3 – Hotel 41 Question 4 – ML 41 Question 5 – XYZ training 43 Question 6 45 3 Sources of Long-term Finance 47 Types of long-term finance 49 Criteria for selecting a source of finance 49 Issue of shares to new shareholders 49 Rights issues 50 Considerations when issuing debt 50 Lease or buy decision 50 Funding of SMEs 50 Questions 52 Question 1 – 52 Question 2 – 52 Question 3 – PJH 53 Question 4 – VID 54 Question 5 – Rump 55 Question 6 – RZ 56 Question 7 – EFG 57 Question 8 – TFC 58 Answers 60 Question 1 – 60 Question 2 – 61 Question 3 – PJH 63 Question 4 – VID 65 Question 5 – Rump 66 Question 6 – RZ 67 Question 7 – EFG 69 Question 8 – TFC 72 4 Capital Structure and Cost of Capital 75 Cost of equity 77 Capital asset pricing model (CAPM) 78 Cost of debt 78 Weighted average cost of capital (WACC) 78 Assumptions and use of WACC 79 Contents vii Financial risk and the cost of capital 79 Business risk and the cost of capital 80 Questions 82 Question 1 – LS 82 Question 2 – CAP 83 Question 3 – WEB 84 Question 4 – REM 85 Question 5 – DEB 86 Question 6 – Imlico 87 Question 7 88 Question 8 89 Answers 90 Question 1 – LS 90 Question 2 – CAP 91 Question 3 – WEB 92 Question 4 – REM 93 Question 5 – DEB 95 Question 6 – Imlico 96 Question 7 97 Question 8 99 Part 3 Investment Decisions and Project Control 105 5 Valuations 107 Asset valuations 109 Intellectual capital 109 Present value of future cash flows 109 Price/earnings ratio 109 Dividend valuation model 110 Dividend yield 110 General comments 110 Questions 111 Question 1 – Target (Practice Question) 111 Question 2 – CD 111 Question 3 – EQU 112 Question 4 – MediCons plc 113 Question 5 – BiOs 115 Question 6 – AB Telecoms 116 Answers 119 Question 1 – Target 119 Question 2 – CD 119 Question 3 – EQU 121 Question 4 – MediCons 122 Question 5 – BiOs 124 Question 6 – AB Telecoms 126 6 Mergers, Acquisitions and Buyouts 131 Synergy 133 Forms of consideration for acquisitions 134 Hostile bids and defence strategies 134 Management buyouts (MBOs) and venture capitalists 134 viii Contents Questions 135 Question 1 – Company A (Practice Question) 135 Question 2 – PR 135 Question 3 – AB plc 136 Question 4 – TDC 137 Question 5 – RD 138 Question 6 – PCO plc 139 Question 7 – FS 141 Question 8 – VCI 143 Answers 145 Question 1 – Company A 145 Question 2 – PR 145 Question 3 – AB plc 146 Question 4 – TDC 147 Question 5 – RD 149 Question 6 – PCO plc 150 Question 7 – FS 151 Question 8 – VCI 156 Part 4 Investment Decisions and Project Control 159 7 Investment Appraisal Techniques 161 Appraisal methods 163 Asset replacement 164 Capital rationing 164 Questions 165 Question 1 – ZX Rationing 165 Question 2 – Expansion 165 Question 3 – RST 166 Question 4 – CD Furniture 167 Answers 169 Question 1 – ZX rationing 169 Question 2 – Expansion 169 Question 3 – RST 170 Question 4 – CD Furniture 173 8 Advanced Investment Appraisal Techniques 177 Relevant costs in a net present value 179 Uncertainty 180 Capital investment real options 180 Post-implementation audits 181 Questions 182 Question 1 – Rock (Practice Question) 182 Question 2 – X training 182 Question 3 – HS and IT 184 Question 4 – SS 184 Question 5 185 Contents ix Answers 187 Question 1 – Rock 187 Question 2 – X training 187 Question 3 – HS and IT 188 Question 4 – SS 190 Question 5 191 9 Financing and Appraisal of International Investments 195 Techniques for dealing with cash flows denominated in a foreign currency 197 Short-term hedging strategies 197 Identifying financing requirements 198 Questions 199 Question 1 – GH 199 Question 2 – KH 200 Question 3 – TMC 200 Question 4 – AB overseas 202 Answers 203 Question 1 – GH 203 Question 2 – KH 204 Question 3 – TMC 205 Question 4 – AB overseas 206 Part 5 Case Studies and Exam Papers 209 10 Case Study Questions 211 Questions 214 Question 1 – KL Group 214 Question 2 – Dobbs 216 Question 3 – C&C 219 Question 4 – Hi-Clean 222 Question 5 – JHC Group 224 Question 6 – GAS plc 227 Question 7 – PM Industries 230 Question 8 – SHINE 233 Answers 237 Question 1 – KL Group 237 Question 2 – Dobbs 240 Question 3 – C&C Airlines 242 Question 4 – Hi-Clean 245 Question 5 – JHC Group 248 Question 6 – GAS plc 252 Question 7 – PM Industries 259 Question 8 –SHINE 266 Exam Q & As 273
The list of books you might like
