F3 Exam Dumps - Financial Strategy

1. Sell from domestic market

Revenue = A$100,000

Costs (given) = A$45,000

Import duty = 10% of 100,000 = A$10,000 (tax-deductible)

Profit before tax = 100,000 − 45,000 − 10,000 = A$45,000

Tax at 25% = 0.25 × 45,000 = A$11,250

Profit after tax = 45,000 − 11,250 = A$33,750

2. Sell via foreign subsidiary

Revenue = B$104,500

Costs = B$49,500

Profit before tax = 104,500 − 49,500 = B$55,000

Tax at 30% = 0.30 × 55,000 = B$16,500

Profit after tax = 55,000 − 16,500 = B$38,500

Convert to A$ at A$1 = B$1.10:

A$ profit = 38,500 / 1.10 = A$35,000

Foreign subsidiary gives the higher after-tax profit.

Answer: C. Foreign subsidiary: A$35,000

 “The government of country X could refuse to grant visas to GHJ’s staff who need to move to country X.”

👉 Method: Employ at least 80% local people in the production plant

Relying mainly on local employees reduces dependence on foreign staff and makes visa refusal less damaging and less likely politically.

 “The government of country X could introduce high taxes for outside companies which would make it difficult for GHJ to continue production in country X.”

👉 Method: Take out a loan with a bank in country X

Local banks become important stakeholders. If high taxes threaten GHJ’s viability and ability to service the loan, the local bank has an incentive to lobby the government, reducing this political risk.

 “Local staff could find out how to make the product and use that knowledge to start a production plant of their own.”

👉 Method: Import partly completed products from GHJ’s home country

Keeping key stages of production or core technology in the home country limits how much know-how local staff can copy.

 “The government of country X could refuse to renew visas for staff brought from GHJ’s home country.”

👉 Method: Employ at least 80% local people in the production plant

Again, the more the operation depends on local staff, the less vulnerable it is to visa non-renewal and the more politically acceptable the operation is.

Competition authorities focus primarily on market structure and competition, not on whether the bid is generous or on employment promises. Their concern is: Will this merger substantially lessen competition?

In food retailing, a key issue is local market concentration – for example, a single group owning too many supermarkets in particular towns or regions. A classic remedy is for the bidder to divest overlapping outlets so that effective competition remains.

B. Agreeing to dispose of specified outlets which overlap geographically directly addresses the competition authority’s main concern and is the standard structural remedy used in practice.

A (more cash) is irrelevant to competition issues.

C (job guarantees) is mainly a political/employment concern, not an antitrust one.

D (promise to pass on cost savings) is difficult to monitor and enforce and is normally viewed as less credible than structural remedies.

So the action most likely to persuade the competition authorities is B.

Value for Money is usually assessed using the 3 Es:

Economy – acquiring inputs at the lowest cost for a given quality (they pay less than other schools, so economy is actually good).

Effectiveness – achieving objectives (exam pass rates are high, so effectiveness is good).

Efficiency – the relationship between outputs and inputs (how well resources are turned into results).

Here, small class sizes mean more teaching resource per pupil. Even though results are good, they’re achieved with relatively high input (lots of teacher time per pupil), indicating weaker efficiency, not economy or effectiveness.

Step 1 – Find TTT’s P/E ratio

Profit for the year (TTT) = $25m

Shares in issue = 100m → EPS = 25 / 100 = $0.25

Share price = $2.00

P/ETTT=2.000.25=8\text{P/E}_{TTT} = \frac{2.00}{0.25} = 8P/ETTT​=0.252.00​=8

Step 2 – Apply this P/E to YYY

Profit for the year (YYY) = $15m

Value of YYY’s equity = 15 × 8 = $120m

Shares in issue (YYY) = 200m

Price per YYY share=120200=$0.60\text{Price per YYY share} = \frac{120}{200} = \$0.60Price per YYY share=200120​=$0.60

✅ Answer: A. $0.60

Why not A?

For A:

Spot: F$1 = K$1.40

1-year forward: F$1 = K$1.44

Interest: F$ at 5%, K$ at 8%

Covered interest parity condition:

F=S×1+iK1+iFF = S \times \frac{1+i_{K}}{1+i_{F}}F=S×1+iF​1+iK​​ F=1.40×1.081.05=1.40×1.028571…≈1.44F = 1.40 \times \frac{1.08}{1.05} = 1.40 \times 1.028571… \approx 1.44F=1.40×1.051.08​=1.40×1.028571…≈1.44

Forward rate is consistent with interest rates → no arbitrage.

Option D – Covered interest arbitrage

For D, everything is the same except K$ interest = 9%:

Fno-arbitrage=1.40×1.091.05=1.40×1.038095…≈1.45F_{\text{no-arbitrage}} = 1.40 \times \frac{1.09}{1.05} = 1.40 \times 1.038095… \approx 1.45Fno-arbitrage​=1.40×1.051.09​=1.40×1.038095…≈1.45

But given forward is only 1.44, so:

Borrow F$, convert to K$, invest at 9%, and lock in selling K$ forward at 1.44.

This produces a risk-free return greater than 5%, so covered interest arbitrage exists.

Option B vs C – Triangular arbitrage

From the first two quotes:

\text{F$1} = \text{K$1.40},\quad \text{K$1} = \text{L$2.10} \Rightarrow \text{F$1} = 1.40 \times 2.10 = \text{L$2.94}

So the implied rate is:

\text{L$1} = \frac{1}{2.94} \approx \text{F$0.3401}

Option B gives L$1 = F$0.34 → essentially equal (no exploitable difference assumed in exam context) → no arbitrage.

Option C gives L$1 = F$0.40, which is far from 0.3401 → direct L$/F$ quote is inconsistent with cross-rate ⇒ triangular arbitrage opportunity.

Answer: Options C and D offer arbitrage opportunities.

Under typical takeover regulation and CIMA F3 principles, the following are legitimate post-offer defences:

A. Independent professional revaluation of assets

This is legitimate: providing better information to shareholders to show that the bid undervalues the company.

C. Make a counter-bid for Company A (a “Pac-Man defence”)

This is acceptable if it can be justified as enhancing shareholder wealth.

E. Refer the bid to competition authorities

It is a legitimate defence to challenge the bid on competition/antitrust grounds if it may reduce competition.

In contrast:

B (altering the articles to change acceptance thresholds mid-bid) is a classic frustrating action, usually not allowed without shareholder approval during an offer period.

D (publishing knowingly unrealistic optimistic forecasts) is misleading and not permitted under market and takeover rules.