F3 Exam Dumps - Financial Strategy

Profit before tax = $4.0m

Tax at 25% → earnings = $4.0m × (1 − 0.25) = $3.0m

For a takeover, the most relevant comparators are recent takeover P/E multiples in the same industry: 9–10x.

Minimum value = 3.0 × 9 = $27m

Maximum value = 3.0 × 10 = $30m

Answer: B. Minimum = $27m, maximum = $30m

For reviewing the effectiveness of hospital services, the focus is on quality of care and outcomes:

A. Proportion of surgical procedures successful – direct clinical effectiveness measure ✅

B. Average waiting times for treatment – key access and service delivery metric ✅

C. Patient satisfaction ratings – captures perceived quality and experience ✅

Options D (staff costs) and E (car park revenue) are financial/operational efficiency measures, not direct indicators of service effectiveness, so they are less relevant here.

At the rumour stage (pre-bid), suitable defences are pre-emptive ones:

A – Communicate effectively with shareholders: build support and explain strategy to keep the share price fair and reduce vulnerability.

B – Revalue non-current assets: helps ensure the shares are not undervalued and makes any bid look less attractive.

D – Poison pill: introduce mechanisms (e.g. rights issues to existing shareholders) that make a hostile bid very costly.

C (competition authorities) and E (white knight) are reactive and typically used only once an actual bid has been made.

Under CIMA F3 (Financial Strategy), sensitivity of operating profit to exchange-rate movements is assessed using transaction exposure: where revenues/costs are denominated in a foreign currency, the home-currency value of those cash flows changes when the exchange rate moves. Because all four companies have the same total revenue and cost levels in K$, the company whose net EUR cash flow is largest (in absolute terms) will have the greatest potential impact on operating profit growth when the EUR/K$ rate changes.

Treat exports as EUR inflows and imports as EUR outflows. Compute each company’s net EUR position:

Company A: EUR exports 20 − EUR imports 10 = +10 (net EUR receivable)

Company B: EUR exports 18 − EUR imports 0 = +18 (net EUR receivable)

Company C: EUR exports 21 − EUR imports 25 = −4 (net EUR payable)

Company D: EUR exports 0 − EUR imports 15 = −15 (net EUR payable)

Now compare absolute exposures: |+10|, |+18|, |−4|, |−15| ⇒ largest is 18 for Company B. Therefore, Company B’s operating profit (and hence its year-on-year growth objective) is most sensitive to movements in the EUR/K$ exchange rate, because the K$ value of its EUR-denominated net inflows will vary the most as rates change.

This question examines loan covenant compliance, a topic covered in CIMA F3 under Debt Finance, Financial Risk, and Dividend Policy. Loan covenants are contractual restrictions imposed by lenders to protect their interests. Breaching a covenant can trigger penalties or loan repayment demands, so directors must assess compliance carefully using projected financial information.

The company has two covenants:

Interest cover must not fall below 4 times

Retained earnings for the year must not fall below $5.00 million

Step 1: Interest Cover Covenant

CIMA F3 defines interest cover as:

From the projections:

EBIT = $25.00 million

Interest = $3.20 million

Since 7.8 > 4, the company meets the interest cover covenant.

Step 2: Retained Earnings Covenant

Earnings after tax are projected at $15.26 million.

The most recent dividend per share is $0.10, and dividends are planned to increase by 8%:

With 100 million shares in issue:

Retained earnings for the year:

Since $4.46 million < $5.00 million, the company breaches the retained earnings covenant.

Conclusion (CIMA F3 Interpretation)

Interest cover covenant: Complied with

Retained earnings covenant: Breached

Under CIMA F3 guidance, directors must recognise that even when profitability appears strong, dividend policy can cause covenant breaches if distributions are excessive.