Free F3 – Financial Strategy Practice Test Question

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  An increase in the interest cover ratio.

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  A decrease in the (Net debt) / (Earnings before interest tax depreciation and amortisation) ratio.

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  An increase in the free cashflow generated from operations.

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  A decrease in the (Book value of debt) / (Book value of equity) ratio.

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  A decrease in the dividend cover ratio.

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  The use of equity finance reduces the company's overall financial risk.

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  The use of equity finance will create pressure for increases in dividend per share in the future.

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  The use of debt finance will always result in an increase in earnings per share.

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  Retained earnings is the cheapest form of equity finance.

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  The use of debt finance increases the cost of equity.

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  The use of debt finance is always preferable to equity finance.

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  Lease payments are timed incorrectly

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  Tax relief on lease payments have not been lagged correctly

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  Using the 10% discount rate is incorrect

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  The project's operating cashflows should be included

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  The bank loan repayments should be included

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  The salvage value has been included within the lease option

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  The proportion of surgical procedures that are deemed to be successful.

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  Average waiting times for treatment.

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  Patient satisfaction ratings.

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  Staff costs compared to previous years.

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  Revenue generated from car park charges.

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  A scrip dividend results in distributable reserves being moved to non-distributable reserves.

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  A scrip dividend will dilute the control of current shareholders.

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  A scrip dividend results in more shares in issue which will create an expectation for future dividends.

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  There will be company secretarial and additional administration involved with a scrip dividend.

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  A scrip issue may give shareholders the impression that they are receiving something of value.

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  Increase in customer base.

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  Competition authorities step in to stop a potential price monopoly.

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  Decrease in employee motivation due to internal changes.

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  Changes to supplier relationships owing to internal changes.

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  Cost savings from synergistic benefits and economies of scale.

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  It may give a signal to the market that the company is entering a period of stable growth.

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  There may be a change to the shareholder profile due to 'the clientele effect'.

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  The directors will not have to take shareholder dividend preferences into consideration in future.

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  Retained earnings have a lower cost than debt finance.

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  The company's financial risk will increase due to its increased use of debt finance.

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  Accept the bid because Company F is potentially worth $30 million to Company X.

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  Reject the bid because Company F is potentially worth $40 million to Company X.

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  Reject the bid because Company F is potentially worth $50 million to Company X.

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  Reject the bid because Company F is potentially worth $60 million to Company X.

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  After the acquisition the board propose to reduce the number of flight destinations from the country.

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  The board informed a major institutional shareholder about the proposed acquisition before informing other shareholders.

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  After the acquisition the board propose to increase prices significantly on routes where no other airlines operate.

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  The acquisition is likely to result in significant redundancies of staff currently working for the smaller airline.

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  Option A

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  Option B

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  Option C

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  Option D
  

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  It does not account for the intangible assets.

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  It accounts for the intangible assets at historical value.

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  It accounts for intangible assets at net realisable value.

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  It does not account for tangible assets.

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  Reduction of 7%

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  Reduction of 5%

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  Reduction of 1%

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  Reduction of 0%

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  A WACC that reflects the gearing of the publishing company and the asset beta of a listed company that provides training activities.

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  A cost of equity that reflects the asset beta of a listed company that provides training activities.

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  A WACC that reflects the gearing of the subsidiary company and the asset beta of a listed company that provides training activities.

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  A WACC that the reflects the gearing of the publishing company and the equity beta factor of the publishing company.

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  A company in a similar market to Company A.

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  A pottery factory in the Middle East.

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  A company that produces accessories.

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  A listed international logistics firm.

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  Reduction of 7%

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  Reduction of 5%

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  Reduction of 1%

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  Reduction of 0%