Free CIMA CIMAPRA19-F03-1 Actual Exam Questions
The questions for this exam were last updated on January 7, 2026
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Question No. 1
A company is owned by its five directors who want to sell the business.
Current profit after tax is $750,000.
The directors are currently paid minimal salaries, taking most of their incomes as dividends.
After the company is sold, directors' salaries will need to be increased by $50,000 each year in total.
A suitable Price/Earnings (P/E) ratio is 7, and the rate of corporate tax is 20%.
What is the value of the company using a P/E valuation?
Current profit after tax is $750,000.
The directors are currently paid minimal salaries, taking most of their incomes as dividends.
After the company is sold, directors' salaries will need to be increased by $50,000 each year in total.
A suitable Price/Earnings (P/E) ratio is 7, and the rate of corporate tax is 20%.
What is the value of the company using a P/E valuation?
Select one option, then reveal solution.
Question No. 2
A company has an opportunity to invest in a positive net present value project, but the project would
require debt finance that would push the company's gearing ever a limit imposed by a debt covenant
on an existing loan.
Which THREE of the following actions could be taken by the company?
require debt finance that would push the company's gearing ever a limit imposed by a debt covenant
on an existing loan.
Which THREE of the following actions could be taken by the company?
Select all that apply, then reveal solution.
Question No. 3
A company with a market capitalisation of S50million is considering raising $1 million debt to fund a
new 10-year capital investment protect
The value of this issue is considered to be small in comparison to the company's market
capitalisation
The company is considering whether to raise the debt finance by either a "bond private placing' or a
'public bond issue.
Which THREE of the following statements are correct?
new 10-year capital investment protect
The value of this issue is considered to be small in comparison to the company's market
capitalisation
The company is considering whether to raise the debt finance by either a "bond private placing' or a
'public bond issue.
Which THREE of the following statements are correct?
Select all that apply, then reveal solution.
Question No. 4
Company A operates in country A with the AS as its functional currency. Company A expects to
receive BS500.000 in 6 months' time from a customer in Country B which uses the B$.
Company A intends to hedge the currency risk using a money market hedge
The following information is relevant:
What is the AS value of the BS expected receipt in 6 months' time under a money market hedge?
receive BS500.000 in 6 months' time from a customer in Country B which uses the B$.
Company A intends to hedge the currency risk using a money market hedge
The following information is relevant:
What is the AS value of the BS expected receipt in 6 months' time under a money market hedge?
Select one option, then reveal solution.
Question No. 5
Company BBB has prepared a valuation of a competitor company, Company BBD. Company BBB is
intending to acquire a controlling interest in the equity of Company BBD and therefore wants to
value only the equity of Company BBD.
The directors of Company BBB have prepared the following valuation of Company BBD:
Value of Equity = 4.63 + 5.14 + 5.56 = S15.33 million
Additional information on Company BBD:
Which THREE of the following are weaknesses of the above valuation?
intending to acquire a controlling interest in the equity of Company BBD and therefore wants to
value only the equity of Company BBD.
The directors of Company BBB have prepared the following valuation of Company BBD:
Value of Equity = 4.63 + 5.14 + 5.56 = S15.33 million
Additional information on Company BBD:
Which THREE of the following are weaknesses of the above valuation?
Select all that apply, then reveal solution.
Question No. 6
Company AAB is located in Country A with the A$ as its functional currency It plans to grow by
acquisition and has identified Company BBA as a potential takeover candidate Company BBA is
located in Country B with the BS as its functional currency.
The directors of Company AAB are concerned about foreign currency risk if the acquisition goes
ahead
Which of the following will be most effective in reducing Company AAB's exposure to translation risk
if the acquisition is successful1?
acquisition and has identified Company BBA as a potential takeover candidate Company BBA is
located in Country B with the BS as its functional currency.
The directors of Company AAB are concerned about foreign currency risk if the acquisition goes
ahead
Which of the following will be most effective in reducing Company AAB's exposure to translation risk
if the acquisition is successful1?
Select one option, then reveal solution.
Question No. 7
XYZ is a multi-national group with subsidiary AA in Country A and subsidiary BB in Country B. The
capital structures of AA and BB are set up to take advantage of the lower tax rate in Country A Thin
capitalisation rules in Country B will limit the ability for either AA or BB to claim tax relief on:
capital structures of AA and BB are set up to take advantage of the lower tax rate in Country A Thin
capitalisation rules in Country B will limit the ability for either AA or BB to claim tax relief on:
Select one option, then reveal solution.
Question No. 8
Which of the following best explains why the interest rate parity model is highly effective in practice?
Select one option, then reveal solution.
Question No. 9
Company A is a large well-established listed entertainment company and Company B is a small
unlisted company specializing in providing online media streaming.
Company A has a gearing ratio of 60% (using book values) and interest cover of 2.
Company A is considering making an offer for Company B, either a cash offer financial by raising
additional debt finance or a share-for-share exchange.
Which of the following is most likely to occur if Company A offers a share-for exchange rather than
offering cash finance by raising debt?
unlisted company specializing in providing online media streaming.
Company A has a gearing ratio of 60% (using book values) and interest cover of 2.
Company A is considering making an offer for Company B, either a cash offer financial by raising
additional debt finance or a share-for-share exchange.
Which of the following is most likely to occur if Company A offers a share-for exchange rather than
offering cash finance by raising debt?
Select one option, then reveal solution.
Question No. 10
A listed company with a growing share price plans to finance a four-year research project with debt.
The main criterion for the finance is to minimise the annual cashflow payments on the debt.
The research will be sold at the end of the project.
Which of the following would be the most suitable financing method for the company?
The main criterion for the finance is to minimise the annual cashflow payments on the debt.
The research will be sold at the end of the project.
Which of the following would be the most suitable financing method for the company?
Select one option, then reveal solution.
Question No. 11
An unlisted software development company has recently reported disappointing results. This was
partly due to weak economic conditions but also because of its poor competitive position. The
company has a number of exciting development opportunities which would enable it to achieve
significant future growth. The company's growth potential has been hindered by its inability to
secure sufficient new finance.
To enable the company raise new finance the Directors are considering working forwards an IPO in 10
years and accepting finance from a venture capitalist in order support in the intervening period.
The directors are keen to retain a controlling stake in the company and full representation on the
board. They therefore require venture capitalists to provide funds as a mix of debt and equity and not
soley equity finance.
Which THREE of the following are most likely to disrupt the directors' plans to use venture capital
finance?
partly due to weak economic conditions but also because of its poor competitive position. The
company has a number of exciting development opportunities which would enable it to achieve
significant future growth. The company's growth potential has been hindered by its inability to
secure sufficient new finance.
To enable the company raise new finance the Directors are considering working forwards an IPO in 10
years and accepting finance from a venture capitalist in order support in the intervening period.
The directors are keen to retain a controlling stake in the company and full representation on the
board. They therefore require venture capitalists to provide funds as a mix of debt and equity and not
soley equity finance.
Which THREE of the following are most likely to disrupt the directors' plans to use venture capital
finance?
Select all that apply, then reveal solution.
Question No. 12
Integrated reporting is designed to make visible the capitals on which the organisation depends, and
how the organisation uses those capitals to create value in the short, medium and long term
Which THREE of the following capitals are specifically identified in the Integrated Reporting
Framework?
how the organisation uses those capitals to create value in the short, medium and long term
Which THREE of the following capitals are specifically identified in the Integrated Reporting
Framework?
Select all that apply, then reveal solution.
Question No. 13Drag & Drop
DRAG DROP Select the category of risk for each of the descriptions below: 
Options
ATranslation risk
BEconomic risk
CFinancial risk
DTransaction risk
Drag an item to a target. Click × to remove.
Answer Area
A company has two subs diaries in a country where the currency has become very strong. It is worried that its overseas customers will stop buying its goods.
Drop item here
A company has a major overseas supplier. The country in which the supplier operates has a strengthening currency.
Drop item here
A company has to convert its subs diaries' financial statements into the presentation currency in order to consolidate the financial statements.
Drop item here
A company has ordered a machine which it has agreed to pay for in a foreign currency in 0 months time.
Drop item here
Question No. 14Drag & Drop
DRAG DROP CI IJ has decided to move its production plant to overseas country X. This would make the product cheaper to produce. The technology used to make the product is very advanced and some of the skilled staff would have to move to country X. The Production Director has identified that there are some political risks in moving to county X. For each of the political risks of moving to country X shown below, select the correct method for reducing the risk. 
Options
AEmploy at least 50% local people in the production plant
BImport partly completed products from GIIJ's home country
CTake out a loan with a bank in country X
Drag an item to a target. Click × to remove.
Answer Area
The government of country X could refuse to grant visas to GH-J's staff who need to move to country X
Drop item here
The government of country X could introduce high taxes for outs de companies which would make it difficult for GHI to continue production in country X.
Drop item here
Local staff could find out how to make the product and use that knowledge to start a production plant of their own.
Drop item here
The government of country X could refuse to renew visas for staff brought from GHJ's home country.
Drop item here
Question No. 15Drag & Drop
DRAG DROP Select the most appropriate divided for each of the following statements: 
Options
AOnly pay a dividend once all positive NPV projects have been funded.
BInvestors prefer a predictable cash flow.
CMay create volatile dividend movements.
Drag an item to a target. Click × to remove.
Answer Area
Stable growth
Drop item here
Residual policy
Drop item here
Constant payout ratio
Drop item here