FCCA Strategic Financial Management 3

Question 1

Which valuation method values a business by applying a price-to-earnings (P/E) multiple from comparable listed companies?

Accepted Answer

Earnings-based relative valuation

Answer

Discounted Cash Flow (DCF) valuation

Answer

Net asset value method

Answer

Economic Value Added (EVA) method

Question 2

In the context of mergers and acquisitions, what is synergy?

Accepted Answer

The additional value created when two combined businesses are worth more than the sum of their parts

Answer

The reduction in workforce following a merger

Answer

The regulatory approval process required for large acquisitions

Answer

The goodwill recorded in the consolidated balance sheet

Question 3

Which of the following is the correct formula for Economic Value Added (EVA)?

Accepted Answer

NOPAT minus (Invested Capital × WACC)

Answer

Net profit after tax minus interest expense

Answer

EBIT multiplied by (1 minus tax rate)

Answer

Free cash flow divided by the discount rate

Question 4

Under the ACCA/FCCA framework, which of the following best describes 'free cash flow to equity' (FCFE)?

Accepted Answer

Cash flow available to equity holders after meeting all obligations including debt service and capital expenditure

Answer

Cash flow available to all capital providers before debt repayments

Answer

Dividend payments declared during the period

Answer

Operating profit adjusted for non-cash items only

Question 5

A company is considering a rights issue. If the theoretical ex-rights price (TERP) is $4.50 and the current share price is $5.00, what does this imply?

Accepted Answer

The share price is expected to fall to $4.50 per share after the rights issue

Answer

The rights issue will increase shareholder wealth by $0.50 per share

Answer

The company will receive $4.50 per share in proceeds from the issue

Answer

The market has already fully priced in the rights issue premium

Question 6

Which interest rate risk management tool involves agreeing today on a borrowing or lending rate for a future period, with any difference settled in cash?

Accepted Answer

Forward Rate Agreement (FRA)

Answer

Interest rate swap

Answer

Interest rate option (cap/floor)

Answer

Interest rate future

Question 7

In portfolio theory, the efficient frontier represents portfolios that:

Accepted Answer

Offer the highest return for a given level of risk, or the lowest risk for a given return

Answer

Maximize total return regardless of the level of risk taken

Answer

Contain only risk-free assets and one risky asset

Answer

Are fully diversified across all global asset classes