CIMAPRA19-F03-1 Exam - Topic 2 Question 96 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam

Question #: 96
Topic #: 2

F Co. is a large private company, the founder holds 60% of the company's share capital and her 2 children each hold 20% of the share capital.

The company requires a large amount of long-term finance to pursue expansion opportunities, the finance is required within the next 3 months. The family has agreed that an Initial Public Offering (IPO) should not be pursued at this time, because it would take up to 12 months to arrange.

The existing shareholders are currently considering raising the required finance from an established Venture Capitalist in the form of debt and equity. The Venture Capitalist has agreed to provide the required finance provided it can earn a return on investment of 25% per year. In addition, the Venture Capitalist requires 60% of the equity capital, a directorship in the company and a veto on all expenditure of a capital or revenue nature above a specified limit.

From the perspective of the family, which of the following are advantages of raising the required finance from the Venture Capitalist?

Select all that apply.

AThe cost of the finance under the Venture Capital investment.

BThe changes in shareholding as a result of the Venture Capital investment.

CThe veto on expenditure above a specified level of a revenue or capital nature.

DThe speed with which the finance can be obtained.

EThe experience of the Venture Capitalist with growing businesses.

Show Suggested Answer

Suggested Answer: A, C

by Rodolfo at Sep 17, 2024, 03:22 AM

Limited Time Offer

25%

Off

Get Premium CIMAPRA19-F03-1 Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Malinda

3 months ago

The veto power could be a double-edged sword.

upvoted 0 times

...

Marvel

3 months ago

Speed is key! They need that cash fast.

upvoted 0 times

...

Barrie

4 months ago

Wait, a 25% return? Sounds too good to be true.

upvoted 0 times

...

Maurine

4 months ago

Totally agree, but they bring valuable experience too.

upvoted 0 times

...

Latonia

4 months ago

The VC wants 60% equity? That's a huge chunk!

upvoted 0 times

...

Ammie

4 months ago

The cost of finance might not be favorable since the VC wants a 25% return, but I think the family might see the speed of funding as a major plus.

upvoted 0 times

...

Bulah

4 months ago

I feel uncertain about the veto on expenditure; it seems like it could limit the family's control, but maybe it also ensures better financial decisions?

upvoted 0 times

...

Gwenn

5 months ago

I remember discussing how the experience of the Venture Capitalist can really help a growing business, so that might be a key advantage too.

upvoted 0 times

...

Altha

5 months ago

I'm not entirely sure, but I think the speed of obtaining finance could be a big advantage since they need it within 3 months.

upvoted 0 times

...

Marica

5 months ago

This is a good opportunity to showcase my understanding of venture capital financing. I'll methodically go through each option and explain why it is or isn't an advantage from the family's perspective.

upvoted 0 times

...

Willis

5 months ago

I'm a bit confused by all the financial details here. I'll need to re-read the question carefully and make sure I understand the implications of the Venture Capitalist's terms before answering.

upvoted 0 times

...

Mary

5 months ago

Hmm, this is a tricky one. I'll need to weigh the pros and cons of the Venture Capitalist's terms and how they impact the family's control and ownership of the business. I'll have to think this through step-by-step.

upvoted 0 times

...

Jules

5 months ago

This seems like a pretty straightforward question. I'll need to carefully analyze the details of the Venture Capitalist's offer and the family's current situation to identify the key advantages.

upvoted 0 times

...

Raylene

5 months ago

Okay, I think I've got a good handle on this. The key advantages seem to be the speed of obtaining the financing, the Venture Capitalist's experience, and the changes to the shareholding structure. I'll make sure to select those options.

upvoted 0 times

...

Karan

1 year ago

The Venture Capitalist is really squeezing them, isn't it? Veto power and 60% equity? That's highway robbery! Unless they're planning to pull off some *ahem* creative accounting, I'd steer clear of this deal.

upvoted 0 times

Mike

1 year ago

They should definitely consider all their options before committing to this deal.

upvoted 0 times

...

Audry

1 year ago

I agree, it seems like a risky move for the family.

upvoted 0 times

...

Susana

1 year ago

Yeah, that's a lot of control to give up to the Venture Capitalist.

upvoted 0 times

...

Arlene

1 year ago

Woah, 25% per year? That's a steep price. Though I guess it beats waiting 12 months for an IPO. And the Venture Capitalist's experience could be a real boon. Tough call, but I'd go for it if I were them. *whistles*

upvoted 0 times

...

Noemi

1 year ago

Hmm, the Venture Capitalist seems to be driving a hard bargain. Veto power on expenditures? That's a bit much. But I guess you have to give to get in these situations. *shrugs*

upvoted 0 times

Serina

1 year ago

Yeah, sometimes you have to weigh the pros and cons. It's a tough decision to make.

upvoted 0 times

...

Michael

1 year ago

I agree, the speed of getting the finance could be crucial for the company's expansion plans.

upvoted 0 times

...

Lenny

1 year ago

True, it does seem like a lot to give up. But maybe the experience they bring could be worth it.

upvoted 0 times

...

Honey

1 year ago

I see your points, but I believe option C is crucial to consider as well. We need to be cautious with expenditure.

upvoted 0 times

...

Lilli

1 year ago

I agree with Jeannetta, speed is important. But I also think option E is valuable for us.

upvoted 0 times

...

Sophia

1 year ago

I'm not sure about giving up 60% of the equity to the Venture Capitalist. That's a big chunk of the company. But the speed and expertise could be valuable, so it's a tough call.

upvoted 0 times

...

Jeannetta

1 year ago

I think option D is an advantage because we need the finance quickly.

upvoted 0 times

...

Willis

1 year ago

Well, the cost of the finance is a bit high at 25% per year, but the speed and experience of the Venture Capitalist could be worth it. The changes in shareholding and the veto power are concerning though.

upvoted 0 times