Deal of The Day! Hurry Up, Grab the Special Discount - Save 25% - Ends In 00:00:00 Coupon code: SAVE25
Welcome to Pass4Success

- Free Preparation Discussions

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

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 96
Topic #: 2
[All CIMAPRA19-F03-1 Questions]

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.

Show Suggested Answer Hide Answer
Suggested Answer: A, C

Contribute your Thoughts:

Karan
14 days 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
...
Arlene
15 days 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
19 days 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
...
Honey
21 days 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
30 days ago
I agree with Jeannetta, speed is important. But I also think option E is valuable for us.
upvoted 0 times
...
Sophia
1 months 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 months ago
I think option D is an advantage because we need the finance quickly.
upvoted 0 times
...
Willis
1 months 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
Margret
8 days ago
B) The changes in shareholding as a result of the Venture Capital investment.
upvoted 0 times
...
Rodney
17 days ago
E) The experience of the Venture Capitalist with growing businesses.
upvoted 0 times
...
Hortencia
19 days ago
D) The speed with which the finance can be obtained.
upvoted 0 times
...
Georgene
21 days ago
A) The cost of the finance under the Venture Capital investment.
upvoted 0 times
...
...

Save Cancel