CIMA Exam CIMAPRA19-F03-1 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

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Karan

10 months 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.

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Mike

9 months ago

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

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Audry

10 months ago

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

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Susana

10 months ago

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

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Arlene

10 months 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*

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Noemi

11 months 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*

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Serina

9 months ago

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

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Michael

9 months ago

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

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Lenny

10 months ago

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

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Honey

11 months ago

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

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Lilli

11 months ago

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

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Sophia

11 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.

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Jeannetta

11 months ago

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

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Willis

11 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.

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