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CIMAPRA19-F03-1 Exam - Topic 3 Question 1 Discussion

A company'sgearing (measured as debt/(debt + equity)) is currently 60% andit isinvestigating whether an optimal gearing structure exists within the industry.It hasanalysed the capital structure of similar companies in the industry and it would appear that there is evidence supporting the traditional theory of capital structure.Companies with the lowest WACC in the industry have gearing of around 45% to 50%.Which of the following actions would result in the company achieving a more optimal capital structure?
A) Undertaking a rights issue of equity to repay some of its debt.
B) Refinancing to replace some of its short term debt with long term debt.
C) Increasing the level of dividend to return more cash to shareholders.
D) Using retained cash to undertake a buyback of some of its equity.

CIMAPRA19-F03-1 Exam - Topic 3 Question 1 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 1
Topic #: 3
[All CIMAPRA19-F03-1 Questions]

A company'sgearing (measured as debt/(debt + equity)) is currently 60% andit isinvestigating whether an optimal gearing structure exists within the industry.

It hasanalysed the capital structure of similar companies in the industry and it would appear that there is evidence supporting the traditional theory of capital structure.

Companies with the lowest WACC in the industry have gearing of around 45% to 50%.

Which of the following actions would result in the company achieving a more optimal capital structure?

Show Suggested Answer Hide Answer
Suggested Answer: A

by Talia at May 08, 2022, 02:58 PM

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Ethan
11 months ago
Buybacks might help, but not if they don't have cash flow!
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Jackie
11 months ago
Wait, are we sure 45-50% is really optimal?
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Golda
11 months ago
Increasing dividends? That sounds risky right now.
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Geraldo
11 months ago
I think refinancing is a better move for stability.
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Lashaunda
11 months ago
A rights issue could definitely lower the gearing.
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Brianne
11 months ago
Hmm, this one seems tricky. I'll have to think carefully about the different VPN technologies and which one requires the IPsec-proposal configuration option.
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Jettie
11 months ago
Okay, I've got this. Job analysis is used to develop job worth hierarchies, document work processes for training, and provide a basis for performance appraisal. I'm confident I can select the right three reasons.
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Barbra
12 months ago
I'm not entirely confident about this one. I'll need to weigh the pros and cons of each option before making a decision.
upvoted 0 times
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