CIMA Exam CIMAPRA19-F03-1 Topic 3 Question 111 Discussion

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

Question #: 111
Topic #: 3

[All CIMAPRA19-F03-1 Questions]

A company has in a 5% corporate bond in issue on which there are two loan covenants.

* Interest covermust not fall below 3 times

* Retained earnings for the yearmust not fall below $3.5 million

The Company has 200 million shares in issue.

The most recent dividend per share was $0.04.

The Company intends increasing dividends by 10% next year.

Financial projections for next year are as follows:

Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?

AThe company will be in compliance with both covenants.

BThe company will be in breach of both covenants.

CThe company will breach the covenant in respect of retained earnings only.

DThe company will be in breach of the covenant in respect of interest cover only.

Show Suggested Answer

Suggested Answer: C

by Ngoc at Jun 15, 2025, 01:48 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

Jody

5 days ago

This question is making my head spin. Can we get a calculator up in here? I'm just going to guess and hope for the best.

upvoted 0 times

...

Anglea

8 days ago

I don't know, that 10% dividend increase sounds a bit too good to be true. I'm going to go with option C and say the company will breach the retained earnings covenant.

upvoted 0 times

...

Pansy

10 days ago

Wait, what's this about interest cover? I thought we were talking about bonds. This exam question is really testing our financial knowledge.

upvoted 0 times

Cruz

4 days ago

Interest cover is a ratio that measures a company's ability to pay interest expenses on its debt. It's important for bondholders to know if the company can meet its interest obligations.

upvoted 0 times

...

Barabara

13 days ago

I'm not so sure, I think the company will breach the covenant in respect of interest cover only.

upvoted 0 times

...

1 months ago

I think the company will be in compliance with both covenants.

upvoted 0 times

...