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CIMAPRA19-F03-1 Exam - Topic 3 Question 60 Discussion

Which TWO of the following statements about debt instruments are correct?
A) A zero coupon will eliminate the tax shield effect on debt payments. and B) Changes in corporation tax rates will have no effect on the tax shield of fixed rate debentures.
C) The true cost of servicing debt instruments to the company is the post-tax cost of debt.
D) If corporation tax rates rise, the tax shield effect on debenture interest will be reduced.

CIMAPRA19-F03-1 Exam - Topic 3 Question 60 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 60
Topic #: 3
[All CIMAPRA19-F03-1 Questions]

Which TWO of the following statements about debt instruments are correct?

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Suggested Answer: A, B

by Glenn at Nov 18, 2022, 08:11 AM

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Jani
10 months ago
A zero coupon doesn't eliminate the tax shield, just changes it.
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Leonor
10 months ago
Changes in tax rates won't affect fixed rate debentures, that's a fact!
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Whitley
10 months ago
Wait, if tax rates rise, how does that reduce the tax shield? Sounds off.
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Shay
11 months ago
I disagree, tax shields can still apply to zero coupons.
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Lilli
11 months ago
The post-tax cost of debt is definitely the true cost!
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Natalya
11 months ago
I thought if corporation tax rates rise, the tax shield would actually increase, not reduce, so I'm a bit confused about that statement.
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Avery
11 months ago
The post-tax cost of debt seems right to me as the true cost, but I can't recall if it applies to all debt instruments equally.
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Alison
11 months ago
I think changes in corporation tax rates do affect the tax shield, especially for fixed rate debentures, but I need to double-check that.
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Novella
11 months ago
I remember discussing how zero coupon bonds work, but I'm not sure if they really eliminate the tax shield effect.
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Lashaunda
11 months ago
I'm pretty confident that the answer is D. Master-detail relationships allow for the parent record to be deleted and have all child records deleted as well, which is exactly what the question is asking for.
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Altha
11 months ago
I'm pretty sure Firewall as a Service (FWaaS) is one of the Prisma Access security services, so I'll go with option B.
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Roosevelt
11 months ago
Alright, I got this. The key is to generate a new SSH key pair and add the private key to the instance. Option C is the way to go.
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