CIMAPRA19-F03-1 Exam - Topic 5 Question 103 Discussion

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

Question #: 103
Topic #: 5

Thetable below shows theforecast for a company's next financial year:

The forecast incorporates the following assumptions:

* 25% of operating costs are variable

* Debt finance comprises a $400 million fixed rate loan at 5%

* Corporateincometax is paid at 25%

The company plans to do the following next year from the forecast earnings on the assumption that earnings will be equivalent to free cash flow:

* Pay a total dividend of $20 million

* Invest $40 million in new projects

What is themaximum % reduction inoperatingactivitythat could occurnext yearbefore the company's dividend and investment plans are affected?

Give your answer to the nearest 0.1%.

A4.8, 4.7, 4.9, 5.0, 4.6, 4.80, 4.70, 4.90, 5.00, 4.60%

B4.8, 4.7, 4.9, 5.0, 4.6, 4.80, 4.70, 4.90, 5.00, 3.60%

Show Suggested Answer

Suggested Answer: A, B, D

by Reed at Dec 10, 2024, 01:11 AM

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Lawrence

3 months ago

Not sure about that, seems a bit high for a safe margin!

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Colene

3 months ago

I think the max reduction is around 4.8%.

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Colette

3 months ago

Wait, how can they pay dividends and invest that much?

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Elli

4 months ago

Totally agree, that impacts the forecast a lot!

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Bettye

4 months ago

The variable costs are 25%, right?

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Vicki

4 months ago

I think the answer might be around 4.8% based on the calculations we practiced, but I need to double-check the math on the fixed loan and tax implications.

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Lina

4 months ago

I feel like I might be overthinking this. If 25% of costs are variable, does that mean we can only reduce operating activity by a certain percentage before hitting the dividend threshold?

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Ezekiel

4 months ago

This seems similar to a practice question we did about cash flow and dividends. I think we need to focus on the fixed costs and how they relate to the total operating costs.

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Cecilia

5 months ago

I remember we discussed how to calculate the impact of variable costs on operating activity, but I'm not entirely sure how to apply it here.

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Dottie

5 months ago

Alright, let me give this a try. I'm going to break it down step-by-step and make sure I'm accounting for all the details in the question.

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Nadine

5 months ago

This is the kind of question I feel pretty confident about. I'll start by identifying the fixed and variable costs, then work through the impact on the dividend and investment plans.

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Polly

5 months ago

Hmm, I'm a bit confused by the assumptions and how they all fit together. I'll need to re-read the question a few times and make sure I'm not missing anything.

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Kiley

5 months ago

Okay, let's see. The key seems to be understanding the variable and fixed costs, and how that impacts the potential reduction in operating activity. I think I can work this out.

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Corazon

5 months ago

This looks like a tricky financial question. I'll need to carefully review the information provided and think through the calculations step-by-step.

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Almeta

9 months ago

I'd reduce my operating activity by 100% and just take a nap. Problem solved!

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Vincenza

9 months ago

Wait, so we're talking about operating activity and not, you know, other kinds of activity? Asking for a friend.

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Felix

9 months ago

4.6% - just call me Goldilocks, because this one feels just right!

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Dacia

8 months ago

A) 4.8

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Carole

8 months ago

4.6% - just call me Goldilocks, because this one feels just right!

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Rosendo

8 months ago

B) 3.6%

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Margret

9 months ago

A) 4.8

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Jenelle

10 months ago

5.0% is my final answer. I'm feeling confident about this one.

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Whitley

8 months ago

I agree, 5.0% seems like the right answer.

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Robt

8 months ago

I'm not sure, maybe it's 4.8% or 4.9%.

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Lavelle

8 months ago

I think 5.0% is a good choice.

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Gracia

10 months ago

Ha! I tried to be a smart-aleck and picked 4.9%, but now I'm second-guessing myself. Oh well, can't win 'em all.

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Fletcher

10 months ago

4.7% is my guess. The question seems straightforward, but I want to double-check my workings.

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Renea

8 months ago

I'm confident it's 4.7% based on the information provided.

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Charlene

9 months ago

I calculated it as 4.8%, but let me review my calculations.

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Julio

9 months ago

I think the answer is 4.7% too.

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Edelmira

10 months ago

4.8% seems a bit low to me. I think the maximum reduction in operating activity could be closer to 5.0%.

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Leonardo

8 months ago

Yes, it's always better to be on the safe side when making financial decisions.

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Jade

8 months ago

Maybe it's better to go with the higher end to ensure the company's dividend and investment plans are not affected.

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Barbra

10 months ago

I think so too, 4.8% does seem a bit low considering all the factors involved.

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Lavonda

10 months ago

I agree, 5.0% seems more reasonable for the maximum reduction in operating activity.

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Jacob

11 months ago

I'm not sure, but I think a 4.7% reduction could also work without affecting the dividend and investment plans.

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Allene

11 months ago

I agree with An, a 4.8% reduction seems reasonable based on the assumptions.

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An

11 months ago

I think the maximum % reduction in operating activity could be 4.8%.

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