CIMA Exam CIMAPRA19-F03-1 Topic 5 Question 104 Discussion

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

Question #: 104
Topic #: 5

[All CIMAPRA19-F03-1 Questions]

Awholly equity financedcompany has the following objectives:

1. Increase inprofit before interest and tax by at least 10% per year.

2. Maintain a dividend payoutratio of40% of earningsper year.

Relevant data:

* There are 2 million shares in issue.

* Profit before interest and tax in the last financial year was$5million.

* The corporateincometax rateis30%.

At the beginning of the current financial year, the company raised long term debt of $2 million at 10% interesteachyear.

Calculate the dividend per share that will be announced this year assuming the company achieves its objective of increasing profit before interest and tax by 10%.

A$0.74

B$0.67

C$1.11

D$1.01

Show Suggested Answer

Suggested Answer: A, C

by Whitney at Jan 15, 2025, 05:40 PM

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Jennifer

3 months ago

Alright, time to put on my calculator hat and crunch some numbers. 10% increase in profit, 40% dividend payout ratio... Aha! Option A, $0.74 per share, is the winner. Time to collect my prize and buy myself a nice, shiny new protractor.

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Noble

2 months ago

Great job on figuring out the dividend per share, option A it is!

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Lindsey

2 months ago

I agree, the calculations point to option A as the dividend per share.

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King

3 months ago

I think you're right, option A seems to be the correct answer.

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Bettina

4 months ago

Hold up, did they say 'wholly equity financed' and then introduce long-term debt? Someone's playing a little fast and loose with the facts here. But hey, I'll go with option B, $0.67 per share, just to keep things interesting.

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Martha

3 months ago

I think option B, $0.67 per share, is a good choice. Let's see if that's the correct answer.

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Jimmie

3 months ago

I agree, it does seem a bit contradictory to be 'wholly equity financed' and then introduce long-term debt.

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Dana

4 months ago

I'm not sure about the answer. Can someone explain how the dividend per share is calculated in this scenario?

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Marilynn

4 months ago

Okay, let's break this down. 2 million shares, $5 million profit before interest and tax, 30% corporate income tax, and $2 million in long-term debt at 10% interest. Yup, I think I've got it. Option D, $1.01 per share, is the way to go.

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Sheridan

3 months ago

Yes, option D seems to be the correct choice based on the calculations.

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Odette

3 months ago

So, we're all in agreement then? Option D it is.

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Glenn

3 months ago

That makes sense, considering the data provided.

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Dominque

4 months ago

I think it's option D, $1.01 per share.

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Catarina

4 months ago

Hmm, let's see. Increase in profit before interest and tax by 10%, and maintain a dividend payout ratio of 40%. Sounds like a pretty solid plan to me. I'm leaning towards option C, $1.11 per share.

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Emilio

4 months ago

I agree with Arleen. With a 10% increase in profit, the dividend per share should also increase.

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Arleen

5 months ago

I think the answer is C) $1.11 because the company aims to increase profit by 10%.

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