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CIMAPRA19-F03-1 Exam - Topic 5 Question 82 Discussion

A company is planning a new share issue.The funds raised will be used to repay debt on which it is currently paying a high interest rate.Operating profit and dividends are expected to remain unchanged in the near future.If the share issue is implemented, which THREE of the following are most likely to increase?
B) The number of shares in issue and C) Next year's payment of corporate income tax and D) The gearing (book value of debt as a percentage of the book value of equity + debt)
A) The cost of equity
E) Interest cover

CIMAPRA19-F03-1 Exam - Topic 5 Question 82 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 82
Topic #: 5
[All CIMAPRA19-F03-1 Questions]

A company is planning a new share issue.

The funds raised will be used to repay debt on which it is currently paying a high interest rate.

Operating profit and dividends are expected to remain unchanged in the near future.

If the share issue is implemented, which THREE of the following are most likely to increase?

Show Suggested Answer Hide Answer
Suggested Answer: B, C, D

by Sylvia at Mar 16, 2024, 07:10 PM

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Allene
9 months ago
Wait, are they really not expecting any change in dividends? That's surprising!
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Michell
10 months ago
I agree, interest cover should improve with debt repayment.
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Kimi
10 months ago
Not so sure about that gearing thing, seems complicated.
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Adolph
10 months ago
I think the cost of equity might go up too.
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Novella
10 months ago
Definitely the number of shares in issue will increase.
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Lajuana
10 months ago
I wonder if gearing will change. If they repay debt, wouldn't that lower the debt part of the equation? Or does the new share issue complicate that?
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Dorethea
11 months ago
I practiced a similar question where they mentioned debt repayment. I feel like interest cover might improve, but I'm not entirely sure how that ties into the share issue.
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Virgie
11 months ago
I'm a bit unsure about the cost of equity. I remember something about it potentially increasing with more shares, but I can't recall the exact reasoning.
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Walton
11 months ago
I think the number of shares in issue will definitely increase since they're planning a new share issue. That seems straightforward.
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Kattie
11 months ago
I'm a bit confused about the cost of equity increasing. Wouldn't the new share issue make the company less risky, potentially lowering the cost of equity? I'll need to think this through carefully.
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Blair
11 months ago
I've got this! Repaying the high-interest debt will lower the interest expense, so that should increase the operating profit and potentially the dividends as well. The other key changes are the increase in shares and reduction in gearing.
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Alesia
11 months ago
Okay, let me think this through. The share issue will increase the number of shares, and repaying debt should reduce the interest payments, so that makes sense. I'm still not sure about the tax impact though.
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Paola
11 months ago
This seems straightforward - the share issue will increase the number of shares, and repaying debt will reduce the gearing and improve interest cover.
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Bobbie
11 months ago
Hmm, I'm a bit unsure about the cost of equity increasing. Wouldn't the new shares dilute the existing shareholders, potentially lowering the cost of equity?
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Lucina
11 months ago
Hmm, I'm a little unsure about the persona identification step. Is that something we need to do upfront or can that wait until we've gathered more information from the stakeholders?
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Chandra
11 months ago
This is a good question. I think the key is understanding how standard interfaces make it easier for different systems to interact and communicate with each other. That upfront clarity and consistency is really valuable.
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Tony
11 months ago
I feel like GRANT and REVOKE aren't related to creating views, but I can't quite remember the role of CREATE VIEW clearly in this context.
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Glynda
11 months ago
Hmm, I'm a bit unsure about this one. The options seem to be focused on different scopes of security management, but I'm not totally clear on the exact objective. I'll have to think this through carefully.
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Josefa
11 months ago
This question seems straightforward, but I want to make sure I understand the terminology correctly before selecting an answer.
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Nenita
11 months ago
I practiced a similar question about authentication methods and their vulnerabilities. I feel like denial of service isn't relevant here, but I'm a bit uncertain.
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Jesus
2 years ago
I also think the gearing will increase since they are repaying high interest debt.
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Aimee
2 years ago
Yes, because issuing more shares can signal a lower confidence in the company's performance.
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Rosalind
2 years ago
But wouldn't the cost of equity increase too if they issue more shares?
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Jesus
2 years ago
I agree, that would dilute the ownership of existing shareholders.
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Aimee
2 years ago
I think if they issue more shares, the number of shares in issue will increase.
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Rosalind
2 years ago
I'm nervous about this question on the share issue.
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Leana
2 years ago
You're right, Earleen. And interest cover would likely improve as well, since they are paying off high-interest debt.
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Earleen
2 years ago
I believe the gearing would decrease as they plan to repay debt with the funds raised.
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Benton
2 years ago
Yes, that makes sense. The cost of equity would also likely increase with the new share issue.
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Rolf
2 years ago
I think the number of shares in issue would increase if they are planning a new share issue.
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