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CIMA Exam CIMAPRA19-F03-1 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?

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Suggested Answer: B, C, D

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

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Jesus
11 months ago
I also think the gearing will increase since they are repaying high interest debt.
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Aimee
11 months ago
Yes, because issuing more shares can signal a lower confidence in the company's performance.
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Rosalind
11 months ago
But wouldn't the cost of equity increase too if they issue more shares?
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Jesus
11 months ago
I agree, that would dilute the ownership of existing shareholders.
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Aimee
11 months ago
I think if they issue more shares, the number of shares in issue will increase.
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Rosalind
11 months ago
I'm nervous about this question on the share issue.
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Leana
11 months 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
11 months ago
I believe the gearing would decrease as they plan to repay debt with the funds raised.
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Benton
12 months ago
Yes, that makes sense. The cost of equity would also likely increase with the new share issue.
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Rolf
12 months ago
I think the number of shares in issue would increase if they are planning a new share issue.
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