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CIMAPRA19-F03-1 Exam - Topic 6 Question 119 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 119
Topic #: 6
[All CIMAPRA19-F03-1 Questions]

A company has:

* $6 million market value of equity

* $4 million market value of debt

* WACC of 11.04%

* Corporate income tax rate of 20%

According to Modigliani and Miller's theoryof capital structure with tax,what is the ungeared cost of equity?

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Suggested Answer: A

by Adria at Jan 05, 2026, 05:16 AM

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Delbert
3 days ago
D) 12.54% seems more reasonable. The WACC is 11.04%, and the tax rate is 20%, so the ungeared cost of equity should be higher than that.
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Sina
8 days ago
I'm pretty sure the answer is C) 16.24%. The question mentions the market value of debt, so we need to account for the tax shield in the cost of equity calculation.
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Tresa
14 days ago
The correct answer is B) 10.16%. Modigliani and Miller's theory with tax shows that the ungeared cost of equity is lower than the WACC due to the tax shield.
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Brynn
19 days ago
I feel like I’ve seen a question like this before, and I think the ungeared cost of equity is calculated using the market values of equity and debt. I just hope I remember the right formula!
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Nakisha
24 days ago
If I remember correctly, the ungeared cost of equity should be higher than the WACC since it reflects the risk without the benefits of debt. I’m leaning towards option C, but I’m not confident.
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Shaun
29 days ago
I think we might need to use the WACC formula and rearrange it to isolate the ungeared cost of equity. I practiced a similar question last week, but I can't recall the exact steps.
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Omega
1 month ago
I remember that to find the ungeared cost of equity, we need to adjust for the tax shield on debt. But I'm not entirely sure how to apply the formula correctly.
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Mireya
1 month ago
This is a straightforward Modigliani-Miller question. I've practiced similar problems, so I'm confident I can work through this step-by-step and arrive at the correct answer.
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Dewitt
1 month ago
I'm a bit confused on how to approach this. I know Modigliani-Miller has something to do with capital structure and the impact of taxes, but I'm not sure I fully understand how to apply it in this case. I'll have to review my notes carefully.
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Galen
2 months ago
Alright, I've got this. The key is to use the Modigliani-Miller formula for the ungeared cost of equity. With the information provided, I should be able to plug in the values and solve for the answer.
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Georgeanna
2 months ago
Okay, let me think this through. We have the market value of equity, market value of debt, WACC, and tax rate. I believe I can use those to calculate the ungeared cost of equity, but I need to double-check the formula.
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Lakeesha
2 months ago
Hmm, this looks like a Modigliani-Miller question. I think I need to use the formula for the ungeared cost of equity, but I'm not totally sure how to apply it with the given information.
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