CIMAPRA19-F03-1 Exam - Topic 6 Question 122 Discussion

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

Question #: 122
Topic #: 6

A company's Board of Directors is assessing the likely impact of financing future new projects using either equity or debt.

The directors are uncertain of the effects on key variables.

Which THREE of the following statements are true?

AThe choice between using either equity or debt will have no impact on the amount of corporate income tax payable.

BRetained earnings has no cost, and is therefore the cheapest form of equity finance.

CDebt finance is always preferable to equity finance.

DDebt finance will increase the cost of equity.

EEquity finance will reduce the overall financialrisk.

FEquity finance will increase pressure to pay a higher total future dividend.

Show Suggested Answer

Suggested Answer: D, E, F

by Elinore at Apr 02, 2026, 10:33 AM

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4 days ago

C sounds too absolute; I recall that debt isn't always preferable due to risks involved.

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9 days ago

I’m not sure about B; I thought retained earnings do have an opportunity cost associated with them.

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14 days ago

I remember studying that debt can actually affect tax liabilities, so A seems incorrect.

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