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CIMAPRA19-F03-1 Exam - Topic 6 Question 67 Discussion

A companyplans to raise finance for a new project.Itis considering either the issue of a redeemable cumulative preference share or a Eurobond.Advise the directors which of the following statements would justify the issue of preference shares over a bond?
A) Preference shares are not secured against the assets of the business -however, the Eurobond would be. and B) If profits are poor, dividends do not have to be paid on the preference share - however, interest would need to be paid on the Eurobond.
C) The issue of the preference share would reduce the company's gearing - however, the Eurobond would increase it.
D) The company can claim tax relief on the dividend paid on the preference share at a higher rate than the interest paid on the Eurobond.

CIMAPRA19-F03-1 Exam - Topic 6 Question 67 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 67
Topic #: 6
[All CIMAPRA19-F03-1 Questions]

A companyplans to raise finance for a new project.

Itis considering either the issue of a redeemable cumulative preference share or a Eurobond.

Advise the directors which of the following statements would justify the issue of preference shares over a bond?

Show Suggested Answer Hide Answer
Suggested Answer: A, B, E

by Kate at Apr 02, 2023, 10:43 PM

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Devon
10 months ago
Not sure about the tax relief part, sounds too good to be true.
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Beckie
10 months ago
Preference shares reduce gearing, which is definitely a good thing.
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Ernest
10 months ago
Wait, can they really claim tax relief on dividends like that?
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Louvenia
11 months ago
Totally agree, that’s a big plus for preference shares!
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Brigette
11 months ago
Preference shares don’t require fixed payments if profits are low.
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Val
11 months ago
I thought dividends on preference shares weren't tax-deductible, which makes option D seem questionable. I need to double-check that.
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Erick
11 months ago
I practiced a similar question where we discussed the implications of gearing. I feel like option C could be a strong argument for preference shares.
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Natalya
11 months ago
I'm not entirely sure, but I remember something about preference shares being less risky for the company in tough times. Maybe option C is relevant?
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Anastacia
11 months ago
I think option B makes sense because if profits are low, the company can avoid paying dividends on preference shares, unlike the interest on a Eurobond.
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Kris
11 months ago
Hmm, I'm a bit unsure about this one. The options seem pretty technical, and I'm not super familiar with the details of hyperconvergence. I'll have to think it through carefully.
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Curt
11 months ago
Okay, I've got this. The answer is C - warehouse configuration template. That's the tool we use to create new warehouses based on an existing approved setup. I'm confident that's the right approach here.
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Cristal
11 months ago
Okay, I think I've got this. The Event Structure should capture any changes to the Front Panel controls, whether through user interaction or programmatic updates.
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Odelia
11 months ago
Ah yes, I remember this one from the lecture. "On-demand self-service" is the ability for a consumer to provision computing resources as needed without requiring human interaction with the service provider. Definitely the right answer here.
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Augustine
1 year ago
Forget the finance technicalities, I just want to know if these preference shares come with a built-in chocolate fountain. Now that's what I call shareholder value!
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Avery
1 year ago
User 3: I think I'll go for preference shares then, tax benefits sound good.
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Carylon
1 year ago
User 2: Preference shares don't come with chocolate fountains, but they do have tax benefits.
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Berry
1 year ago
User 1: I wish preference shares came with a chocolate fountain!
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Salena
1 year ago
Personally, I'm a big fan of Option D. Gotta love that sweet, sweet tax relief on those preference share dividends.
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Augustine
1 year ago
Kristofer: Definitely, it's a smart move to consider the tax implications when raising finance.
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Kristofer
1 year ago
User 2: Yeah, that tax relief could really benefit the company in the long run.
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Claudio
1 year ago
True, but the tax relief with Option D could potentially outweigh the lack of security with Option A.
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Micheline
1 year ago
But what about the security of the assets with Option A? That's also important to consider.
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Scarlet
1 year ago
I agree, Option D seems like the best choice for tax relief.
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Emiko
1 year ago
User 1: I agree, Option D seems like the best choice for tax relief.
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Telma
1 year ago
Haha, the company should just ask the directors to take a pay cut if profits are poor. That'll solve the interest payment problem real quick!
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Cristy
1 year ago
I'd have to agree with Emogene on this one. Dividends on preference shares are way more flexible than rigid bond interest payments.
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Terrilyn
1 year ago
D) The company can claim tax relief on the dividend paid on the preference share at a higher rate than the interest paid on the Eurobond.
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Dorinda
1 year ago
B) If profits are poor, dividends do not have to be paid on the preference share - however, interest would need to be paid on the Eurobond.
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Eleni
1 year ago
A) Preference shares are not secured against the assets of the business - however, the Eurobond would be.
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Melinda
1 year ago
The company can claim tax relief on the dividend paid on the preference share at a higher rate than the interest paid on the Eurobond.
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Dean
1 year ago
If profits are poor, dividends do not have to be paid on the preference share - however, interest would need to be paid on the Eurobond.
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Lavonne
1 year ago
Preference shares are not secured against the assets of the business - however, the Eurobond would be.
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Emogene
1 year ago
Option B is the clear winner here. No one wants to pay interest when profits are poor, so the preference shares are the way to go.
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Felix
1 year ago
User 2: Yeah, not having to pay dividends when profits are poor is a huge advantage.
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Dorsey
1 year ago
User 1: I agree, option B is definitely the best choice.
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Ahmad
1 year ago
I see your points, but I think option C is the most beneficial as it would reduce our company's gearing.
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France
1 year ago
I disagree, I believe option B is better as we won't have to pay dividends if profits are poor.
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Clement
1 year ago
I think option D is the best choice because tax relief on dividends can save us money.
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