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CIMA Exam CIMAPRA19-F03-1 Topic 6 Question 95 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 95
Topic #: 6
[All CIMAPRA19-F03-1 Questions]

A company has in a 5% corporate bond in issue on which there are two loan covenants.

* Interest covermust not fall below 3 times

* Retained earnings for the yearmust not fall below $3.5 million

The Company has 200 million shares in issue.

The most recent dividend per share was $0.04.

The Company intends increasing dividends by 10% next year.

Financial projections for next year are as follows:

Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?

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

by Wynell at Sep 08, 2024, 12:09 PM

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Amie
1 months ago
Wait, the company has a 5% corporate bond? That's like a 5% discount on their profits. They should've gone with the 'buy one, get one free' deal instead.
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Olen
1 months ago
This is like a financial puzzle, except there's no prize at the end, just a potential failing grade. Wait, is that a joke? I hope not, because I'm already stressed enough about this exam.
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Carmela
1 months ago
Ah, the old 'interest cover and retained earnings' conundrum. I feel like I've seen this one before. Time to put on my thinking cap and crunch some numbers!
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Veronique
23 days ago
We need to make sure our interest cover stays above 3 times.
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Merilyn
2 months ago
Okay, let's break this down. The company has a 5% corporate bond, and they're increasing dividends by 10% next year. I bet that's going to impact their retained earnings. I'm going with C on this one.
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Andrew
1 months ago
Yeah, I think C is the best choice too. It's important for the company to keep an eye on their financial projections.
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Nicholle
1 months ago
I agree, increasing dividends will definitely affect retained earnings. C seems like the most likely option.
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Vannessa
2 months ago
This is a tricky one. I'm going to have to really dig into the numbers to figure this out. Let's see, interest cover can't fall below 3 times, and retained earnings have to stay above $3.5 million... hmmm.
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Eva
21 days ago
Based on the financial projections, it looks like the company will breach the covenant in respect of interest cover only.
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Royce
22 days ago
We should also consider the impact of the 200 million shares in issue.
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Brittni
25 days ago
If the dividend per share is increasing by 10%, that will affect the retained earnings.
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Erasmo
1 months ago
I think we need to calculate the interest cover first.
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Erick
2 months ago
I'm not so sure, I think the company will breach the covenant in respect of interest cover only.
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Gearldine
2 months ago
I agree with Elbert, the financial projections look positive for next year.
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Elbert
2 months ago
I think the company will be in compliance with both covenants.
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