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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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Merilyn
2 days 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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Vannessa
7 days 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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Erick
13 days 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
15 days ago
I agree with Elbert, the financial projections look positive for next year.
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Elbert
17 days ago
I think the company will be in compliance with both covenants.
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