CIMA Exam CIMAPRA19-F03-1 Topic 3 Question 111 Discussion

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

Question #: 111
Topic #: 3

[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?

AThe company will be in compliance with both covenants.

BThe company will be in breach of both covenants.

CThe company will breach the covenant in respect of retained earnings only.

DThe company will be in breach of the covenant in respect of interest cover only.

Show Suggested Answer

Suggested Answer: C

by Ngoc at Jun 15, 2025, 01:48 AM

Limited Time Offer

25%

Off

Get Premium CIMAPRA19-F03-1 Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Laura

22 days ago

Seriously, who comes up with these exam questions? It's like they're trying to trip us up. I bet the answer is D, just to keep us on our toes.

upvoted 0 times

...

Gregoria

23 days ago

Ooh, I love a good financial puzzle! Let me break out my spreadsheet and crunch some numbers. This is going to be fun!

upvoted 0 times

Geoffrey

14 days ago

User 1: Looks like we have a financial puzzle to solve!

upvoted 0 times

...

Jody

1 months ago

This question is making my head spin. Can we get a calculator up in here? I'm just going to guess and hope for the best.

upvoted 0 times

Kiera

2 days ago

I agree, the financial projections look good for next year.

upvoted 0 times

...

Roy

14 days ago

I think the company will be in compliance with both covenants.

upvoted 0 times

...

Anglea

1 months ago

I don't know, that 10% dividend increase sounds a bit too good to be true. I'm going to go with option C and say the company will breach the retained earnings covenant.

upvoted 0 times

...

Pansy

1 months ago

Wait, what's this about interest cover? I thought we were talking about bonds. This exam question is really testing our financial knowledge.

upvoted 0 times

Darrel

11 days ago

So, based on the financial projections provided, do you think the company will be able to meet the interest cover covenant next year?

upvoted 0 times

...

Trinidad

19 days ago

Yes, that's right. In this case, the company must maintain an interest cover of at least 3 times to comply with one of the loan covenants.

upvoted 0 times

...

Cruz

1 months ago

Interest cover is a ratio that measures a company's ability to pay interest expenses on its debt. It's important for bondholders to know if the company can meet its interest obligations.

upvoted 0 times

...