Deal of The Day! Hurry Up, Grab the Special Discount - Save 25% - Ends In 00:00:00 Coupon code: SAVE25
Welcome to Pass4Success

- Free Preparation Discussions
Mail Us support@pass4success.com
Location US
Mob_nav_barsMENU

CIMAPRA19-F03-1 Exam - Topic 7 Question 56 Discussion

A company has a covenant on its 5% long term corporate bond.* Covenant - The earnings must not fall below $7 millionThe bond has a nominal value of $60 million.It is currently trading at 80% of its nominal value.The projected earnings before interest and taxation for next year are $11.5 million.The company retains 80% of its earnings. It pays tax at 20%.Advise the Board of Directors which of the following covenant conditions will apply next year?
C) The earnings will be = $6.80 million (The covenant will be breached).
A) The earnings will be = $7.28 million (The covenant will not be breached).
B) The earnings will be = $11.50 million (The covenant will not be breached).
D) The earnings will be = $5.44 million (The covenant will be breached).

CIMAPRA19-F03-1 Exam - Topic 7 Question 56 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 56
Topic #: 7
[All CIMAPRA19-F03-1 Questions]

A company has a covenant on its 5% long term corporate bond.

* Covenant - The earnings must not fall below $7 million

The bond has a nominal value of $60 million.

It is currently trading at 80% of its nominal value.

The projected earnings before interest and taxation for next year are $11.5 million.

The company retains 80% of its earnings. It pays tax at 20%.

Advise the Board of Directors which of the following covenant conditions will apply next year?

Show Suggested Answer Hide Answer
Suggested Answer: C

by Leonora at Aug 21, 2022, 11:02 AM

Limited Time Offer

25%

Off

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

Contribute your Thoughts:

0/2000 characters
Submit Cancel
Mila
10 months ago
Just to clarify, they need to maintain above $7 million, right?
upvoted 0 times
...
Nelida
10 months ago
I think A is a bit misleading, earnings will be higher than that.
upvoted 0 times
...
Buck
10 months ago
Wait, how can they go from $11.5 million to $6.8 million? Sounds off.
upvoted 0 times
...
Hana
11 months ago
Definitely going with option B!
upvoted 0 times
...
Cora
11 months ago
The projected earnings are $11.5 million, so the covenant won't be breached.
upvoted 0 times
...
Milly
11 months ago
I'm a bit confused about the tax impact; I thought we had to deduct taxes before checking the covenant, but I'm not sure how that plays into the options.
upvoted 0 times
...
Iluminada
11 months ago
I practiced a similar question where we had to determine if earnings met a covenant, and I think option B makes the most sense here.
upvoted 0 times
...
Marilynn
11 months ago
I think the projected earnings are $11.5 million, so the covenant should be fine, but I can't recall if we need to consider anything else.
upvoted 0 times
...
Denna
11 months ago
I remember we discussed how to calculate retained earnings after tax, but I'm not entirely sure how that affects the covenant.
upvoted 0 times
...
Ozell
11 months ago
I'm leaning towards the Cloud event integration role. It seems like it would be designed specifically for handling cloud-related events and alerts.
upvoted 0 times
...
Rosamond
11 months ago
I'm not sure about this one. I'll have to review my notes on data set types to figure out the answer.
upvoted 0 times
...
Val
11 months ago
I'm a bit confused by the different graphics mode options. Can someone help me understand the differences between "Build to Lossless" and "Always Lossless"? I want to make sure I pick the right one for this scenario.
upvoted 0 times
...

Save Cancel