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CIMAPRA19-P03-1 Exam - Topic 2 Question 73 Discussion

RFD, a listed company, is considering making an investment in a risky new venture. RFD has a substantial cash surplus that will be used to acquire the necessary resources. It is unlikely that RFD would have been able to raise finance for this investment because the company is already highly geared.Which of the following statements about stakeholders' conflicting interests are true?
A) RFD's shareholders are exposed to the systematic risk from this project and the directors are exposed to total risk. and B) RFD's lenders are likely to suffer a greater risk than RFD's equity investors. and C) Neither RFD's shareholders or lenders are likely to have the means to prevent the directors from making this investment.
D) RFD's existing employees are likely to enjoy a significant upside risk from this project.
E) The diversification of RFD's interests will reduce the risks for all stakeholders.

CIMAPRA19-P03-1 Exam - Topic 2 Question 73 Discussion

Actual exam question for CIMA's CIMAPRA19-P03-1 exam
Question #: 73
Topic #: 2
[All CIMAPRA19-P03-1 Questions]

RFD, a listed company, is considering making an investment in a risky new venture. RFD has a substantial cash surplus that will be used to acquire the necessary resources. It is unlikely that RFD would have been able to raise finance for this investment because the company is already highly geared.

Which of the following statements about stakeholders' conflicting interests are true?

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

by Minna at Aug 02, 2025, 08:16 AM

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Jessenia
6 months ago
C makes sense, but can’t shareholders push back?
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Carey
7 months ago
B seems off, lenders usually have less risk than equity investors.
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Reita
7 months ago
Totally agree, directors take on total risk.
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Felicitas
7 months ago
A is true, shareholders face systematic risk.
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Latosha
8 months ago
E sounds too optimistic, diversification doesn’t always reduce risk.
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In
8 months ago
I’m not convinced that diversification always reduces risks for all stakeholders; it seems like it could depend on the specifics of the investment.
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Erin
8 months ago
I practiced a similar question about stakeholder interests, and I feel like neither shareholders nor lenders can really stop the directors from making risky decisions.
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Frederica
8 months ago
I think lenders might be at a greater risk than equity investors because they have fixed returns, but I need to double-check that.
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Farrah
9 months ago
I remember discussing how shareholders face systematic risk, but I'm not sure if directors face total risk in this context.
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Gertude
9 months ago
I think I've got it. The shareholders are exposed to systematic risk, the lenders are at greater risk, and the directors can likely make this investment without much oversight. Sounds like a good strategy to me.
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Isabella
9 months ago
The key here is to identify the different stakeholders and their incentives. The shareholders want to maximize returns, the lenders want to minimize risk, and the directors may have their own agenda. Gotta weigh all that.
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Deeanna
9 months ago
I'm a bit confused about the systematic risk versus total risk for the shareholders and directors. I'll need to re-read that part carefully.
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Gail
9 months ago
Okay, let's think this through step-by-step. The company has a cash surplus, so that's good. But it's a risky new venture, and the company is already highly geared, so the lenders are probably more exposed than the shareholders.
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Youlanda
9 months ago
This question seems straightforward, but I want to make sure I understand the key stakeholders and their conflicting interests before selecting the correct statements.
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Linwood
10 months ago
Yes, that's correct. The directors are exposed to total risk.
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Caprice
10 months ago
I agree with Nichelle. The lenders are in a more precarious position if this risky venture fails.
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Leonida
6 months ago
I doubt they have much power in this situation.
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An
7 months ago
True, equity investors might not feel it as much.
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Colton
7 months ago
I think the lenders really do face more risk.
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Shawna
8 months ago
But can shareholders really stop the directors?
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Nichelle
12 months ago
Option B seems the most likely. The lenders are taking on greater risk than the shareholders since the company is already highly geared.
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Loreen
10 months ago
Option B makes sense. Lenders usually have more at stake.
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Stanford
11 months ago
B) RFD's lenders are likely to suffer a greater risk than RFD's equity investors.
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Nieves
11 months ago
A) RFD's shareholders are exposed to the systematic risk from this project and the directors are exposed to total risk.
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Elza
12 months ago
I think the shareholders are exposed to systematic risk, right?
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