CIMA Exam CIMAPRA19-F02-1 Topic 3 Question 104 Discussion

Actual exam question for CIMA's CIMAPRA19-F02-1 exam

Question #: 104
Topic #: 3

W and Y are very similar entities with the same level of profit before interest and tax. However, W has gearing of 95% and Y has gearing of 30%.

Which of the following statements is true?

AInvesting in W carries a higher level of risk than investing in Y.

BA greater proportion of profit will be available out of which to declare a dividend in W.

CInvestors in Y will expect a higher return than investors in W.

DY has a greater commitment to meet interest payments than W.

Show Suggested Answer

Suggested Answer: A, B, C, D

by Yuriko at Dec 07, 2024, 02:32 AM

Limited Time Offer

25%

Off

Get Premium CIMAPRA19-F02-1 Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Kara

2 days ago

B) A greater proportion of profit will be available out of which to declare a dividend in W. Hmm, I don't think so. The high gearing in W means more of the profits will go towards servicing the debt, leaving less for dividends.

upvoted 0 times

...

Micheal

4 days ago

D) Y has a greater commitment to meet interest payments than W. Haha, nice try, but no. The high gearing of 95% in W actually means it has a greater commitment to meet interest payments, not Y.

upvoted 0 times

...

Alana

7 days ago

C) Investors in Y will expect a higher return than investors in W. This makes sense, as Y has lower gearing and hence lower risk, so investors would expect a lower return.

upvoted 0 times

...

Julio

14 days ago

A) Investing in W carries a higher level of risk than investing in Y. This is clearly the correct answer. The high gearing of 95% in W means it has a much higher debt burden, making it a riskier investment.

upvoted 0 times

...