CIMA Exam CIMAPRA19-F03-1 Topic 5 Question 64 Discussion

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

Question #: 64
Topic #: 5

A company has a cash surplus which it wishes todistributeto shareholders by a share repurchase rather than paying a special dividend.

WhichTHREEof the following statementsare correct?

AThe payment of a special dividend could raise shareholders' expectations of similar distributions in the future, unlike a share repurchase.

BThe share repurchase could send a negative signal to shareholders as it could be interpreted as a failure of management to find suitable investment opportunities.

CDetermination of the repurchase price will be easy as shareholders will insist on receiving the open market price.

DDifferent tax regimes could result in shareholders having a preference for a share repurchase due to the often more preferential tax treatment of capital gains.

EThe share repurchase, if approved by the shareholders, will be binding on all of the company's shareholders.

Show Suggested Answer

Suggested Answer: C

by Tammara at Feb 04, 2023, 03:58 AM

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Denae

6 days ago

This question is a real gem. I'm going to ace this exam and become the next Warren Buffett, or at least the next Robin Hood - stealing from the rich and giving to myself.

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Dahlia

10 days ago

C is incorrect. Determining the repurchase price is not easy, as the company will likely need to consider various factors beyond the current market price.

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Paz

18 days ago

I agree with Franklyn, option B makes sense. Share repurchases can indeed send a negative signal to shareholders.

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Catarina

18 days ago

B is also correct. A share repurchase could signal that the company lacks investment opportunities, which may worry some shareholders.

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A, D, and E are correct. The share repurchase allows the company to distribute cash without raising shareholders' expectations for future payouts. It also offers tax advantages compared to a special dividend in some cases. And the repurchase is binding on all shareholders, not just those who participate.

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Franklyn

22 days ago

I disagree, I believe option B is correct as a share repurchase could signal a lack of investment opportunities.

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Ma

26 days ago

I think option A is correct because shareholders may expect more dividends in the future.

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CIMA Exam CIMAPRA19-F03-1 Topic 5 Question 64 Discussion

Contribute your Thoughts:

Denae

Dahlia

Paz

Catarina

Jill

Franklyn

Ma