CIMA Exam CIMAPRA19-F03-1 Topic 6 Question 67 Discussion

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

Question #: 67
Topic #: 6

A companyplans to raise finance for a new project.

Itis considering either the issue of a redeemable cumulative preference share or a Eurobond.

Advise the directors which of the following statements would justify the issue of preference shares over a bond?

APreference shares are not secured against the assets of the business -however, the Eurobond would be.

BIf profits are poor, dividends do not have to be paid on the preference share - however, interest would need to be paid on the Eurobond.

CThe issue of the preference share would reduce the company's gearing - however, the Eurobond would increase it.

DThe company can claim tax relief on the dividend paid on the preference share at a higher rate than the interest paid on the Eurobond.

Show Suggested Answer

Suggested Answer: A, B, E

by Kate at Apr 02, 2023, 10:43 PM

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Augustine

1 months ago

Forget the finance technicalities, I just want to know if these preference shares come with a built-in chocolate fountain. Now that's what I call shareholder value!

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Carylon

4 days ago

User 2: Preference shares don't come with chocolate fountains, but they do have tax benefits.

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Berry

7 days ago

User 1: I wish preference shares came with a chocolate fountain!

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Salena

2 months ago

Personally, I'm a big fan of Option D. Gotta love that sweet, sweet tax relief on those preference share dividends.

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Augustine

19 days ago

Kristofer: Definitely, it's a smart move to consider the tax implications when raising finance.

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Kristofer

25 days ago

User 2: Yeah, that tax relief could really benefit the company in the long run.

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Claudio

1 months ago

True, but the tax relief with Option D could potentially outweigh the lack of security with Option A.

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Micheline

1 months ago

But what about the security of the assets with Option A? That's also important to consider.

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Scarlet

1 months ago

I agree, Option D seems like the best choice for tax relief.

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Emiko

1 months ago

User 1: I agree, Option D seems like the best choice for tax relief.

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Telma

2 months ago

Haha, the company should just ask the directors to take a pay cut if profits are poor. That'll solve the interest payment problem real quick!

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Cristy

2 months ago

I'd have to agree with Emogene on this one. Dividends on preference shares are way more flexible than rigid bond interest payments.

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Terrilyn

1 days ago

D) The company can claim tax relief on the dividend paid on the preference share at a higher rate than the interest paid on the Eurobond.

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Dorinda

6 days ago

B) If profits are poor, dividends do not have to be paid on the preference share - however, interest would need to be paid on the Eurobond.

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Eleni

8 days ago

A) Preference shares are not secured against the assets of the business - however, the Eurobond would be.

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Melinda

14 days ago

The company can claim tax relief on the dividend paid on the preference share at a higher rate than the interest paid on the Eurobond.

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Dean

27 days ago

If profits are poor, dividends do not have to be paid on the preference share - however, interest would need to be paid on the Eurobond.

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Lavonne

2 months ago

Preference shares are not secured against the assets of the business - however, the Eurobond would be.

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Emogene

2 months ago

Option B is the clear winner here. No one wants to pay interest when profits are poor, so the preference shares are the way to go.

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Felix

1 months ago

User 2: Yeah, not having to pay dividends when profits are poor is a huge advantage.

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Dorsey

1 months ago

User 1: I agree, option B is definitely the best choice.

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Ahmad

2 months ago

I see your points, but I think option C is the most beneficial as it would reduce our company's gearing.

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France

2 months ago

I disagree, I believe option B is better as we won't have to pay dividends if profits are poor.

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Clement

3 months ago

I think option D is the best choice because tax relief on dividends can save us money.

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