CIMA Exam CIMAPRA19-F03-1 Topic 1 Question 10 Discussion

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

Question #: 10
Topic #: 1

A listed company in a high growth industry, where innovation is a key driver of success hasalways operated a residual dividend policy, resulting involatility in dividends due to periodic significant investments in research and development.

The company has recently come under pressure from some investors to change its dividend policy so that shareholders receive a consistent growing dividend. In addition, they suggested that the company should use more debt finance.

If the suggested change is made to the financial policies, which THREE of the following statements are true?

AIt may give a signal to the market that the company is entering a period of stable growth.

BThere may be a change to the shareholder profile due to'the clientele effect'.

CThe directors will not have to take shareholder dividend preferences into consideration in future.

DRetained earnings have a lower cost than debt finance.

EThe company's financial risk will increasedue to its increased use of debt finance.

Show Suggested Answer

Suggested Answer: A, B, E

by Serina at May 09, 2022, 03:55 AM

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