CIMA Exam CIMAPRA19-F03-1 Topic 3 Question 1 Discussion

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

Question #: 1
Topic #: 3

A company'sgearing (measured as debt/(debt + equity)) is currently 60% andit isinvestigating whether an optimal gearing structure exists within the industry.

It hasanalysed the capital structure of similar companies in the industry and it would appear that there is evidence supporting the traditional theory of capital structure.

Companies with the lowest WACC in the industry have gearing of around 45% to 50%.

Which of the following actions would result in the company achieving a more optimal capital structure?

AUndertaking a rights issue of equity to repay some of its debt.

BRefinancing to replace some of its short term debt with long term debt.

CIncreasing the level of dividend to return more cash to shareholders.

DUsing retained cash to undertake a buyback of some of its equity.

Show Suggested Answer

Suggested Answer: A

by Talia at May 08, 2022, 02:58 PM

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