CIMA Exam CIMAPRA19-F03-1 Topic 5 Question 103 Discussion

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

Question #: 103
Topic #: 5

Thetable below shows theforecast for a company's next financial year:

The forecast incorporates the following assumptions:

* 25% of operating costs are variable

* Debt finance comprises a $400 million fixed rate loan at 5%

* Corporateincometax is paid at 25%

The company plans to do the following next year from the forecast earnings on the assumption that earnings will be equivalent to free cash flow:

* Pay a total dividend of $20 million

* Invest $40 million in new projects

What is themaximum % reduction inoperatingactivitythat could occurnext yearbefore the company's dividend and investment plans are affected?

Give your answer to the nearest 0.1%.

A4.8, 4.7, 4.9, 5.0, 4.6, 4.80, 4.70, 4.90, 5.00, 4.60%

B4.8, 4.7, 4.9, 5.0, 4.6, 4.80, 4.70, 4.90, 5.00, 3.60%

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Suggested Answer: A, B, D

by Reed at Dec 10, 2024, 01:11 AM

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3 days ago

I agree with An, a 4.8% reduction seems reasonable based on the assumptions.

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6 days ago

I think the maximum % reduction in operating activity could be 4.8%.

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