CIMA Exam CIMAPRA19-F03-1 Topic 5 Question 104 Discussion

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

Question #: 104
Topic #: 5

F Co. is a large private company, the founder holds 60% of the company's share capital and her 2 children each hold 20% of the share capital.

The company requires a large amount of long-term finance to pursue expansion opportunities, the finance is required within the next 3 months. The family has agreed that an Initial Public Offering (IPO) should not be pursued at this time, because it would take up to 12 months to arrange.

The existing shareholders are currently considering raising the required finance from an established Venture Capitalist in the form of debt and equity. The Venture Capitalist has agreed to provide the required finance provided it can earn a return on investment of 25% per year. In addition, the Venture Capitalist requires 60% of the equity capital, a directorship in the company and a veto on all expenditure of a capital or revenue nature above a specified limit.

From the perspective of the family, which of the following are advantages of raising the required finance from the Venture Capitalist?

Select all that apply.

AThe cost of the finance under the Venture Capital investment.

BThe changes in shareholding as a result of the Venture Capital investment.

CThe veto on expenditure above a specified level of a revenue or capital nature.

DThe speed with which the finance can be obtained.

EThe experience of the Venture Capitalist with growing businesses.

Show Suggested Answer

Suggested Answer: A, C

by Whitney at Jan 15, 2025, 05:40 PM

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Kristin

1 months ago

I can't imagine the family is thrilled about giving up 60% of the equity, but desperate times call for desperate measures. At least they're not going the IPO route, which would be even more painful.

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Lashaunda

1 months ago

As long as the Venture Capitalist knows what they're doing, I think the family should go for it. This could be a game-changer for the company's expansion plans.

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Paris

6 days ago

True, the cost of the finance and changes in shareholding should also be carefully considered before making a decision.

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Dorothy

11 days ago

But giving up 60% of the equity and a veto on expenditure might be a big trade-off.

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Jina

22 days ago

The experience of the Venture Capitalist could also be very valuable in growing the business.

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Xenia

22 days ago

I agree, the speed of obtaining the finance is crucial for the company's expansion.

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Karl

1 months ago

The speed of obtaining the finance is a major advantage, but the changes in shareholding and the veto power are concerning. The family needs to carefully weigh the pros and cons.

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Leatha

3 days ago

The speed of obtaining the finance is a major advantage, but the changes in shareholding and the veto power are concerning. The family needs to carefully weigh the pros and cons.

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Veronika

9 days ago

E) The experience of the Venture Capitalist with growing businesses.

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Detra

11 days ago

D) The speed with which the finance can be obtained.

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Felicitas

20 days ago

A) The cost of the finance under the Venture Capital investment.

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Laura

1 months ago

Getting a Venture Capitalist on board will definitely bring in valuable expertise, but I'm not sure I'm comfortable with them having a 60% stake and a veto power.

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