CIMA Exam CIMAPRA19-F03-1 Topic 6 Question 95 Discussion

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

Question #: 95
Topic #: 6

[All CIMAPRA19-F03-1 Questions]

A company has in a 5% corporate bond in issue on which there are two loan covenants.

* Interest covermust not fall below 3 times

* Retained earnings for the yearmust not fall below $3.5 million

The Company has 200 million shares in issue.

The most recent dividend per share was $0.04.

The Company intends increasing dividends by 10% next year.

Financial projections for next year are as follows:

Advise the Board of Directors which of the following will be the status of compliance with the loan covenants next year?

AThe company will be in compliance with both covenants.

BThe company will be in breach of both covenants.

CThe company will breach the covenant in respect of retained earnings only.

DThe company will be in breach of the covenant in respect of interest cover only.

Show Suggested Answer

Suggested Answer: A, B, D

by Wynell at Sep 08, 2024, 12:09 PM

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Vannessa

3 days ago

This is a tricky one. I'm going to have to really dig into the numbers to figure this out. Let's see, interest cover can't fall below 3 times, and retained earnings have to stay above $3.5 million... hmmm.

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Erick

9 days ago

I'm not so sure, I think the company will breach the covenant in respect of interest cover only.

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Gearldine

11 days ago

I agree with Elbert, the financial projections look positive for next year.

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Elbert

13 days ago

I think the company will be in compliance with both covenants.

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