CIMA Exam CIMAPRA19-F03-1 Topic 7 Question 56 Discussion

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

Question #: 56
Topic #: 7

A company has a covenant on its 5% long term corporate bond.

* Covenant - The earnings must not fall below $7 million

The bond has a nominal value of $60 million.

It is currently trading at 80% of its nominal value.

The projected earnings before interest and taxation for next year are $11.5 million.

The company retains 80% of its earnings. It pays tax at 20%.

Advise the Board of Directors which of the following covenant conditions will apply next year?

AThe earnings will be = $7.28 million (The covenant will not be breached).

BThe earnings will be = $11.50 million (The covenant will not be breached).

CThe earnings will be = $6.80 million (The covenant will be breached).

DThe earnings will be = $5.44 million (The covenant will be breached).

Show Suggested Answer

Suggested Answer: C

by Leonora at Aug 21, 2022, 11:02 AM

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