CIMA F3 Exam With Confidence Using Practice Dumps

A: Reduce the annual dividend to a more sustainable level

Price controls are expected to be long-term and have cut annual profit from $3bn to $1bn. Continuing to pay a $1.5bn dividend would rely on running down cash and reserves, which is not sustainable. A rational response is to reset the dividend to a level that can be covered by ongoing earnings in the new regulatory environment.

B: Review costs and staffing to find savings

With revenues capped, GDE’s main lever to protect profitability and cash flow is cost efficiency. A thorough review of operating costs and staffing can help offset some of the profit reduction, which supports long-term shareholder value and the ability to pay dividends in future.

C: Seek new revenue streams outside the price controls

Since core electricity prices are constrained, diversifying into related goods and services that are not regulated (e.g. energy services, maintenance contracts, renewables consulting, etc.) is a sensible strategic response. This can grow earnings without breaching the price cap.

Why not D or E?

D: Rights issue to maintain historical dividend levels would mean issuing equity essentially to fund dividends, which destroys shareholder value and signals poor financial discipline.

E: Bringing in a private equity investor is not an obvious or necessary response here; private equity would demand high returns and major restructuring, and it doesn’t directly address the regulatory profit squeeze in the way cost control and new revenue lines do.

Before announcement:

Equity = 4m shares × $4.0 = $16m

Debt = $7m

Gearing = 7 / 16 = 43.75% → already above 40%.

After additional $2m debt and higher share price:

Debt = 7 + 2 = $9m

Equity = 4m × $4.2 = $16.8m

Gearing = 9 / 16.8 ≈ 53.6% → even further above the 40% ceiling.

So the gearing objective is exceeded both before and after, and gearing rises.

 Revenues are in E$ and F$, costs are in G$, and reporting currency is D$.

 If the D$ strengthens against G$ (option C), then G$ costs translate into fewer D$, so reported costs fall and operating profit margin improves.

 A stronger D$ against E$ or F$ (A or B) reduces the D$ value of sales, hurting margins.

 A weaker D$ against G$ (D) makes G$-denominated costs more expensive in D$, also hurting margins.

So the change that most helps maintain/improve margin is C.