CIMA F3 Exam With Confidence Using Practice Dumps

Current debt interest:

Existing: 5m×8%=0.40m5\text{m} \times 8\% = 0.40\text{m}5m×8%=0.40m

New: 2m×10%=0.20m2\text{m} \times 10\% = 0.20\text{m}2m×10%=0.20m

Total interest = 0.60m

Let annual sales = SSS.

Operating profit margin = 20% → OP = 0.20 S.

Interest cover covenant:

0.20S0.60≥4⇒0.20S≥2.4⇒S≥2.40.20=12.0 million\frac{0.20 S}{0.60} \ge 4 \Rightarrow 0.20 S \ge 2.4 \Rightarrow S \ge \frac{2.4}{0.20} = 12.0\ \text{million}0.600.20S​≥4⇒0.20S≥2.4⇒S≥0.202.4​=12.0 million

Correct answer: A. $12.00 million

Once Division B is sold, Division A becomes heavily reliant on B as a major external customer. If the new owner reduces purchases or switches supplier, Division A’s volumes and viability are at risk. That makes:

C. Division A's going concern is highly dependent on its relationship with Division B – the main risk.

A. Equity instead of debt reduces financial risk → ✅ True

B. Equity will create pressure for higher future DPS → too strong / not necessarily always → ❌

C. Debt always increases EPS → only if returns > cost of debt → ❌

D. Retained earnings is the cheapest form of equity finance (no issue costs) → ✅ True

E. More debt → higher financial risk → higher cost of equity (MM with gearing) → ✅ True

F. Debt is always preferable → clearly ❌

Correct three:

A, D, E\boxed{A,\ D,\ E}A, D, E​