CIMA F3 Exam With Confidence Using Practice Dumps

The table below shows the forecast for a company's next financial year:

The forecast incorporates the following assumptions:

   • 25% of operating costs are variable

   • Debt finance comprises a $400 million fixed rate loan at 5%

   • Corporate income tax is paid at 25%

The company plans to do the following next year from the forecast earnings on the assumption that earnings will be equivalent to free cash flow: 

   • Pay a total dividend of $20 million

   • Invest $40 million in new projects

What is the maximum % reduction in operating activity that could occur next year before the company's dividend and investment plans are affected?

Give your answer to the nearest 0.1%.

A wholly equity financed company has the following objectives:

1. Increase in profit before interest and tax by at least 10% per year.

2. Maintain a dividend payout ratio of 40% of earnings per year.

Relevant data:

   • There are 2 million shares in issue.

   • Profit before interest and tax in the last financial year was $4 million.

   • The corporate income tax rate is 20%.

At the beginning of the current financial year, the company raised long term debt of $2 million at 5% interest each year. 

Calculate the dividend per share that will be announced this year assuming the company achieves its objective of increasing profit before interest and tax by 10%.

An all equity financed company reported earnings for the year ending 31 December 20X1 of $8 million.

One of its financial objectives is to increase earnings by 5% each year.

In the year ending 31 December 20X2 it financed a project by issuing a bond with a $1 million nominal value and a coupon rate of 4%.

The company pays corporate income tax at 20%.

If the company is to achieve its earnings target for the year ending 31 December 20X2, what is the minimum operating profit (profit before interest and tax) that it must achieve?