A company plans to raise finance for a new project.

Question

A company plans to raise finance for a new project.
It is considering either the issue of a redeemable cumulative preference share or a Eurobond.

Advise the directors which of the following statements would justify the issue of preference shares over a bond?

Accepted Answer

B. If profits are poor, dividends do not have to be paid on the preference share - however, interest would need to be paid on the Eurobond.

Answer

A. Preference shares are not secured against the assets of the business - however, the Eurobond would be.

Answer

C. The issue of the preference share would reduce the company's gearing - however, the Eurobond would increase it.

Answer

D. The company can claim tax relief on the dividend paid on the preference share at a higher rate than the interest paid on the Eurobond.

Summer Certification Special Limited Time 70% Discount Offer - Ends in 0d 00h 00m 00s - Coupon code: validbest

Exam F3 All Questions

CIMA Strategic F3 Question # 89 Topic 10 Discussion

Correct Answer:

Options Selected by Other Users:

Contribute your Thoughts: