Page 293 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Exam style questions and answers

48 C

They have fixed and want variable therefore they use the bid rate, which is
6.0% (the bank always pays out the lower rate).

Actual borrowing (7.5%)

Payment to bank (LIBOR)

Receipt from the bank 6.0%

Net Interest after swap (LIBOR + 1.5%)

49

 Investment opportunity

 Develop a more environmentally  NPV using existing company
friendly washing machine/tumble WACC
drier. Financed by cutting the
forthcoming dividend  Business risk stays the same & so
does the finance risk as they
remain entirely equity funded.

 Open a chain of retail outlets to sell  NPV using risk adjusted WACC
their current products in. Financed via
a rights issue.  Business risk changes as they’ve
never set up or sold though their
own retail outlets before, financing
stays 100% equity.

 Develop a range of fashion  APV
accessories, financed by a subsidised
loan.  Change in business risk and
financial risk

 Develop a new combi fridge/washing  APV
machine, financed partly by a rights
issue and partly by a bank loan.  No change in business risk, but a
change in the financing of the
company because of the loan.

50 A, B, D, E

Gross profit margin & return on capital employed would not be appropriate
performance indicators for a charity. The others all tie in with the aims of the
RNLI to save lives, educate and raise funds.

283