Page 23 - CIMA SCS Workbook August 2018 - Day 2 Tasks

FINANCIAL STRATEGY (F3) - PRACTICE TASKS

EXERCISE THREE

UPDATE

Den Rice, FNG’s Chief Financial Officer has just walked across to your desk, presented you with a
piece of paper and started to speak.

TRIGGER

“The bank has just sent me FNG’s six-monthly borrowings repayment schedule (see reference
materials).

We’re on target to completely repay our borrowings over the next couple of years, but I’m not
sure that’s a good thing! You don’t see many companies that are all equity financed!

I’m wondering whether we ought to start looking for new sources of debt finance that we can use
to replace the borrowings that we’re currently paying back. Alternatively, to avoid having to repay
these bank borrowings I wonder whether we could just renegotiate the repayment terms.

Could you please prepare some briefing notes for me on debt finance so that I’m well prepared
when I set up a meeting with the bank next week?

First, please explain in general terms what are the advantages and disadvantages of using debt
finance compared to equity finance.

Second, could you explain to me what issues are important to lenders as they assess the
creditworthiness of prospective borrowers? Please consider this in general terms, but also in
relation to FNG’s current position.

Thanks.“

TASK
Prepare some briefing notes for Den Rice as requested. (Time allowed: 60 minutes)

(Refer to the reference materials overleaf)

KAPLAN PUBLISHING 37