Page 19 - CIMA SCS Workbook February 2019 - Day 2 Tasks

Chapter 10

FINANCIAL STRATEGY (F3)

PRACTICE TASKS

EXERCISE 1

UPDATE

Paul Pau, Vita’s Chief Finance Officer has just walked across to your desk, handed you a magazine
and started to speak.

TRIGGER

“I’ve just been reading this article from “Corporate Finance Monthly” magazine.

As you know, we’ve always kept our gearing level very low, but the article suggests that this is not
a sensible plan!

I’m wondering whether we ought to start looking for new sources of debt finance. I’ve arranged a
meeting with the bank next week to discuss this.

Could you please prepare some briefing notes for me on debt finance so that I’m well prepared
for my meeting with the bank?

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 Vita’s current position.”

TASK

Prepare some briefing notes for Paul Pau as requested. (Time allowed: 60 minutes)

(Refer to the reference materials overleaf)

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