A company's Board of Directors is assessing the likely impact of financing future new projects...

CIMA F3 Question Answer

A company's Board of Directors is assessing the likely impact of financing future new projects using either equity or debt.

The directors are uncertain of the effects on key variables.

Which THREE of the following statements are true?

The choice between using either equity or debt will have no impact on the amount of corporate income tax payable.

Retained earnings has no cost, and is therefore the cheapest form of equity finance.

Debt finance is always preferable to equity finance.

Debt finance will increase the cost of equity.

Equity finance will reduce the overall financial risk.

Equity finance will increase pressure to pay a higher total future dividend.

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