Exam F3 Topic 6 Question 103 Discussion

Actual exam question for CIMA's F3 exam
Question #: 103
Topic #: 6

A major energy company, GDE, generates and distributes electricity in country A. The government of country A is concerned about rising inflation and has imposed price controls on GDE, limiting the price it can charge per unit of electricity sold to both domestic and commercial customers. It is likely that price controls will continue for the foreseeable future.
The introduction of price controls is likely to reduce the profit for the current year from $3 billion to $1 billion.
The company has:
* Distributable reserves of $2 billion.
* Surplus cash at the start of the year of $1 billion.
* Plans to pay a total dividend of $1.5 billion in respect of the current year, representing a small annual increase as in previous years. However, no dividends have yet been announced.
Which THREE of the following responses would be MOST appropriate for GDE following the imposition of price controls?

A. Carry out a wide-ranging review of costs and staffing levels to identify possible cost savings and redundancies. B. Actively look for a private equity investor to introduce new and innovative business and financial strategies to the business. C. Raise funds by means of a rights issue in order to maintain historical dividend levels. D. Actively investigate potential new ways of generating revenue by the sale of related goods and services that are outside the scope of the price controls. E. Announce a reduction in the annual dividend to a more sustainable level given the new price controls regime.

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