CIMA P3 Exam Dumps

The company WACC is often used as a discount rate when using net present value or internal rate of return calculations. Select THREE conditions that have to be met when using WACC as a discount rate:

A portfolio manager at Capital Asset Management Services, a well-known investment manager in the USA, is constructing a new equity portfolio consisting of a large number of randomly chosen stocks. Of the options below, select the MOST accurate statement with regard to the effect on the expected levels of systematic and unsystematic risk as the number of stocks in the portfolio increases: Systematic UnsystematicA Increases Remains the same B Decreases Increases C Remains the same Decreases D Remains the same Remains the same

Delta Co has hired a recently qualified CIMA Accountant. He is using an SML to determine the feasibility of a project. What should the status of the project be if its beta and IRR coordinates plot above the SML?

Which of the following is TRUE if the estimated cost of equity of a project is calculated using the security market line SML approach? Select ALL that apply.

What will be the risk-free rate of interest if the required return from individual security is 12.08%, the return on the market portfolio is 10.1%, and the Beta factor of an individual security is 2.8. Fill in the blank: __________ % (Answer with a round figure)

The shares of Root Co have a beta of 1.8. If the risk-free rate is 3% and the risk premium on the market portfolio is 8%, the required return using CAPM on Root's shares will be: Fill in the blank:_________ %

Delta Co-directors have calculated its Beta factor to be 0.6. A Beta (ß) of 0.6 means that:

The risk that a shareholder of a company requires an extra return for (risk premium) is:

Complete the sentence below as per the risks associated with an investment: By building a portfolio of investments, __________ risk can be reduced or diversified away. __________ risk is not reduced in this way, so will be present in all portfolios. Diversification reduces portfolio risk to a ___________ . If we can measure the ____________ risk of a company or investment, the CAPM will enable us to calculate the level of required __________for a well-diversified investor who is not subject to ___________ risk.1: Systematic2: Zero3: Unsystematic4: Return5: Minimum6: Risk

AB Constructions is a building developer based in Spain. For its next investment, the company is considering purchasing a large piece of land in the suburbs of Madrid. The land is currently owned by the local government, who would like AB Constructions to build both residential apartments and office space. AB Constructions has calculated that the net present value (NPV) of the project is negative. However this would be the first contract with the local government, and, if the company delivers on time, the government will offer AB Constructions more investments to build, and also the rates for the land will be more preferential. Which ONE of the following real options is included within the construction project?

Which ONE of the following is NOT a category of real option?

The NPV approach to investment appraisal makes two assumptions. Which TWO of the following are NOT assumptions in the NPV approach to investment appraisal?

Gamma Co’s directors are studying call and put options to understand the details of real options. Complete the sentence below as per Gamma Co’s requirements: A put option is an option to __________  a specified asset at a specified exercise price on or _________  a specified  __________ date. 1: sell   2: befor   3: eafter   4: expiry    5: buy   6: exercise

Alpha Co is evaluating a new investment project for which it will have to invest in a non-current asset worth $1,200,000. The cash flows from the project for the next four years will be as follows: Sales = $2,000,000 per year Costs = $1,200,000 per year Tax rate of the company for the entire duration of the project will be 25%, and the asset will be depreciated on a straight-line basis over the life of the project. The cost of capital of Alpha Co is 8%. What is the percentage sensitivity of the discount rate to the project if the IRR of the 2nd project is 20%?

Alpha Co is evaluating a new investment project for which it will have to invest in a non-current asset worth $1,200,000. The cashflows from the project for the next four years will be as follows: Sales = $2,000,000 per year Costs = $1,200,000 per year Tax rate of the company for the entire duration of the project will be 25%, and the asset will be depreciated on a straight-line basis over the life of the project. The cost of capital of Alpha Co is 8%. What is the approximate IRR of the project, assuming the second discount rate of 20%?

Alpha Co is evaluating a new investment project for which it will have to invest in a non-current asset worth $1,200,000. The cashflows from the project for the next four years will be as follows: Sales = $2,000,000 per year Costs = $1,200,000 per year Tax rate of the company for the entire duration of the project will be 25%, and the asset will be depreciated on a straight-line basis over the life of the project. The cost of capital of Alpha Co is 8%. What is the percentage sensitivity to tax rate on the whole project? ________ % (answer with a round figure)

Alpha Co is evaluating a new investment project for which it will have to invest in a non-current asset worth $1,200,000. The cashflows from the project for the next four years will be as follows: Sales = $2,000,000 per year Costs = $1,200,000 per year Tax rate of the company for the entire duration of project will be 25%, and the asset will be depreciated on a straight line basis over the life of project. The cost of capital of Alpha Co is 8%. By what percentage can sales fall before the NPV of the project becomes zero (sensitivity to sales)?

Which THREE of the following statements are CORRECT regarding the internal rate of return (IRR) method?

Complete the sentence below as per the Internal rate of return (IRR):The internal rate of return (IRR) of a project indicates the ______ at which the NPV is _______  . For most normal projects (i.e. cash outflow followed by inflows) the project NPV will be __________  for discount rates > IRR.1: discount factor 2: zero  3:discount rate 4: negative 5: positive

Which ONE of the following is NOT an advantage of incorporating risk in discount rate while calculating Net Present Value?

The concept of "time value of money" assumes that money received now is worth more than the expectation of the same amount being received at a later time in the future – the timing of a cash flow affects its perceived value to us. Select ALL the underlying features that apply to this concept of the time value of money:

Lina Co is a large private company whose business activity is events management, involving the organisation of conferences, meetings and celebratory events for companies. Lina Co was founded 10 years ago by Danny Hudson and his sister, Stella, who still own the majority of the company’s shares. The company has grown rapidly and now employs more than 150 staff in 20 offices. Currently there is a small internal audit team, under the supervision of Lindsay Montana, a recently qualified accountant. Before heading up the internal audit department, Lindsay was a junior finance manager of the company. The members of the internal audit team will be reassigned to roles in the finance department if internal audit is outsourced. The internal audit team has three employees, including Lindsay, who reports to the finance director. The other two internal auditors are currently studying for their professional examinations. The team was set up two years ago and initially focused on introducing financial controls across all of LinaCo’s offices. Nine months ago the finance director instructed the team to focus their attention on introducing operational controls in order to achieve cost savings due to a cashflow problem being suffered by the company. The team does not have time to perform much testing of financial or operational controls. In the course of her work, Lindsay found many instances of management policies not being adhered to and that the managers of each location were generally reluctant to introduce controls as they wanted to avoid bureaucracy and paperwork. As a result, Lindsay’s recommendations are often ignored. Three weeks ago, Lindsay discovered fraudulent activity at one of the offices while reviewing the procedures relating to the approval of new suppliers and payments made to suppliers. The fraud involved an account manager authorising the payment of invoices received from fictitious suppliers, with payment actually being made into the account manager’s personal bank account. Lindsay reported the account manager to the finance director, and the manager was immediately removed from office. This situation has highlighted to Danny and Stella that something needs to be done to improve controls within their organisation. ? Which ONE of the following statements is incorrect? 

Lina Co is a large private company whose business activity is events management, involving the organisation of conferences, meetings and celebratory events for companies. Lina Co was founded 10 years ago by Danny Hudson and his sister, Stella, who still own the majority of the company’s shares. The company has grown rapidly and now employs more than 150 staff in 20 offices. Currently there is a small internal audit team, under the supervision of Lindsay Montana, a recently qualified accountant. Before heading up the internal audit department, Lindsay was a junior finance manager of the company. The members of the internal audit team will be reassigned to roles in the finance department if internal audit is outsourced. The internal audit team has three employees, including Lindsay, who reports to the finance director. The other two internal auditors are currently studying for their professional examinations. The team was set up two years ago and initially focused on introducing financial controls across all of LinaCo’s offices. Nine months ago the finance director instructed the team to focus their attention on introducing operational controls in order to achieve cost savings due to a cashflow problem being suffered by the company. The team does not have time to perform much testing of financial or operational controls. In the course of her work, Lindsay found many instances of management policies not being adhered to and that the managers of each location were generally reluctant to introduce controls as they wanted to avoid bureaucracy and paperwork. As a result, Lindsay’s recommendations are often ignored. Three weeks ago, Lindsay discovered fraudulent activity at one of the offices while reviewing the procedures relating to the approval of new suppliers and payments made to suppliers. The fraud involved an account manager authorising the payment of invoices received from fictitious suppliers, with payment actually being made into the account manager’s personal bank account. Lindsay reported the account manager to the finance director, and the manager was immediately removed from office. This situation has highlighted to Danny and Stella that something needs to be done to improve controls within their organisation. ? Which ONE of the following statements is incorrect?

Walsh Co sells motor vehicle fuel, accessories and spares to retail customers. The company owns 25 shops. The company has recently implemented a new computerised wages system. Employees work a standard eight-hour day. Hours are recorded using a magnetic card system; when each employee arrives for work, they hold their card close to the card reader; the reader recognises the magnetic information on the card identifying the employee as being ‘at work’. When the employee leaves work at the end of the day the process is reversed, showing that the employee has left work. Hours worked are calculated each week by the computer system using the magnetic card information. Overtime is calculated as any excess over the standard hours worked. Any overtime over 10% of standard hours put in a computer-generated report and emailed to the financial accountant. If necessary, the accountant overrides overtime payments if the hours worked are incorrect. Statutory deductions and net pay are also computer-calculated, with payments being made directly into the employee’s bank account. The only other manual check is the financial accountant authorising the net pay from Walsh’s bank account, having reviewed the list of wages to be paid. Which TWO of the following statements are correct?

Fizzipop manufactures and distributes soft drinks. Its inventories are controlled using a real-time system that provides accurate records of quantities and costs of inventories held at any point in time. This system is known within the company as the ‘Stockpop’ system and it is integrated with the purchases and sales system. No year-end inventory count takes place. Inventories are held in several large warehouses where nonstop production takes place. Inventories include finished goods and raw materials (water, sugar, sweeteners, carbonating materials, flavourings, cans, bottles, bottle tops, fastenings and packaging materials). Fizzipop has an internal audit department whose activities encompass inventories. The internal audit department is considering the use of computer-assisted audit techniques in carrying out their work. Which ONE of the following is an example of such a technique?