CIMA CIMAPRA19-P03-1 Exam Questions Instant Access

Question 1

B is a horticultural retailer with limited funds available to acquire new retail property.

B'sFinanceManager hasanalysed two potential property investments. Investing inpropertyPshows an IRR of 21% while the IRRon property Q is 17%.

TheFinanceManagerhas also advised that the NPV for property P is $750K, while the NPV of property Q is $850K.

TheBoard needs to choose between the two properties asithasinsufficient funds for both.Based purely on theFinanceManager's analysis, which of the following is true?

APremises P is clearly better than property Q in all respects.

BPremisesQ is clearly better than property P in all respects.

CBoard members who wish to maximise return on capital employed will want property P while those who wish to maximise shareholder wealth will want property Q.

DBoard members who wish to maximise return on capital employed will want propertyQ while those who wish to maximise shareholder wealth will want property P.

Answer : C

Question 2

Which of the following statements best explains why a corporate treasury department should be established as a cost centre rather than a profit centre?

AThe Treasury Department should not be encouraged to speculate.

BThe Treasurer should not have a great deal of responsibility.

CThere is no way for the Treasury Department to generate revenue.

DThe Treasurer has the ability to manipulate the Department's reported profit.

Answer : A

Question 3

Which of the following statements are true of residual risk?

AResidual risk has to be accepted.

BResidual risk is the risk that remains after risk mitigation has taken place.

CIf residual risk is too great then the company should not expose itself to the risk situation.

DResidual risk may be accepted if management feels the companycan bear the risk.

EResidual risk should never be accepted.

Answer : B, C, D

Question 4

B, a construction company, has a policy of carrying out a post completion audit on every construction project undertaken where the value exceeds $1 million.

What is the role of the post completion audit?

ATo reward staff and celebrate success.

BTo signify the end of the project.

CTo highlight what can be done to improve similar future projects.

DTo apportion blame for things not done well.

Answer : C

Question 5

TYU is a retailer selling televisions. The company is financed wholly by equity.

Why might TYU be exposed to interest rate risk?

ACustomers' disposable income may change.

BTYU's competitors may have variable rate borrowings.

CTYU's suppliers may have borrowings.

DTYU's cost of capital will vary with interest rates.

ETYU's competitors may have fixed rate borrowings.

Answer : A, B, C

Question 6

Why is it potentially useful for an organisation to maintain a risk register?

ATo ensure that recognised risks are adequately managed.

BTo ensure that there are no undiscovered risks.

CTo eliminate all recognised risks.

DTo provide the risk manager with a role.

Answer : A

Question 7

R is a company running gas-fired power stations in Western Europe. The Risk Committee hasjust received a reportthata power station built to the same design and specification in a developing country has recently collapsed. The causes of the collapse are unclear,but if something similiar were to happen in Europe the consequencesfor Rcould be catastrophic.

Which of the following actions being considered by the Risk Committee are ethical?

ACommission a reputable firm of structural engineers to carry out a review of all power stations owned by R.

BDecide that the information available to date is too uncertain to take any action for now.

CSend experts employed by R to the site of the collapse so that they can gather information first hand on what happened.

DIssue a press release confirming that all R's power stations are 'entirely safe'.

EAttempt to increase the level of insurance cover against this type of eventuality.

FDraw up contingency plans in case some ofR's power stations need to be shut down.

Answer : A, C, F

CIMA P3 Risk Management (Online) CIMAPRA19-P03-1 Exam Questions