CIMA CIMAPRO19-P03-1 Exam Questions Instant Access

Question 1

D has decided to invest in a new factory at a cost of $6,000,000. The discount rate of the project is 22% and the PV of tax shield is $80,000.

What is the IRR?

Give your answer to two decimal places.

See Below Explanation:

Answer : A

Question 2

The board of OKN is considering an investment opportunity that will require the company to borrow a large amount in month 10 of the current financial year and to invest it immediately in property, plant and equipment. This investment has a positive net present value that justifies the risk, but the directors are reluctant to invest in the project.

Why might the directors be reluctant?

AThe return on capital employed for the year will be reduced if the investment is made.

BThe return on capital employed for the year will be increased if the investment is made.

CThe year's profit will be depressed by the amount of the investment.

DFuture profits will be depressed.

Answer : A

Question 3

Will owns $400,000 of shares in Company X.

Company X has a daily volatility of 1% of its share price.

Calculate the 28 day value at risk that shows the most Will can expect to lose during a 28 day period.

(Will wishes to be 90% certain that the actual loss in any month will be less than your predicted figure).

Give your answer to the nearest $000.

See Below Explanation:

Answer : A

Question 4

Which of the following is NOT a financial risk.

ASelling goods on credit terms.

BTaking out variable rate loans to finance short term investments.

CSourcing raw materials overseas to manufacture goods.

DGlobal warming.

Answer : D

Question 5

TRF is conducting a post completion audit on an investment in a pollution control machine that has reached the end of its five year useful life.

TRF could have been heavily fined if the machine had failed to keep pace with the output of emissions, measured in units. TRF's cost of capital is 10%. When the machine was purchased, there was a choice of three machines on the market:

TRF purchased the Big machine, but annual requirements only exceeded 600,000once, in year 3, when 720,000 units of emissions were emitted.

Calculate the amount that the post completion audit showsTRF overpaid for the ownership costs associated with this machine.

Give your answer to the nearest whole $ (in $'000s).

See Below Explanation:

Answer : A

Question 6

You have been assigned the role of lead internal auditor. Your task is to carryout the annual assessment of the production line maintenance department.

When planning for this audit, which of the following must be completed?

APrepare the report.

BEstablish whether the controls are adequate or not.

CDecide how the controls will be tested.

DLearn all about the systems and controls in the department.

ECarefully consider any control weaknesses that are reported.

FReview previous audit findings for the department.

Answer : C, D, F

Question 7

A UK manufacturing company has simultaneously:

* purchased a put option to sell USD 1million at an exercise price of GBP1.00 = USD1.65

* sold a call option that grants the option holder the right to buy USD 1million at a price of GBP1.00 = USD1.61(this option has the same maturity date as the put).

Which of the following is a valid explanation for entering into these option positions?

AThe company expects to receive USD 1million from a customer and wishes to offset the cost of the put option by the premium on the call option.

BThe company expects to pay USD 1million to a supplier and wishes to offset the premium from the call option against the cost of the put option.

CThe company expects to receive USD 1million from a customer and wishes to obtain an additional benefit if the USD strengthens beyond GBP 1.00 = USD 1.61.

DThe company expects to pay USD 1million to a supplier and wishes to obtain additional protection against the USD strengthening beyond GBP 1.00 = USD 1.65.

Answer : A

CIMA P3 Risk Management CIMAPRO19-P03-1 Exam Questions