Cima P1 Exam Question No 21

Question No 21:

A company is considering investing in a project with an expected life of four years. The project has a positive net present value of $280,000 when cash flows are discounted at 12% per annum. The project’s estimated cash flows include net cash inflows of $320,000 for each of the four years. No tax is payable on projects of this type.
The percentage decrease in the estimated annual net cash inflows that would cause the company’s management to reject the project from a financial perspective is, to the nearest 0.1%:

A. 87.5%
B. 21.9%
C. 3.5%
D. 28.8%

Answer: D

Cima P1 Exam Question No 20

Question No 20:

An investment project requires an initial investment of $500,000 and has a residual value of $130,000 at the end of five years. The net present value of the project is $140,500 after discounting at the company’s cost of capital of 12% per annum.
The profitability index of the project is:

A. 0.38
B. 0.54
C. 0.28
D. 0.26

Answer: C

Cima P1 Exam Question No 19

Question No 19:

In finance, a bond is described as?

A. A negotiable instrument offering a fixed rate of interest over a fixed period of time and with a fixed redemption value.
B. A negotiable instrument which provides evidence of a fixed term deposit with a bank. Maturity is normally within 90 days but can be longer.
C. A document which sets out a commitment to pay a sum of money at a specified point in time.
D. An unsecured short term loan note issued by companies and generally maturing within a period of up to one year.

Answer: A