CIMA Exam CIMAPRA19-P03-1 Topic 2 Question 21 Discussion

Actual exam question for CIMA's CIMAPRA19-P03-1 exam

Question #: 21
Topic #: 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.

Show Suggested Answer

Suggested Answer: A, B, D

by Marguerita at Dec 28, 2022, 06:49 AM

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Laticia

8 days ago

Hmm, the directors must be worried about the impact on the current year's financial performance. Option A seems like the most likely reason for their reluctance.

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