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

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?
A) The return on capital employed for the year will be reduced if the investment is made. and B) The return on capital employed for the year will be increased if the investment is made. and D) Future profits will be depressed.
C) The year's profit will be depressed by the amount of the investment.

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

Actual exam question for CIMA's CIMAPRA19-P03-1 exam
Question #: 21
Topic #: 2
[All CIMAPRA19-P03-1 Questions]

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?

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Suggested Answer: A, B, D

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

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Jose
10 months ago
Future profits could be at risk, though.
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Lauran
10 months ago
Surprised they’d hesitate with a positive NPV!
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Mariko
10 months ago
But isn't the long-term gain worth it?
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Joesph
11 months ago
Totally agree, the investment could hurt this year's numbers.
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Ollie
11 months ago
They might be worried about short-term profits.
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Lawrence
11 months ago
I think option C makes sense because if they invest now, the profits for this year could take a hit, right?
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Aliza
11 months ago
I practiced a similar question where the focus was on immediate financial impacts versus long-term gains. It feels relevant here.
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Chun
11 months ago
I'm not entirely sure, but I think the directors might be worried about how the investment will affect this year's profits.
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Kimberely
11 months ago
I remember discussing how large investments can impact short-term financial metrics, like return on capital employed.
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Jillian
11 months ago
This is a tricky one. I'm not super familiar with the Avaya Aura products, so I'll have to rely on my general networking knowledge. I think C and D are the most likely answers, but I'm not 100% confident.
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Corrina
11 months ago
I'm a bit confused by the terminology used in this question. What exactly is a "marge code"? And how does that relate to passing data between different actions in an integration procedure? I'll need to do some additional research on integration procedures and the specific syntax used to reference data nodes before I can confidently answer this question.
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Dalene
11 months ago
This reminds me of a practice question I did about transaction verification, and I feel like it's more complicated than just 'true' or 'false.'
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Desire
1 year ago
Maybe they're just holding out for a better investment opportunity, like a used car dealership or a pet rock franchise. This property thing sounds way too risky.
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Cordelia
1 year ago
Maybe they're just holding out for a better investment opportunity, like a used car dealership or a pet rock franchise. This property thing sounds way too risky.
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Clarence
1 year ago
C) The year's profit will be depressed by the amount of the investment.
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Carlee
1 year ago
Maybe they're just holding out for a better investment opportunity, like a used car dealership or a pet rock franchise. This property thing sounds way too risky.
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Evan
1 year ago
C) The year's profit will be depressed by the amount of the investment.
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Kristal
1 year ago
A) The return on capital employed for the year will be reduced if the investment is made.
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Art
1 year ago
A) The return on capital employed for the year will be reduced if the investment is made.
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Lorenza
1 year ago
The directors are probably just worried they'll have to wear hard hats and safety vests on the construction site. Can't mess up those fancy suits, you know?
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Glory
1 year ago
The directors must have their heads in the sand if they're not jumping at this opportunity. Option B is clearly the correct answer - the return on capital employed will increase!
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Daren
1 year ago
D
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Elenor
1 year ago
B
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Denny
1 year ago
C
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Kris
1 year ago
Maybe they're just risk-averse and don't want to rock the boat, even if the long-term benefits look good. Option D could be the culprit here.
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Solange
1 year ago
Maybe they're worried about the short-term impact on profits.
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Yolando
1 year ago
C) The year's profit will be depressed by the amount of the investment.
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Ena
1 year ago
A) The return on capital employed for the year will be reduced if the investment is made.
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Lettie
1 year ago
I think they're concerned about the upfront cost and the potential hit to profits this year. Option C makes the most sense to me.
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Shawnta
1 year ago
D) Future profits will be depressed.
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Andra
1 year ago
A) But the long-term benefits of the investment could outweigh the short-term impact on profits.
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Rodolfo
1 year ago
C) The year's profit will be depressed by the amount of the investment.
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Mari
1 year ago
A) The return on capital employed for the year will be reduced if the investment is made.
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Kanisha
1 year ago
D) Future profits will be depressed.
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Desmond
1 year ago
I agree, the upfront cost and impact on profits this year are valid concerns.
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Alberto
1 year ago
C) The year's profit will be depressed by the amount of the investment.
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Chanel
1 year ago
A) The return on capital employed for the year will be reduced if the investment is made.
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Laticia
1 year 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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Juliana
1 year ago
D
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Luz
1 year ago
C
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James
1 year ago
B
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Jamal
1 year ago
They might be concerned about the impact on the current year's financial performance.
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Margurite
1 year ago
A
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Jamal
1 year ago
Option A) The return on capital employed for the year will be reduced if the investment is made.
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Gerald
1 year ago
But wouldn't the positive net present value of the investment justify the risk, despite the short-term impact on return on capital employed?
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Denny
1 year ago
I agree with Daniel. A decrease in return on capital employed could impact the company's financial performance for the year.
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Daniel
1 year ago
The directors might be reluctant because the return on capital employed will be reduced if the investment is made.
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