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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Desire

1 months 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

5 days ago

C) The year's profit will be depressed by the amount of the investment.

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Kristal

6 days ago

A) The return on capital employed for the year will be reduced if the investment is made.

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Art

6 days ago

A) The return on capital employed for the year will be reduced if the investment is made.

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Lorenza

1 months 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

2 months 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

20 days ago

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Elenor

1 months ago

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Denny

1 months ago

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Kris

2 months 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

18 days ago

Maybe they're worried about the short-term impact on profits.

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Yolando

21 days ago

C) The year's profit will be depressed by the amount of the investment.

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Ena

27 days ago

A) The return on capital employed for the year will be reduced if the investment is made.

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Lettie

2 months 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 days ago

D) Future profits will be depressed.

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Andra

4 days ago

A) But the long-term benefits of the investment could outweigh the short-term impact on profits.

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Rodolfo

8 days ago

C) The year's profit will be depressed by the amount of the investment.

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Mari

12 days ago

A) The return on capital employed for the year will be reduced if the investment is made.

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Kanisha

15 days ago

D) Future profits will be depressed.

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Desmond

16 days ago

I agree, the upfront cost and impact on profits this year are valid concerns.

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Alberto

1 months ago

C) The year's profit will be depressed by the amount of the investment.

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Chanel

1 months ago

A) The return on capital employed for the year will be reduced if the investment is made.

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Laticia

2 months 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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