CIMA Exam CIMAPRA19-P03-1 Topic 4 Question 65 Discussion

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

Question #: 65
Topic #: 4

Having carried out a full capital appraisal for a construction project, HCompanyhasapproved the project with initial outflows of $6,000,000 anda net present value of $1,200,000.

The implementation phase has been commenced with 25% of the costs already committed.However whenthe ground was opened, an underground waterway was revealedwhich will need to be diverted if the project is to proceed. Work to carry out this diversion has been estimated at $1,300,000.

Which of the following factors will define whether the project should go ahead or not?

AThe project actually has a higher NPV than before.

BThe project now has a negative NPV.

CAbandoning the project will have an adverse effect on shareholder confidence.

DThere will be abandonment costs to restore the site.

EThere may be other unexpected costs to be met if the project continues.

Show Suggested Answer

Suggested Answer: A, B, C

by Edison at Feb 06, 2025, 08:21 AM

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Alaine

10 hours ago

Ha! Unexpected costs? That's the story of every construction project, isn't it? The project managers must be pulling their hair out right now.

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Nan

11 days ago

The question is asking about the factors that will define whether the project should go ahead or not. I think option B is the correct answer - the negative NPV is the key factor here.

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Ezekiel

22 days ago

This is a tricky one. The project was initially approved, but now there's a major unexpected cost. Shareholder confidence is definitely a factor to consider.

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Shenika

24 days ago

Hmm, the project has already incurred significant costs, but the NPV is now negative. I wonder if the additional cost of diverting the waterway will outweigh the expected benefits.

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