Discuss CIMA CIMAPRA19-P03-1 Exam Topic 4 Question 86

P Ltd, a manufacturing company, is considering a new capital investment project to set up a new production line. The initial appraisal shows a healthy net present value of $6,465 millionat a discount rate of 10% as shown in the table below:

However, management is unsure about the demand for theproduct which will be produced and has insisted that the future revenues should be reduced to certainity equivalents by taking 70%, 65% and 60% of the years 1,2, and 3 cash inflows respectively.

What should P do?

AProceed with the project, it has a healthy net present value.

BStop the project, it has considerable risk.

CPut pressure on sales and marketing to re-verify their forecasts.

DRe-appraise the project using other capital appraisal techniques to get a more balanced view.

Suggested Answer: D

Get Premium CIMAPRA19-P03-1 Questions as Interactive Web-Based Practice Test or PDF Real Exam Format Detailed Explanations Instant Access Get Your Practice Test

15 comments · newest first

Shayne 2 months ago

Yes, pressure on sales might help.

Gerald 2 months ago

Re-appraising could give a clearer picture.

Elena 2 months ago

True, but the numbers look good overall.

Shayne 2 months ago

We need to verify forecasts first. Sales are key.

Gerald 2 months ago

But the demand is uncertain. Risky move.

Elena 2 months ago

I think they should proceed. NPV is strong.

Marica 3 months ago

Better to re-appraise and get a clearer picture before proceeding.

Ivette 3 months ago

Wait, reducing cash inflows by 30%? That seems extreme!

Buffy 3 months ago

I think they should definitely re-verify those forecasts.

Willard 3 months ago

But demand uncertainty is a big red flag.

Roxane 3 months ago

NPV looks solid at $6.4 billion!

Ernie 3 months ago

I feel like putting pressure on sales might not be the best approach. They might not have the right data to back up their forecasts anyway.

Burma 4 months ago

I'm not sure if just relying on the NPV is enough. The management's concerns about demand could mean we should be cautious.

Leota 4 months ago

I think we had a similar question where we had to consider risk factors. Maybe option D makes sense to get a clearer picture?

Rose 4 months ago

I remember we discussed how a high NPV is a good sign, but the uncertainty in demand really complicates things.

CIMAPRA19-P03-1 Exam - Topic 4 Question 86 Discussion