CIMA Exam CIMAPRA19-P03-1 Topic 6 Question 18 Discussion

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

Question #: 18
Topic #: 6

A UK based company is considering an investment of GB1,000,000 in a project in the US

AIt is anticipated that the following cash flows will arise from this project.
The cash flows will be either US$400,000 with a probability of 40% or US$700,000 with a probability of 60% for each of the next three years; remitted to the UKat the end of each year.
Currently GB1.00 is worth US$1.30.
The expected inflation rates in the two countries over the next four years are 2% in the UK and 4% in the US.
Applying the Purchasing Power Parity Theory, which of the following represents the expected net present value of the project in GP (to the nearest whole pound)?

AGB287,639

BGB391,640

CGB(111,973)

DGB554,047

Show Suggested Answer

Suggested Answer: A, B, D

by Glen at Oct 24, 2022, 08:27 PM

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Jacki

9 days ago

That's a good point, I see where you're coming from. It's important to consider all factors when calculating the expected net present value.

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Amber

10 days ago

I disagree, I believe the answer is D) GB554,047 because it considers the probabilities of the cash flows as well.

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Jacki

12 days ago

I think the answer is B) GB391,640 because it takes into account the expected cash flows and inflation rates.

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