CIMAPRA19-P03-1 Exam - 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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Lorrine

5 months ago

I’m surprised the expected NPV is so high, is that realistic?

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Domingo

5 months ago

Definitely not option C, that loss seems way off.

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Annelle

6 months ago

Wait, how can we be sure about those probabilities?

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Joaquin

6 months ago

I'm leaning towards option B, looks like the best NPV!

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Cheryl

6 months ago

The cash flows seem solid, but the inflation rates could impact returns.

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Tamra

6 months ago

I feel like I should be able to calculate the expected NPV, but the inflation rates in both countries complicate things. I hope I remember the formula correctly!

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Mable

6 months ago

I think we need to convert the cash flows to GBP first, but I'm a bit confused about the Purchasing Power Parity Theory and how it affects the exchange rate.

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Alpha

6 months ago

This question seems similar to one we practiced on NPV calculations, but I can't recall the exact steps for adjusting for inflation.

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Quentin

6 months ago

I remember we discussed how to calculate expected cash flows, but I'm not sure how to apply the probabilities here.

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Elbert

6 months ago

Wait, I'm a little confused. I thought there was also an Integer Number data type. Let me double-check the options here...

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Apolonia

6 months ago

I'm pretty confident the answer is Modify. That's the option that best matches the requirements described in the question.

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Jenelle

6 months ago

This looks like a tricky one. I'll need to carefully analyze the code fragment and the options to determine the correct answer.

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Francine

11 months ago

Is it just me, or does this question sound like it's straight out of a Bond villain's playbook? 'The UK company invests in a US project, and the NPV is...something?' I'm already picturing the evil mastermind laughing maniacally.

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Ligia

11 months ago

Ah, the ol' Purchasing Power Parity Theory. I got this. Time to crunch some numbers and see what the expected NPV is.

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Pamella

11 months ago

Haha, this is a classic finance exam question. I remember doing these kinds of problems in my undergrad days. Time to put on my thinking cap!

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Carin

11 months ago

Hmm, this looks like a complex problem, but I think I can work it out. Let me go through the steps carefully.

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Ezekiel

10 months ago

Finally, we can calculate the expected net present value of the project.

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Cristen

10 months ago

Then we can adjust them for inflation using the exchange rate.

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Alonzo

10 months ago

I think we need to calculate the expected cash flows first.

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Queenie

12 months ago

I'm not sure about this one. The Purchasing Power Parity Theory is tricky, and I need to double-check the exchange rate and inflation rate calculations.

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Wilburn

10 months ago

Finally, we discount the cash flows to find the expected net present value of the project. It's a bit complex, but we can figure it out together.

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Johnetta

10 months ago

Then, we adjust the cash flows for inflation in both countries to find the real value in GBP.

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Fletcher

10 months ago

First, we need to calculate the expected cash flows in GBP for each year based on the probabilities and exchange rate.

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Freeman

10 months ago

Don't worry, I can help you with the calculations. Let's break it down step by step.

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Marica

10 months ago

Finally, calculate the net present value of the project in GBP using the Purchasing Power Parity Theory.

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Natalya

10 months ago

Next, adjust the cash flows for inflation in each country over the next four years.

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Britt

10 months ago

Then, convert those cash flows to GBP using the exchange rate of US$1.30 to GBP1.00.

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Lashandra

10 months ago

Let's break it down step by step. First, calculate the expected cash flows for each year.

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Jacki

1 year 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

1 year 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

1 year 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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