CIMAPRA19-P03-1 Exam - Topic 6 Question 51 Discussion

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

Question #: 51
Topic #: 6

YHJ is considering an investment in a project that will cost $20 million. Annual fixed costs will be $12 million per year, excluding depreciation. Annual sales are forecast at 5 million units, with a contribution per unit of $8. After five years the equipment will be worn out and YHJ will have to spend $50 million on disposal costs. The discount rate is 10%.

Calculate the sensitivity of the net present value of this project to a 20% increase in the disposal costs.

A11%

B13%

C31%

D20%

Show Suggested Answer

Suggested Answer: A, B, C

by Marsha at Jul 17, 2024, 11:31 PM

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Alfreda

8 months ago

Definitely not going with option A, that seems too low.

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Chantay

8 months ago

Wait, $50 million for disposal? That sounds excessive!

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Maile

8 months ago

I'm leaning towards option C, seems realistic.

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Delbert

8 months ago

I think a 20% increase could really hurt the NPV.

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Graham

9 months ago

The disposal costs are a huge factor here.

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Eden

9 months ago

If I recall correctly, the sensitivity analysis should show how much the NPV changes with that increase in costs, but I’m not confident about the exact percentage.

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Thora

9 months ago

I’m a bit confused about how to factor in the fixed costs and contribution margin when calculating the NPV.

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Cruz

9 months ago

I think the key is to calculate the NPV first and then see how a 20% increase in the $50 million disposal cost affects it.

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Leanora

9 months ago

I remember we did a similar question on NPV sensitivity in class, but I’m not sure how to apply it here with the disposal costs.

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Lili

9 months ago

Okay, let's break this down step-by-step. First, I'll compute the NPV using the given information. Then I'll recalculate it with the 20% higher disposal cost and see the difference. As long as I'm careful with the math, I think I can nail this.

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Jesusa

9 months ago

Hmm, I'm not sure I fully understand all the details here. The fixed costs, contribution per unit, and discount rate - I'll need to make sure I plug those in correctly. And that disposal cost at the end, that could really impact the NPV.

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Cristal

9 months ago

This question looks tricky, but I think I can handle it. I'll need to calculate the net present value of the project, then see how it changes with a 20% increase in disposal costs.

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Minna

10 months ago

This is a lot of information to juggle. I better re-read it a few times to make sure I have all the variables accounted for. The sensitivity analysis part is what's really throwing me off - I'll need to make sure I understand how to properly calculate that.

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Taryn

10 months ago

I'm pretty confident about this one. The key is to focus on the characteristics of a buffer cache, like how it stores copies of data blocks and uses an LRU list to maintain efficiency.

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Rodolfo

10 months ago

Ah, I see now. A view is just a virtual table, so it can't directly enforce referential integrity. I'll select "No change is needed."

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Bev

1 year ago

I don't know about you, but I'm already dreading the disposal costs. Couldn't they just donate the equipment to a museum or something?

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Reed

1 year ago

User 4: C) 31%

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Kati

1 year ago

User 3: A) 11%

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Ellsworth

1 year ago

User 2: I think it's important to consider all the costs involved in the project.

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Carma

1 year ago

User 3: B) 13%

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Georgiana

1 year ago

User 1: I agree, those disposal costs are really high.

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Annice

1 year ago

User 2: A) 11%

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Daron

1 year ago

User 1: I agree, those disposal costs are really high.

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Dan

1 year ago

The disposal costs are really going to hurt the bottom line, aren't they? I wonder if they factored in the cost of hiring a professional junk removal service.

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Daniela

1 year ago

This is a tricky one. I feel like I'm missing something in the calculations, but I can't put my finger on it. Guess I'll have to review the formulas again.

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Micah

1 year ago

Hmm, 31% seems a bit high. I bet the answer is going to be somewhere in the teens, but I'll double-check my work just to be sure.

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Malcolm

1 year ago

I agree, 31% does seem high. Let's double-check our calculations.

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Edmond

1 year ago

I think it's 13%

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Talia

1 year ago

Okay, let's think this through step-by-step. A 20% increase in disposal costs would be an additional $10 million, so that's definitely going to impact the NPV.

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