Deal of The Day! Hurry Up, Grab the Special Discount - Save 25% - Ends In 00:00:00 Coupon code: SAVE25
Welcome to Pass4Success

- Free Preparation Discussions
Mail Us support@pass4success.com
Location US
Mob_nav_barsMENU

CIMAPRO19-P02-1 Exam - Topic 9 Question 14 Discussion

A company has recently developed a new lawnmower with an estimated market life of 5 years. Production and sale of the lawnmower will require investment in new production equipment costing $750,000. It is expected that this equipment could be sold back to the original vendor for $50,000 at the end of five years.Purchase of the equipment would be financed by a 5 year fixed rate bank loan at an interest rate of 6%.A manager already employed by the company would be moved from their current position to manage production of the new lawnmower. Their original position would be filled by a new recruit on a fixed annual salary of $35,000.Which of the following statements is NOT correct?
C) The interest costs on the bank loan are a relevant cash flow in the decision.
A) If the lawnmower is a failure then management can terminate the project early and sell the equipment, giving them an abandonment option.
B) The salary of the replacement manager is a relevant cash flow in the decision.
D) Launching a new lawnmower gives an opportunity to launch more new versions and provides a follow-on option.

CIMAPRO19-P02-1 Exam - Topic 9 Question 14 Discussion

Actual exam question for CIMA's CIMAPRO19-P02-1 exam
Question #: 14
Topic #: 9
[All CIMAPRO19-P02-1 Questions]

A company has recently developed a new lawnmower with an estimated market life of 5 years. Production and sale of the lawnmower will require investment in new production equipment costing $750,000. It is expected that this equipment could be sold back to the original vendor for $50,000 at the end of five years.

Purchase of the equipment would be financed by a 5 year fixed rate bank loan at an interest rate of 6%.

A manager already employed by the company would be moved from their current position to manage production of the new lawnmower. Their original position would be filled by a new recruit on a fixed annual salary of $35,000.

Which of the following statements is NOT correct?

Show Suggested Answer Hide Answer
Suggested Answer: C

by Annelle at May 03, 2022, 04:12 AM

Limited Time Offer

25%

Off

Get Premium CIMAPRO19-P02-1 Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

0/2000 characters
Submit Cancel
Ming
10 months ago
Follow-on options are a big plus for launching new products!
upvoted 0 times
...
Cheryl
10 months ago
Abandonment option sounds good, but what if the lawnmower flops?
upvoted 0 times
...
Eden
11 months ago
Wait, is the replacement manager's salary really a relevant cash flow?
upvoted 0 times
...
Gene
11 months ago
I agree, the interest costs are definitely relevant.
upvoted 0 times
...
Jaime
11 months ago
The equipment can be sold for $50k after 5 years.
upvoted 0 times
...
Allene
11 months ago
Hmm, I'm a bit unsure about this. I know directors have some obligations when it comes to environmental issues, but I'm not sure of the specifics. I'll need to think through the nuances here.
upvoted 0 times
...
Laticia
11 months ago
I'm pretty confident that the correct answer is A - all of the processes in scope of ISO/IEC 20000. The methodology is meant to be applied broadly across the service management system.
upvoted 0 times
...
Claudia
11 months ago
From that practice question we did, I remember that safety stock helps mitigate uncertainty too, but I'm leaning towards lead times for this one.
upvoted 0 times
...

Save Cancel