CIMA Exam CIMAPRO19-P03-1 Topic 2 Question 92 Discussion

Actual exam question for CIMA's CIMAPRO19-P03-1 exam

Question #: 92
Topic #: 2

R plc is considering an investment of $1,100,000 in a new machine which is expected to have substantial cash inflows over the next five years.

The annual cash flows from this investment and their probability are shown below:

Annual cash flow ($)Probability

200,000 0.4

280,000 0.5

350,000 0.1

At the end of its five-year life, the asset is expected to sell for $100,000. The cost of capital is 5%.

What is the Expected Net Present Value?

Give your answer to the nearest whole $.

A$82295, $82550

Show Suggested Answer

Suggested Answer: A

by Leeann at Jun 14, 2025, 08:45 AM

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Daron

5 days ago

Ah, the good old time value of money problem. I'll just plug these numbers into my trusty financial calculator and... Wow, that's a lot of buttons to press. Let's hope I don't accidentally order a pizza instead of calculating the NPV.

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Isabelle

13 days ago

Hmm, let me see... 0.4 * $200,000 + 0.5 * $280,000 + 0.1 * $350,000 = $258,000 in expected annual cash flows. Discounting that at 5% over 5 years, I get $1,182,295. Subtract the initial cost of $1,100,000, and the NPV is $82,295. Pretty straightforward!

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Gerri

15 days ago

You're right, we should take into account the cost of capital when calculating the Expected Net Present Value.

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Johana

19 days ago

Wait, so the machine is expected to have cash inflows for 5 years, but what's the salvage value at the end? I need to factor that in to get the true NPV.

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Lezlie

21 days ago

I believe it is actually $82550 because we need to consider the cost of capital.

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Gerri

22 days ago

I think the Expected Net Present Value is $82295.

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