CIMA Exam CIMAPRO19-P03-1 Topic 3 Question 31 Discussion

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

Question #: 31
Topic #: 3

A project has an NPV of 1,200,000. The present value of material costs which are included in the NPV calculation are 8,000,000.

What is the sensitivity of the project to changes in material costs?

Give your answer to the nearest whole percentage.

A15%

Show Suggested Answer

Suggested Answer: A, B, D

by Theodora at May 09, 2022, 07:17 PM

Limited Time Offer

25%

Off

Get Premium CIMAPRO19-P03-1 Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Ronnie

1 months ago

Okay, let me break this down step-by-step. The NPV is 1,200,000 and the material costs are 8,000,000. So the sensitivity would be the change in NPV divided by the change in material costs, expressed as a percentage. I think the answer is 15%.

upvoted 0 times

Kristel

3 days ago

Exactly, the sensitivity of the project to changes in material costs is 15%.

upvoted 0 times

...

Aleta

5 days ago

So in this case, it would be 1,200,000 divided by 8,000,000, which equals 0.15 or 15%.

upvoted 0 times

...

Jenelle

6 days ago

Yes, that's correct. The sensitivity is calculated by dividing the change in NPV by the change in material costs.

upvoted 0 times

...

Casie

15 days ago

I think the answer is 15%.

upvoted 0 times

...

Denny

1 months ago

I'm not an accountant, but I do know that the more material costs you have, the more material you need. And the more material you need, the more you have to buy. And the more you have to buy, the more you have to pay. And the more you have to pay, the less profit you make. Aha! I'm a genius!

upvoted 0 times

...

Tamekia

1 months ago

Wait, is this a trick question? What if the material costs are actually a negative number? Then the sensitivity would be, like, -15% or something. Oh, wait, that doesn't make sense. Let me think about this again...

upvoted 0 times

Ruthann

4 days ago

C) 20%

upvoted 0 times

...

Lanie

6 days ago

B) 10%

upvoted 0 times

...

Laurel

17 days ago

A) 15%

upvoted 0 times

...

Noelia

2 months ago

Ah, I got it! The sensitivity is the ratio of the change in NPV to the change in material costs, expressed as a percentage. So if material costs go up by 1%, the NPV would go down by 15%. That's the right answer!

upvoted 0 times

Flo

20 days ago

That's correct! The sensitivity of the project to changes in material costs is 15%.

upvoted 0 times

...

Eladia

25 days ago

So, if material costs increase by 1%, the NPV would decrease by 15%.

upvoted 0 times

...

Leah

26 days ago

Exactly! The sensitivity is calculated by dividing the change in NPV by the change in material costs.

upvoted 0 times

...

Adelle

26 days ago

It's important to understand how changes in material costs can impact the overall profitability of a project. The sensitivity analysis helps us assess the risk and make informed decisions.

upvoted 0 times

...

Georgeanna

1 months ago

So in this case, if material costs increase by 1%, the NPV would decrease by 15%. That's how you calculate the sensitivity of the project.

upvoted 0 times

...

Makeda

1 months ago

Exactly! The sensitivity is calculated by dividing the change in NPV by the change in material costs, then expressing it as a percentage.

upvoted 0 times

...

Corazon

2 months ago

Hmm, I'm not sure about this one. Is the sensitivity just the percentage of material costs in the total NPV? That would make it 8,000,000 / 1,200,000 = 66.67%. But the question is asking for the nearest whole percentage, so maybe it's 67%.

upvoted 0 times

...

Marvel

2 months ago

Okay, let's think this through. The NPV is 1,200,000 and the present value of material costs is 8,000,000. The sensitivity of the project to changes in material costs would be the percentage change in NPV relative to the percentage change in material costs. That sounds like the right approach.

upvoted 0 times

...