CIMAPRO19-P03-1 Exam - Topic 5 Question 48 Discussion

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

Question #: 48
Topic #: 5

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, D

by Virgie at Apr 03, 2023, 08:47 AM

Limited Time Offer

25%

Off

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

Contribute your Thoughts:

Submit Cancel

Devora

5 months ago

Wait, $50 million for disposal? That's insane!

upvoted 0 times

...

Ty

5 months ago

I disagree, the NPV should still be positive.

upvoted 0 times

...

Amie

6 months ago

20% increase in disposal costs? That sounds risky!

upvoted 0 times

...

Lemuel

6 months ago

I think the disposal costs are a huge factor here.

upvoted 0 times

...

Zana

6 months ago

The initial investment is $20 million.

upvoted 0 times

...

Goldie

6 months ago

I feel like the answer might be around 20% since the disposal costs are a significant part of the project, but I really need to double-check my calculations.

upvoted 0 times

...

Lucy

6 months ago

I’m a bit confused about how to apply the discount rate here. Do we need to discount the increased disposal costs separately?

upvoted 0 times

...

Jesusita

6 months ago

I think the key is to first calculate the NPV without the increase and then see how much it changes with the 20% increase in disposal costs.

upvoted 0 times

...

Veta

6 months ago

I remember we did a similar question on NPV sensitivity in class, but I’m not sure how to factor in the increase in disposal costs correctly.

upvoted 0 times

...

Vannessa

6 months ago

I'm a bit confused by the GROUP BY clauses in some of these queries. I'll need to review the rules around using aggregate functions and grouping.

upvoted 0 times

...

Latia

6 months ago

I'm a bit confused by the wording here. Does "forms its own cluster" mean the KV store is a separate entity from the SHC? Or is it part of the SHC? I'll need to re-read the question carefully.

upvoted 0 times

...

Edna

11 months ago

I'm just hoping I don't have to do any origami with the financial statements to solve this one.

upvoted 0 times

Val

10 months ago

C) 31%

upvoted 0 times

...

Elvera

10 months ago

B) 13%

upvoted 0 times

...

Shawana

10 months ago

A) 11%

upvoted 0 times

...

Loreen

11 months ago

Wait, did they say the equipment will be worn out after five years? That's rough, I wonder if there's a way to extend the project's lifespan.

upvoted 0 times

...

Celestine

11 months ago

This question is making my head spin. I wish they had given us a calculator or something to make the math a little easier.

upvoted 0 times

Alyce

10 months ago

The sensitivity of the net present value to a 20% increase in disposal costs is 31%, so option C.

upvoted 0 times

...

Catalina

10 months ago

I agree, let's try to work through it step by step.

upvoted 0 times

...

Derick

10 months ago

That would be great, thank you!

upvoted 0 times

...

Pilar

10 months ago

I think the answer might be C) 31%.

upvoted 0 times

...

Victor

10 months ago

I know, this question is really challenging without a calculator.

upvoted 0 times

...

Dean

11 months ago

Don't worry, I can help you with the calculations.

upvoted 0 times

...

Lai

11 months ago

I bet the correct answer is C) 31%. That seems like the most significant sensitivity to the disposal costs.

upvoted 0 times

...

Raul

12 months ago

Alright, let's break this down step-by-step. The disposal costs are a significant factor, so a 20% increase could really impact the project's viability.

upvoted 0 times

...