Question 1

Which of the following statements are correct?

Options :

A : It is always possible to remove all risks when undertaking large projects.

B : If a project has high risks it should always be accepted as the rewards will always be high.

C : If a project has low risks it will usually have relatively low returns.

D : Risk can always be transferred to someone else.

E : Risk should be carefully considered when evaluating possible future projects.

Answer: A,C

Question 2

A has an opportunity to invest $90,000 in a project that is expected to generate annual cash inflows of $60,000 for each of the next three years. The project's beta coefficient implies a discount rate of 12% for this project, based on a risk-free rate of return of 3%.A is prepared to forego the expected cash flows from this project in return for a guaranteed payment of $50,000 at the end of year 1, $42,000 at the end of year 2 and $30,000 at the end of year 3.What is the certainty equivalent value of this opportunity to A?

Options :

A : $9,493

B : $25,606

C : $54,120

D : $115,606

Answer: B

Question 3

TRF is conducting a post completion audit on an investment in a pollution control machine that has reached the end of its five year useful life.
TRF could have been heavily fined if the machine had failed to keep pace with the output of emissions, measured in units. TRF's cost of capital is 10%. When the machine was purchased, there was a choice of three machines on the market:
TRF purchased the Big machine, but annual requirements only exceeded 600,000once, in year 3, when 720,000 units of emissions were emitted.
Calculate the amount that the post completion audit showsTRF overpaid for the ownership costs associated with this machine.
Give your answer to the nearest whole $ (in $'000s).

Options :

A : A

Answer: A

Question 4

You are theManagementAccountant for a company which supplies baked food to a string of retail outlets; biscuits, cakes, savoury snacks etc.You discover that a trainee employee, who is responsible for cleaning out the delivery vans has been taking damaged goods and packets which have reached their sales expiry date and has been selling them to friends. These products would otherwise have been discarded as waste.The trainee in question is the nephew of one of the senior managers.What is the correct course of action?

Options :

A : Have a quiet word with the trainee and ask him to stop.

B : Have a quiet word with the senior manager, the trainee-s relative and askthem to deal with it.

C : Document the facts and escalate to the trainee-s manager.

D : Do nothing, the product was designated as waste anyway.

Answer: C

Question 5

M, a manufacturing company, has had some problems with defects in one of the main productsitproduces. This product has been made by the company for many years and is very profitable. Last monthithad over 300 defects reported by customers which is more than 15% of products sold. This is a reputation risk for M and is also affecting profitability
Which of the following controls could M introduce to reduce defects and also increase profitability?

Options :

A : M could increase the number of quality control staff.

B : M could introduce a procedure where quality control staff sign a form at the end of each dayto say they have examined 1 in 10 products for defects and they are satisfied with the quality.

C : The production director could examine one in every 10 products and sign a form to say they are satisfactory.

D : M could service machinery at least once a month as recommended by the machinery supplier.

E : M could check all employees qualifications to ensure they are qualified for their jobs.

Answer: A,B,D

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