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Free CIMAPRO19-P03-1 Exam Braindumps (page: 14)

Page 13 of 69
PDF with 276 Questions

Which of the following best describes the conflict between maximising profit and maximising shareholder wealth?

  1. Managers are generally more interested in maximising shareholder wealth than in maximising profits or sales.
  2. Profit and shareholder wealth are unrelated.
  3. Tax is paid on profit, but not on shareholder wealth.
  4. Profits can be increased from one year to the next without increasing shareholder wealth.

Answer(s): D



The board of OKN is considering an investment opportunity that will require the company to borrow a large amount in month 10 of the current financial year and to invest it immediately in property, plant and equipment. This investment has a positive net present value that justifies the risk, but the directors are reluctant to invest in the project.
Why might the directors be reluctant?

  1. The return on capital employed for the year will be reduced if the investment is made.
  2. The return on capital employed for the year will be increased if the investment is made.
  3. The year's profit will be depressed by the amount of the investment.
  4. Future profits will be depressed.

Answer(s): A



B is a horticultural retailer with limited funds available to acquire new retail property. B's Finance Manager has analysed two potential property investments. Investing in property P shows an IRR of 21% while the IRR on property Q is 17%.
The Finance Manager has also advised that the NPV for property P is $750K, while the NPV of property Q is $850K.
The Board needs to choose between the two properties as it has insufficient funds for both. Based purely on the Finance Manager's analysis, which of the following is true?

  1. Premises P is clearly better than property Q in all respects.
  2. Premises Q is clearly better than property P in all respects.
  3. Board members who wish to maximise return on capital employed will want property P while those who wish to maximise shareholder wealth will want property Q.
  4. Board members who wish to maximise return on capital employed will want property Q while those who wish to maximise shareholder wealth will want property P.

Answer(s): C



RFD, a listed company, is considering making an investment in a risky new venture. RFD has a substantial cash surplus that will be used to acquire the necessary resources. It is unlikely that RFD would have been able to raise finance for this investment because the company is already highly geared.
Which of the following statements about stakeholders' conflicting interests are true?

  1. RFD's shareholders are exposed to the systematic risk from this project and the directors are exposed to total risk.
  2. RFD's lenders are likely to suffer a greater risk than RFD's equity investors.
  3. Neither RFD's shareholders or lenders are likely to have the means to prevent the directors from making this investment.
  4. RFD's existing employees are likely to enjoy a significant upside risk from this project.
  5. The diversification of RFD's interests will reduce the risks for all stakeholders.

Answer(s): A,B,C






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