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Free CIMAPRO19-P03-1 Exam Braindumps
P3 Risk Management Questions 126–130 (page: 27)

Updated On: 9-Feb-2026
Page 27 of 56
PDF with 276 Questions

B is a company with a strong risk appetite. Which of the following are benefits of using the certainty equivalent method of capital investment appraisal in B's case?

  1. A high level of subjective judgment is required from the decision maker.
  2. It avoids the need for the investor to estimate an appropriate discount rate which reflects the risk of the project cash flows.
  3. By building a risk adjustment into the discount rate, it takes greater account of risk in later time periods.
  4. More risky projects are more likely to be accepted using this method of appraisal.
  5. The method produces the most appropriate results in cases where project cash flows do not increase in risk over time.

Answer(s): B,C



K has several subsidiary companies. The directors of K's subsidiaries are paid an annual bonus based upon their particular subsidiary's reported profits. The directors of one of K's subsidiaries are considering the choice between two models of a machine. Which of the following is most likely to explain the decision to choose model X over model Y?

  1. Model X has a better combination of investment and running costs.
  2. Model X is the less risky investment.
  3. Investing in model X will mean the subsidiary will show a higher profit.
  4. Investing in model X will lead to a higher share price.

Answer(s): C



There are many method for appraising capital projects.
Select ALL correct statements.

  1. The time value of money should be the same for all similar competing projects.
  2. Decisions should only consider the financial implications of the project.
  3. No one method of capital appraisal taken alone is adequate to evaluate competing projects.
  4. Net Present Value evaluation considers a range of different discount rates considering different risk factors and finance methods.
  5. Opportunity cost is only relevant when capital is scarce.
  6. All projects should be evaluated using sensitivity analysis.

Answer(s): A,C,D



R130 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



A project has been evaluated on the basis that it will cost $14 million and will have a net present value of $2.3 million.
The project has commenced and $3 million of the initial $14 million has been invested. A problem has been discovered that will cost an additional $2.5 million to rectify. The $2.5 million will be payable immediately.
What is the NPV of continuing with this project?

  1. -$3 million
  2. -$0.2 million
  3. $1.8 million
  4. $2.8 million

Answer(s): D



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