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P2 Exam Dumps : Advanced Management Accounting

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Advanced Management Accounting Questions and Answers

Question 1

A very large organization is financed by both debt and equity. It evaluates all projects on the basis of their net present value (NPV) using an organization wide weighted average cost of capital as the discount rate.

For a small project, which TWO of the following would affect the project's cash flows AND the discount rate?

Options:

A.

Taxation rates

B.

Inflation rates

C.

Depreciation rates

D.

Changes in working capital

E.

The project's terminal value

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Question 2

A company operates a divisional structure. The manager of division D receives a bonus based on the division's annual return on capital employed (ROCE).

A minimum ROCE of 20% must be achieved to receive any bonus and thereafter the bonus increases in line with increases in ROCE.

This year division D achieved a ROCE of 24% and the divisional manager received a large bonus.

The manager is considering an investment in a new machine for next year. The incremental ROCE earned by the machine is expected to be 19% although the ROCE for the division as a whole with the machine is expected to be 22%. Without the machine, ROCE is likely to be stable at 24%.

The cost of capital for the company as a whole is 18% per year.

Which of the following statements is correct?

Options:

A.

The manager will accept the investment because overall the division will earn a ROCE that exceeds the minimum target of 20%.

B.

The manager will reject the investment because it will result in a lower bonus than without the investment.

C.

The manager will accept the investment because it will earn a ROCE that is higher than the company's cost of capital.

D.

The manager will reject the investment because it will result in the receipt of no bonus.

Question 3

SkillWeave Industries are focused on managing the risk of selling their cars to the region due to economic turmoil, and have now begun using funds from sales in the region to fund supplier purchases from that region to

reduce the risk from the volatile currency. However, SkillWeave want to go a step further and make the risk even less sizeable.

Which of the following is a method by which SkillWeave can operate in the market and transfer the risk of exchange rate exposure to another party?

Options:

A.

Invoice international sales in domestic currency

B.

Temporarily stop operating in that target market

C.

Arrange a forward foreign exchange rate contract agreeing to buy a given amount of the foreign currency in 3 months time for a fixed exchange rate based on current rates

D.

Put a sale on all vehicles stationed in the region to clear stock quickly