CIMA Risk Management - P3 Exam Questions

QUESTION NO: 1
ABC is an online retail chain which operates on a 24/7 basis It has been updating its Cyber Security processes and has implemented a centralised monitoring process to track activity through its web access portal Which of the following activities will increase the awareness of its cyber security risk most effectively?

QUESTION NO: 2
Which of the following will increase the value of a call option?

QUESTION NO: 3
VBN is a multinational company that has 60 subsidiary companies that operate in 11 countries. VBN evaluates the performance of each subsidiary as an investment centre, using residual income to measure performance.
Which THREE of the following threats of dysfunctional behaviour may arise from VBN's use of residual income to measure subsidiaries' performance?

QUESTION NO: 4
C Ltd is a private, family-owned company which is hoping to become listed on a recognised Stock Exchange within the next two years. At the moment, the Board of Directors comprises five directors; four of whom are from the founding family and all of whom are involved in the day-to-day running of the business. The remaining director obtained a seat on the Board three years ago as a condition of an investment by a venture capital fund.
The Board meets in half-day sessions once a fortnight and the Board meetings are reasonably well run. All decisions are taken by the Board as a whole. There are no sub-committees.
Which of the following steps would it be appropriate for C Ltd to take in the light of the proposed listing?

QUESTION NO: 5
A project requires a capital investment of £2.7million. The project will save £450,000 each year after taxation.
Assume the savings are in perpetuity. The business risk of the venture requires a 15% discount rate. The company has to borrow £1million to finance the project at a rate of 9% and the net tax shield is 30%, the project supports debt which generates an interest tax shield of 0.30 x 0.09 x £1million, which is £27,000 per year in perpetuity.
Calculate the project's adjusted present value.

QUESTION NO: 6
CH makes a popular type of chocolate bar The bars are made on a production line and are scanned for size and shape as they move along the line Wrong sized and misshapen bars are rejected as being poor quality. The scanner detects 90% of poor quality bars. If CH wants to reduce the risk of poor quality bars being sold to the public it can add a further check by a person scanning the production line as well. this check would detect 80% of poor quality bars If the further check was implemented what percentage of poor quality bars would still get through the checking process?

QUESTION NO: 7
Division A of X plc produced the following results in the last financial year.
Net profit $200,000 Gross capital employed $1,000,000
For evaluation purposes all divisional assets are valued at original cost.
The division is considering a project that has a positive NPV, will increase annual net profit by $15,000, but will require average inventory levels to increase by $50,000 and non-current assets to increase by $50,000.
X plc imposes a 16% capital charge on its divisions. Given these circumstances, will the evaluation criteria of return on investment (ROI) and residual income (RI) motivate division A managers to accept the project?

QUESTION NO: 8
P Ltd, a manufacturing company, is considering a new capital investment project to set up a new production line. The initial appraisal shows a healthy net present value of $6,465 million at a discount rate of 10% as shown in the table below:
However, management is unsure about the demand for the product which will be produced and has insisted that the future revenues should be reduced to certainity equivalents by taking 70%, 65% and 60% of the years
1,2, and 3 cash inflows respectively.
What should P do?

QUESTION NO: 9
Kate is a management accountant. Her immediate superior plans to apply for a promotion and his strongest competitor is the sales manager. Kate's superior has ordered her to set unattainable sales targets in a sales budget in order to reduce the sales manager's promotion prospects. He told her not to tell anybody.
Kate asked the finance director for advice. He told her that he wanted her immediate superior to get the promotion and so she should set the unattainable budget as instructed.
Kate set the budget as instructed.
Which THREE fundamental ethical principles has Kate breached?

QUESTION NO: 10
A publicly funded hospital has put various features in place in an attempt to improve strategic control and create an improved control environment.
Which TWO of the following features are most likely to meet this objective?

QUESTION NO: 11
A's directors do not believe that they always get value for money from their investment in capital projects.
Over the past decade the company has invested in 55 projects that have cost more than $1m. They are considering introducing a system of post completion audit to see if this will help them to understand any problems they have had with projects in the past. They hope to use the results of the post completion audits to significantly improve the results of their capital investments State whether you agree or disagree with the points raised by A's directors.

QUESTION NO: 12
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?

QUESTION NO: 13
M is updating the risk register for KRW, a listed company. KRW is a large multinational corporation operation. Which THREE of the following statements are correct?