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CIMA Exam CIMAPRO19-P02-1 Topic 4 Question 92 Discussion

Actual exam question for CIMA's CIMAPRO19-P02-1 exam
Question #: 92
Topic #: 4
[All CIMAPRO19-P02-1 Questions]

You have just assessed an investment proposal, involving an immediate cash outflow followed by a series of cash inflows over the next 7years, by deducing the NPV and the IRR. You have now discovered that you have

underestimated the discount rate.

Correcting the underestimation will have the following effect, relative to your original deductions:

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Suggested Answer: A

by Lorean at Jul 08, 2024, 07:32 AM

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Tamar
1 months ago
Yes, that's true. So, the correct answer is C) NPV will increase, IRR will reduce.
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Stefan
1 months ago
Okay, let's see. If the discount rate is underestimated, that means the company's cost of capital is higher than they thought. That's gotta hurt the NPV, but the IRR? Beats me, I'm just trying to survive this exam!
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Mammie
1 months ago
Hmm, let me think about this. If the discount rate goes up, the NPV has to go down, that's a no-brainer. But the IRR? I'm a bit stumped on that one.
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Annamaria
18 days ago
User 2: I agree, but I'm not sure about the IRR.
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Terina
19 days ago
User 1: If the discount rate goes up, the NPV has to go down.
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Virgilio
2 months ago
Yikes, this one's a real brainteaser! If the discount rate is underestimated, the NPV is gonna take a nosedive, but the IRR? That's anyone's guess!
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Elfrieda
8 days ago
So, correcting the discount rate will actually make the project less attractive in terms of IRR.
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Carma
10 days ago
C) NPV will increase, IRR will reduce
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Reuben
17 days ago
Oh no, that means the project is not as profitable as we initially thought.
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Benton
19 days ago
A) NPV will reduce, IRR will not change
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Adaline
2 months ago
But wouldn't that also reduce the IRR?
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Tamar
2 months ago
I think correcting the underestimation of the discount rate will increase the NPV.
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