Deal of The Day! Hurry Up, Grab the Special Discount - Save 25% - Ends In 00:00:00 Coupon code: SAVE25
Welcome to Pass4Success

- Free Preparation Discussions
Mail Us support@pass4success.com
Location US
Mob_nav_barsMENU

CIMA Exam CIMAPRO19-P02-1 Topic 5 Question 105 Discussion

Actual exam question for CIMA's CIMAPRO19-P02-1 exam
Question #: 105
Topic #: 5
[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:

Show Suggested Answer Hide Answer
Suggested Answer: A

by Jeffrey at Jan 09, 2025, 04:51 PM

Limited Time Offer

25%

Off

Get Premium CIMAPRO19-P02-1 Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel
Elli
2 months ago
Looks like someone needs to get their discount rate straight before they can get their IRR right. Am I right, or am I right?
upvoted 0 times
...
Brock
2 months ago
Hey, at least you didn't overestimate the discount rate. That would've really thrown a monkey wrench in your calculations!
upvoted 0 times
...
Dewitt
2 months ago
I'm with Antione on this one. The NPV has to go down, but the IRR? I'm drawing a blank here. Guess I need to brush up on my financial analysis skills.
upvoted 0 times
Nelida
1 months ago
User 2: Yeah, I'm not sure either. Maybe we should review our financial analysis skills.
upvoted 0 times
...
Marilynn
2 months ago
User 1: I think the NPV will reduce, but I'm not sure about the IRR.
upvoted 0 times
...
...
Antione
2 months ago
Alright, let's think this through. If the discount rate goes up, the future cash flows are worth less, so the NPV has to go down. Simple as that.
upvoted 0 times
...
Lashanda
2 months ago
Wait, are you telling me that increasing the discount rate won't change the IRR? That's a bit counterintuitive, don't you think?
upvoted 0 times
Felix
1 months ago
User 3: So, if you underestimate the discount rate, correcting it will indeed have an effect on both the NPV and the IRR.
upvoted 0 times
...
Ruthann
1 months ago
User 2: That's correct. The IRR is the discount rate that makes the NPV of all cash flows from a particular investment equal to zero.
upvoted 0 times
...
Marjory
1 months ago
User 1: Increasing the discount rate will actually reduce the IRR.
upvoted 0 times
...
...
Milly
2 months ago
Hmm, if we underestimated the discount rate, that's gonna knock down the NPV for sure. But the IRR? I'm not so sure about that one.
upvoted 0 times
Nana
20 days ago
I highly doubt that both NPV and IRR will increase after correcting the discount rate.
upvoted 0 times
...
Joanna
21 days ago
D) NPV and IRR will both increase
upvoted 0 times
...
Kandis
22 days ago
I don't think the NPV will increase if we correct the discount rate. It might actually decrease.
upvoted 0 times
...
Marge
23 days ago
C) NPV will increase, IRR will reduce
upvoted 0 times
...
Flo
24 days ago
I'm not so sure about the IRR though. It might stay the same even with the correction.
upvoted 0 times
...
Ranee
1 months ago
B) NPV and IRR will not change
upvoted 0 times
...
Leslee
1 months ago
Hmm, I think you're right. Underestimating the discount rate will definitely lower the NPV.
upvoted 0 times
...
Lemuel
2 months ago
A) NPV will reduce, IRR will not change
upvoted 0 times
...
...
Gertude
2 months ago
Hmm, that's an interesting perspective. I guess we'll have to wait and see what the correct answer is.
upvoted 0 times
...
Pearly
2 months ago
I disagree, I believe both NPV and IRR will increase when the discount rate is corrected.
upvoted 0 times
...
Gertude
2 months ago
I think correcting the underestimation of the discount rate will increase the NPV but reduce the IRR.
upvoted 0 times
...

Save Cancel