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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:

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Suggested Answer: A

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

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Elli
20 days 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?
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Brock
21 days ago
Hey, at least you didn't overestimate the discount rate. That would've really thrown a monkey wrench in your calculations!
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Dewitt
25 days 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.
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Nelida
4 days ago
User 2: Yeah, I'm not sure either. Maybe we should review our financial analysis skills.
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Marilynn
14 days ago
User 1: I think the NPV will reduce, but I'm not sure about the IRR.
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Antione
29 days 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.
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Lashanda
30 days 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?
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Felix
2 days ago
User 3: So, if you underestimate the discount rate, correcting it will indeed have an effect on both the NPV and the IRR.
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Ruthann
4 days 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.
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Marjory
9 days ago
User 1: Increasing the discount rate will actually reduce the IRR.
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Milly
1 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.
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Leslee
10 days ago
Hmm, I think you're right. Underestimating the discount rate will definitely lower the NPV.
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Lemuel
14 days ago
A) NPV will reduce, IRR will not change
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Gertude
1 months ago
Hmm, that's an interesting perspective. I guess we'll have to wait and see what the correct answer is.
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Pearly
1 months ago
I disagree, I believe both NPV and IRR will increase when the discount rate is corrected.
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Gertude
1 months ago
I think correcting the underestimation of the discount rate will increase the NPV but reduce the IRR.
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