CIMA Exam CIMAPRO19-P02-1 Topic 9 Question 102 Discussion

Actual exam question for CIMA's CIMAPRO19-P02-1 exam

Question #: 102
Topic #: 9

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:

ANPV will reduce, IRR will not change

BNPV and IRR will not change

CNPV will increase, IRR will reduce

DNPV and IRR will both increase

ENot enough information given for an answer

Show Suggested Answer

Suggested Answer: A

by Dell at Oct 21, 2024, 09:11 AM

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Brittni

3 months ago

This is a classic case of 'garbage in, garbage out.' If the discount rate is off, everything else is going to be off too. I'd say option E is the way to go - not enough info to answer this one accurately.

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Alease

3 months ago

Underestimating the discount rate? Yikes, that's like trying to drive with the parking brake on. Option C seems to be the right answer here - the NPV will go up, but the IRR will go down.

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Ligia

1 months ago

Definitely, it's important to always double check your discount rate assumptions.

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Audra

2 months ago

So, the NPV will increase but the IRR will decrease. Good to know for future assessments.

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Ettie

2 months ago

Yeah, it's like not seeing the full picture. Option C does seem to make sense.

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Mammie

2 months ago

I agree, underestimating the discount rate can really throw off your calculations.

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Princess

3 months ago

Hmm, if we underestimated the discount rate, that means the present value of the future cash inflows would be lower. So, the NPV should decrease, but the IRR might not change. I'm going with option A.

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