Question 1

Company D is about to launch an innovative and unique product which may face direct competition within three years. The company needs to achieve a rapid payback on all investments because it has limited access to external finance.
Which is the most appropriate pricing strategy for company D's new product, and for what reason?

Options :

A : Market skimming because it exploits areas of the market which are sensitive to price.

B : Penetration pricing because it can be used to rapidly build sales volume in mature markets.

C : Market skimming because it enables high prices to be charged to buyers who want the product as soon as possible.

D : Penetration pricing because it can be used to rapidly build sales volume in high growth markets.

Answer: C

Question 2

One of an investment centre's products is sold on an external market. Output is limited because the specialist machine that manufactures the product is operating at full capacity.

Current data for the product are as follows.

Options :

A : $21,400

B : $17,800

C : $23,900

D : $26,160

Answer: A

Question 3

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:

Options :

A : NPV will reduce, IRR will not change

B : NPV and IRR will not change

C : NPV will increase, IRR will reduce

D : NPV and IRR will both increase

E : Not enough information given for an answer

Answer: A

Question 4

Which of the following statements about the use of traditional budgeting compared with a beyond budgeting approach is correct?

Options :

A : If the organization has devolved decision making, beyond budgeting is not appropriate because it does not allow the same level of empowerment as traditional budgeting.

B : If the organization-s products are subject to rapid technological change, beyond budgeting would allow managers to respond more quickly than under traditional budgeting.

C : If there is a dynamic external environment with fast moving opportunities, beyond budgeting will inhibit the organization-s ability to take advantage of these opportunities whereas traditional budgeting will not.

D : If the organization-s culture is such that a top down budgeting system is desired then this is better achieved by adopting beyond budgeting rather than traditional budgeting.

Answer: B

Question 5

A very large organization is financed by both debt and equity. It evaluates all projects on the basis of their net present value (NPV) using an organization wide weighted average cost of capital as the discount rate.
For a small project, which TWO of the following would affect the project's cash flows AND the discount rate?

Options :

A : Taxation rates

B : Inflation rates

C : Depreciation rates

D : Changes in working capital

E : The project-s terminal value

Answer: A,B

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