Question 1

COM is a well established company in the construction industry The company was founded by the Mac family 30 years ago and several family members still serve on the Board The company obtained a listing five years ago The Board has an appropriate balance between executive and non-executive members It also has audit remuneration and nomination committees The average age of board members is 68

COM is profitable but profit margins have been falling steadily and this year's revenues are lower than it was achieved last year The Board recognis thai it does not have a long term strategy in place and has been losing business to newer, more aggressive competitors

Which THREE of the following statements are correct?

Options :

A : The remuneration committee should consider incentives such as share options to encourage the Board to focus on COM-s long term strategy

B : The nomination committee should have had a succession plan in place for directors.

C : The nomination committee should be operating for the benefit of the directors.

D : The audit committee should have alerted the Board to the impact of falling profit margins

E : The non-executive directors should have challenged the lack of long term strategic planning

Answer: A,B

Question 2

Zia is an accountant and wishes to take out a Forward Rate Agreement (FRA)as a hedging instrument. The company treasurer has advised that a short-term interest rate (STIR)future would be better.

Which of the following is true of an STIR?

Options :

A : A STIR can be tailored to the exact needs of the company.

B : A STIR is flexible and the position can be closed quickly and easily.

C : A STIR must be kept for the whole duration of the contract.

D : If interest rates have gone down the price of the future will have fallen.

Answer: B

Question 3

The acronym VPN stands for.

Options :

A : Verified Private Network

B : Virtual Private Network

C : Very Personal Network

D : Virtual Personal Network

Answer: B

Question 4

P Ltd, a manufacturing company, is considering a new capital investment project to set up a new production line. The initial appraisal shows a healthy net present value of $6,465 millionat a discount rate of 10% as shown in the table below:

However, management is unsure about the demand for theproduct which will be produced and has insisted that the future revenues should be reduced to certainity equivalents by taking 70%, 65% and 60% of the years 1,2, and 3 cash inflows respectively.

What should P do?

Options :

A : Proceed with the project, it has a healthy net present value.

B : Stop the project, it has considerable risk.

C : Put pressure on sales and marketing to re-verify their forecasts.

D : Re-appraise the project using other capital appraisal techniques to get a more balanced view.

Answer: D

Question 5

James owns a small company which sometimes suffers from credit risk.

Which of the following measures should he put in place to help reduce this risk?

Options :

A : Introduce credit checks for new customers.

B : Reduce the company bank loans.

C : Pay suppliers' invoices quicker.

D : Look for a loan with a lower interest rate.

Answer: A

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