CIMA P3 Exam Dumps

Risk Management

CIMA P3 Sample Questions

Question # 1

Accpro is a leading tuition provider for professional accountancy qualifications. It has decided to replace its old accountancy software (tuition fee records only) and with a new one. The new system will maintain student records, tuition providers’ fees, exam fee payments, and analysis of information. The new system was purchased from the market and has only been live for just over a week. It was not run in parallel with the old system because Accpro’s finance director deemed that a parallel run would have been too expensive and disruptive to its operations. The head of Accpro’s internal audit department offered to conduct a post-implementation review of the system to confirm that user needs are being satisfied, but Accpro’s finance director declined this offer. He argued that any problems with the new system will quickly become apparent after it goes live. Classify which of the following are limitations of conducting a post-completion audit. Select ALL that apply:

A. Sufficient resources may not be allocated to the task of completing PCA.
B. PCA can be time-consuming and costly to complete.
C. If undertaken by the managers of the project, they may claim credit for all that went well and blame external factors for everything that didn’t.
D. It can be used to blame the directors rather than learn from past mistakes.

Answer: A,B,C,D

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Question # 2

Accpro is a leading tuition provider for professional accountancy qualifications. It has decided to replace its old accountancy software (tuition fee records only) with a new one. The new system will maintain student records, tuition providers’ fee, exam fee payments and analysis of information. The new system was purchased from the market and has only been live for just over a week. It was not run in parallel with the old system because Accpro’s finance director deemed that a parallel run would have been too expensive and disruptive to its operations. The head of Accpro’s internal audit department offered to conduct a post-implementation review of the system to confirm that user needs are being satisfied, but Accpro’s finance director declined this offer. He argued that any problems with the new system will quickly become apparent after it goes live. Evaluate the argument put forward by Accpro’s finance director for refusing to have a post-implementation review and identify the statements that support his point of view. Select ALL that apply:

A. This system is too important to the efficient running of Accpro to dispense with a postimplementation review.
B. It is possible that many of the results that would have been obtained from a formal review will come to light if users are dissatisfied.
C. The system is extremely important to Accpro’s operations and its control over cash.
D. The system is a standard package, which reduces the risks of not conducting a review.

Answer: D

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Question # 3

Identify which of the following are ADVANTAGES of Post-Completion Audit (PCA). Select ALL that apply:

A. It decreases the frequency of project termination for ‘bad projects’.
B. It improves the quality of decision-making.
C. It abandons all under-performing projects by identifying the reasons for the under-performance.
D. It highlights the reasons for successful projects.
E. It provides a means of improving control mechanisms.

Answer: B,D,E

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Question # 4

Primed is a private medical college that is constructing a new block to offer additional admission seats for the MBBS qualification. ConstructAll has the contract for constructing the new block in 10 months’ time. Normally such projects take 14 months but ConstructAll has committed to put in extra workforce and finish the work in 10 months. Classes are going to commence by the last week of month 11. The project has no contingency plan. ConstructAll has not given any raises to its employees for two years, so some of them are considering going on strike. Which of the following is/are potential risks to the successful completion of the project? Select ALL that apply:

A. The commencement of classes might be cancelled due to low admissions.
B. The administration of the college may not remain interested in offering increased admissions.
C. 10 months might prove to be an unrealistic deadline commitment.
D. The project may be suspended due to any unforeseen labour strike problem

Answer: C,D

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Question # 5

Eduexc is a public sector university that is constructing a new block for offering additional postgraduate qualifications. The board of directors of the university want to have strict control on the capital expenditure on this large project and have asked the accountant to submit periodic reports on the progress and cost. Which ONE of the following will NOT be data included in a capital expenditure progress and cost report for the new building?

A. Estimated cost to complete and estimated final over- or under-expenditure.
B. Budgeted cost of the project, date started and scheduled completion date.
C. Estimated depreciation method and useful life.
D. Cost and over- or under-expenditure to date.
E. Estimated completion date and details of penalties, if any.

Answer: C

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Question # 6

TelNet Co is a leading telecommunications company in country C. It is planning to offer internet services to its customers via a small portable USB device. The management of TelNet commissioned some market research to assess the key design features of the device that customers require. Then, the product design was created and a trial product produced. This trial product has gone into testing for consumer feedback. This activity would take place within which stage of implementation of the new project and its control processes?

A. The conceptual stage
B. The development stage
C. The control stage
D. The operating stage

Answer: B

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Question # 7

BDD is a leading tuition provider for professional accountancy qualifications. One of the critical success factors (CSFs) for BDD is to improve student satisfaction. Mr. Ben, the management accountant and a former student of BDD, is looking to measure its performance in a quantifiable way. Which of the following indicators would BEST suit the CSF identity? Select ALL that apply:

A. Maximization of BDD’s owner’s wealth.
B. A decrease in the monthly number of complaints from students.
C. An increase in positive student feedback.
D. An increase in market share.
E. The number of students.
F. BDD’s gross profit percentage.

Answer: B,C,D

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Question # 8

What is the meaning of having a satisficing strategy in an organisation?

A. Maximization of shareholders’ wealth
B. Maximization of performance indicators satisfied
C. Maximization of shareholders satisfied
D. Maximization of stakeholders satisfied

Answer: B

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Question # 9

Which of the following features can distinguish a not-for-profit organization from profit-maximizing organizations? Select ALL that apply:

A. They do not have external shareholders providing risk capital for the business.
B. They do not distribute dividends, so any profit or surplus that is generated is retained by the business as a further source of capital.
C. Their objectives usually include some social, cultural, philanthropic, welfare or environmental dimension.
D. They offer a product that no other major organisation offers.

Answer: A,B,C

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Question # 10

Steel Co, a construction company, has won a contract with the government of Country C to build a new train line for within-city commuting. Their aim is to provide high-class travelling facilities to lowincome people. Currently, these people only have the option of using a bus for travelling within the city. However, the opposition party in Country C has protested that the plan is a favour given by the government to Steel Co rather than actually being beneficial to low-income people. Some people will suffer because their land and houses will be damaged or taken over on the construction route. As a result, the government has specified a range of conditions on the contract. Which of the following is the MOST likely to address the needs of less wealthy people if the project is successful?

A. The government will pay the fair value of the property to people whose houses are on the specified train route and will, therefore, be taken over.
B. The train will be fuel-efficient and will have less than half of the carbon emissions of buses accommodating the same number of people.
C. The ticket price charged will be half of the on-going rate for traveling via bus on the same routes.
D. Steel Co will develop the road infrastructure of some prescribed areas of the city at a subsidized price.

Answer: C

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Question # 11

What sort of performance measure might be set if a company wishes to measure the quality of its product? Select ONE correct statement:

A. The number of defective products produced.
B. The number of staff leaves.
C. The rate of staff turnover.
D. The profit per unit of product.

Answer: A

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Question # 12

Care is public sector hospital. Its directors are working on evaluating its performance and are considering different indicators for this purpose. Which of the following statements is/are TRUE for performance indicators for public sector organisations? Select ALL that apply:

A. The concept of profitability is most important in public sector organizations.
B. Market share can be used as a performance indicator for public sector organizations.
C. Return on assets may not be an appropriate indicator as there may be a difficulty in measuring its value.
D. Public sector entities tend to be risk-averse because of the political repercussions of failure.

Answer: B,C,D

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Question # 13

Cap Co manufactures and sells sports goods. Its products are distributed through a multi-channel network comprising of its own stores and online business, franchises and retail partners. The directors of Cap Co use profitability as their main performance indicator. Identify the DISADVANTAGES of using profitability as a performance indicator by Cap Co. Select ALL that apply:

A. It will not provide a systematic explanation as to why one business sector of Cap Co has more favourable prospects than another.
B. It is remote from the actions that create value for Cap Co.
C. The inputs to the measure may vary substantially between Cap Co and its competitors.
D. It does not provide enough insight into the dynamics and balance of Cap Co’s individual business units and the balance between them.

Answer: A,B,C,D

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Question # 14

Rose Co manufactures and sells cutlery and kitchen appliances. For many years, it has been recognized as a successful company and has become a household name. The products are distributed through a multi-channel network comprising its own stores and online business, franchises, and retail partners. Identify which of the following is/are financial objectives for Rose Co. Select ALL that apply:

A. Rose Co has a target to increase its return to investors by 20% this year.
B. Rose Co-directors plan to hold the highest market share in the year 20X8.
C. Rose Co wants customer complaints to reduce to half of the current level.
D. Rose Co-directors plan to improve the efficiency of operating cash flows by 15%.

Answer: A,D

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Question # 15

Which ONE of the following is NOT a key characteristic of not-for-profit organizations?

A. Revenue orientation for different customers.
B. Operate for purposes other than to provide goods or services at a profit.
C. Transparency in the organization’s mission and finances.
D. Receive significant contributions from providers who do not expect returns.

Answer: A

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Question # 16

Which ONE of the following is NOT an example of ways natural monopolies are regulated to ensure that the public are not the victims of the monopoly power these companies?

A. Disallowing them from making products with higher profit margins.
B. Capping the selling process.
C. Taxing super-profits.
D. Applying a limit to the profits these organisations are allowed to make.

Answer: A

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Question # 17

The Highway Company (THC) was considering two options for a new highway connecting two cities. Route 1 involved cutting a channel through an area designated as being of special importance because it is the natural habitat of the national animal, now considered an endangered species. The alternative was Route 2, which would involve the compulsory purchase and destruction of Mr. Dan’s factory. Mr. Dan threatened legal action if Route 2 was chosen as it would cause significant damage to his business and loss of jobs for 100 employees. On the other hand, a local environmental pressure group, ‘Endangered Species’, was outraged at the plan to choose Route 1. It criticized THC for ignoring the sustainability implications of the decision and accused the company of profiting at the expense of the environment. The project for Route 1 has a higher NPV than Route 2. THC is having trouble selecting the final route for the new highway.Which of the following statements concerning stakeholders of THC is/are CORRECT? Select ALL that apply.

A. All of THC’s shareholders would be impartial to both routes as long as the route is profitable.
B. THC’s shareholders will be unanimously in favour of the construction of Route 1.
C. THC is likely to have a poor reputation with environmental activists already, so investment in Route 2 is unlikely to damage it any further.
D. If THC chooses Route 1, it would be less sustainable but more favourable to shareholders and the stakeholders in the factory.

Answer: D

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Question # 18

The finance ministry of country D is analyzing the impacts of an increase in the inflation rate from 5% to 11% within 3 years. So far they have considered the following trends as a result of this inflation. Which of the following is/are a TRUE reflection of the inflation rate changes taking place in the economy?

A. Some manufacturing organizations have decreased their prices because the demand for products has lowered.
B. As a result of the increase in inflation and therefore the interest rate, the demand for borrowing has increased.
C. The lower exchange rate resulting from high inflation has lowered export prices

Answer: A

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Question # 19

The ministry of finance of Beta country is making a budget for their next fiscal year. The main challenge being faced is that the inflation rate has fluctuated a lot recently. The finance minister predicts that the rate of inflation will rise on average by 8% during the next year. The interest rate may fluctuate between 6% and 9.5%. Which of the following is/are TRUE regarding this increase in inflation rate? Select ALL that apply:

A.  An inflation rate under 10% is considered to be acceptable, not harmful.
B. Traders of Beta may delay purchases because they predict lower prices later.
C. There will be a better distribution of wealth in Beta.
D. Fluctuations in the inflation rate make it difficult for entrepreneurs in Beta to predict the economic future and accurately calculate prices and investment returns.

Answer: D

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Question # 20

Adjusted Present Value (APV) consists of two different elements, i.e. the investment element and the financing element. The present value of the costs and benefits associated with a financing package is calculated for the financing element. Select ALL of the following that are side-effects of financing:

A. Pre-tax issuance costs of the finance.
B. Tax allowable deduction on the finance cost paid on loans used.
C. Government grants.
D. Tax relief on subsidized loans.

Answer: B,C,D

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Question # 21

Neon Co is a television manufacturing company. It is planning to start a project to manufacture a new television. Why should Neon Co make sure that this new project is in the same risk class as existing operations before using the WACC as the discount rate?

A. If Neon Co uses the WACC of existing operations to evaluate the new project without regarding the risk class of the project, the risk of the company will increase over time.
B. Only projects with risk similar to that of present operations can result in positive NPV for Neon Co.
C. If the new project will decrease risk, Neon Co should reject it.
D. A new project that is in a different risk class must be analysed using the WACC of the firm's existing operations.

Answer: A

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Question # 22

The weighted average cost of capital (WACC) includes multiple factors in its calculation. What will be the impact of a decrease in the corporation tax rate on the calculation of WACC? Select ONE correct answer.

A. It will decrease the WACC of a firm with no debt in its capital structure.
B. It will decrease the WACC of a firm with debt in its capital structure.
C. It will increase the WACC of a firm with debt in its capital structure
D. It will increase the WACC of a firm with debt and equity in its capital structure.
E. It will not affect the calculation of WACC of a firm with debt in its capital structure.

Answer: C

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Question # 23

The company WACC is often used as a discount rate when using net present value or internal rate of return calculations. Select THREE conditions that have to be met when using WACC as a discount rate:

A. If the capital structure changes, the weightings in the WACC will also change.
B. The new investment does not carry a different business risk profile to the existing company's operations.
C. The discount rate of the intended investment is a replica of the company’s existing activities.
D. The company is completely equity-financed.

Answer: A,B,C

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Question # 24

A portfolio manager at Capital Asset Management Services, a well-known investment manager in the USA, is constructing a new equity portfolio consisting of a large number of randomly chosen stocks. Of the options below, select the MOST accurate statement with regard to the effect on the expected levels of systematic and unsystematic risk as the number of stocks in the portfolio increases: Systematic UnsystematicA Increases Remains the same B Decreases Increases C Remains the same Decreases D Remains the same Remains the same

A. Option A
B. Option B
C. Option C
D. Option D

Answer: C

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