How to pass CIMA P2 exam with the help of dumps?

Question # 1

A company currently absorbs production overheads based on labor hours. The overheads absorbed by the two products that are made, L and M, are $4 per unit and $10 per unit respectively. These were based on the budgeted overheads of $7,000 and budgeted labor hours of 1,750. The budgeted output was 500 units of each product.The company is investigating the use of activity based costing (ABC). Analysis has shown that the total production overheads of $7,000 are made up of $4,000 for set up costs and $3,000 for inspection costs. The cost driver for set up costs is the number of set ups and for inspection costs it is the number of inspections. The cost driver rate for set ups is $160 per set up. Product L would need 5 production runs. Both types of product would need 1 set up for each production run. Product L would need 2 inspections for each production run. Product M would need 1 inspection per production run. The products are made in the same department and use the same equipment and staff but they are produced separately. Which of the following statements are correct? Select ALL that apply.  

A. The current production overhead absorption rate is $4.00 per hour. 
B. The current production overhead absorption rate is $500 per hour. 
C. If ABC was used, set up costs per unit of Product L would be $1.60. 
D. If ABC was used, set up costs per unit of Product M would be $4.00. 
E. If ABC was used, inspection costs per unit of Product L would be $4.00. 
F. If ABC was used, inspection costs per unit of Product M would be $4.00. 

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Question # 2

A company is considering investing $680,000 in a machine to manufacture a new product. A consultant has been appointed to advise on the investment and the company is  committed to paying $10,000 to the consultant in year 1, even if the project does not go ahead.300,000 units of the new product will be produced and sold each year. Unit cost and revenue information based on this level of output is as follows. 60% of the overhead cost is variable. Of the remainder, 10% consists of allocated head office overheads. The selling price will increase by 2% each year in line with inflation, beginning in year 2. Fixed price contracts mean that all unit costs will remain unaltered. Taxation information:  • 100% first year allowance will be available for the purchase of the machinery.  • The taxation rate is 30% of taxable profits, payable in the year after that in which the liability arises. For the purpose of deciding whether to proceed with the investment, what is the relevant cash flow in year 2? 

A. $1,102,320 
B. $1,099,320 
C. $1,326,960 
D. $1,288,800 

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Question # 3

If transfer prices are set at variable costs, the supplying division does not cover its fixed costs. Which of the following does NOT resolve this problem? 

A. Each division can be given a share of the overall contribution earned by the organization. 
B. A system of dual pricing can be adopted. 
C. Reduce the level of fixed costs. 
D. Central management can impose a range within which the transfer price should fall. 

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Question # 4

Which TWO of the following are reasons why cost-based approaches to transfer pricing are often used in practice? 

A. The buying division will want to maximize its profits. 
B. The transferring division will want to maximize its profits. 
C. Because the external market is imperfect. 
D. Because there is often no external market for the product that is being transferred. 
E. The approach allows the organization to cover all the costs. 

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Question # 5

Which TWO of the following expressions are correct? 

A. 1 + money rate = (1 + real rate) x (1 + inflation rate) 
B. 1 + real rate = (1 + money rate) / (1 + inflation rate) 
C. 1 + real rate = (1 + inflation rate) / (1 + money rate) 
D. 1 + money rate = (1 + inflation rate) / (1 + real rate) 
E. 1 + inflation rate = (1 + money rate) x (1 + real rate) 

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Question # 6

A company has a 31 December year end and pays corporation tax at a rate of 30%. Corporation tax is payable 12 months after the end of the year to which the cash flows relate. The company can claim tax allowable depreciation at a rate of 25% reducing balance. It pays $1 million for a machine on 31 December 20X4. The company's cost of capital is 10%. What is the present value of the benefit of the first portion of tax allowable depreciation? 

A. $250,000 
B. $227,500 
C. $75,000 
D. $68,175 

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Question # 7

The net present value of the cost of operating a machine for the next 4 years is £6,340. The discount rate used is 10%.What is the equivalent annual cost and the present value of the cost in perpetuity of operating this machine? Use discount factors to 3 decimal places.  

A. Equivalent annual cost = £92,825 Present value of cost in perpetuity = £9,283 
B. Equivalent annual cost = 9,283 Present value of cost in perpetuity = £92,825 
C. Equivalent annual cost = £2,000 Present value of cost in perpetuity = £20,000 
D. Equivalent annual cost = £20,000 Present value of cost in perpetuity = £2,000 

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Question # 8

A company has recently developed a new lawnmower with an estimated market life of 5 years. Production and sale of the lawnmower will require investment in new production equipment costing $750,000. It is expected that this equipment could be sold back to the original vendor for $50,000 at the end of five years. Purchase of the equipment would be financed by a 5 year fixed rate bank loan at an interest rate of 6%. A manager already employed by the company would be moved from their current position to manage production of the new lawnmower. Their original position would be filled by a new recruit on a fixed annual salary of $35,000. Which of the following statements is NOT correct?  

A. If the lawnmower is a failure then management can terminate the project early and sell the equipment, giving them an abandonment option. 
B. The salary of the replacement manager is a relevant cash flow in the decision. 
C. The interest costs on the bank loan are a relevant cash flow in the decision. 
D. Launching a new lawnmower gives an opportunity to launch more new versions and provides a follow-on option. 

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Question # 9

Which of the following statements are fundamental concepts that underlie the Beyond Budgeting approach? 1. Use traditional budgeting in conjunction with other techniques. 2. Use adaptive management processes rather than the more rigid annual budget. 3. Move towards devolved networks rather than centralized hierarchies. 4. Move towards centralized hierarchies rather than devolved networks. 

A. Statements 1 and 2 apply. 
B. Statements 1, 2 and 3 apply. 
C. Statements 2 and 3 apply. 
D. Statements 2, 3 and 4 apply. 

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Question # 10

A company is determining the selling price for its new product.At a selling price of $16 per unit there will be zero demand but for every $1 reduction in the price, demand will increase by 100 units per period. Production must be in batches of 100 units. The variable cost per unit will be $8 if 400 units are produced in a period. For each additional batch produced in a period the variable cost per unit will increase by $1 per unit for the additional batch only. No inventories will be held. Which of the following sales and production volumes will generate the highest contribution per period?  

A. 400 units 
B. 500 units 
C. 600 units 
D. 700 units 

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Question # 11

A company is considering investing $150,000 in a project which will generate the following contributions during the first three years.Tax depreciation allowance is 25% each year of the reducing balance.  The taxation rate is 30% of taxable profits and tax is payable in the year after that in which it arises. To the nearest $10, what is the forecast total project cash flow in year 3? 

A. $82,840 
B. $74,400 
C. $85,650 
D. $71,430 

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Question # 12

A large company that sells a single product has many customers. The contribution per unit of the product is $40. Data for the company as a whole are given below. Using customer profitability analysis, what is the total annual profit for this customer? 

A. $1,660,000 
B. $1,780,000 
C. $1,460,000 
D. $2,340,000 

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Question # 13

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.   Investigations have identified that more rigorous maintenance of the machine at an annual cost of $5,000 would reduce the number of breakdowns and increase its capacity to 1,300 units per year. There would be no change in the selling price if more units were sold. Any additional labor hours would be paid a premium of 25%. A discount of 2% of the cost of all materials purchased is available if the company increases its purchases to 3,700 kg or more per year. What would be the increase in the investment centre's annual controllable profit if more rigorous maintenance is undertaken? 

A. $21,400 
B. $17,800 
C. $23,900 
D. $26,160 

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Question # 14

Risk management can be represented as a four step process. The four steps, shown randomly, are:1. Establish appropriate risk management policies. 2. Risks are identified by key stakeholders. 3. Risks are monitored on an ongoing basis. 4. Risks are evaluated according to the likelihood of occurrence and impact on the organization. Which of the following is the correct order for the four steps?  

A. 1, 2, 3, 4 
B. 2, 1, 4, 3 
C. 1, 2, 4, 3 
D. 2, 4, 1, 3 

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Question # 15

Which of the following statements is NOT correct?Transfer prices between responsibility centers should be set at a level that:  

A. provides an artificial selling price that enables the transferring division to earn a return for its efforts and the receiving division to incur a cost for benefits received. 
B. enables profit centre performance to be measured 'commercially'. 
C. encourages a balance of goal congruence, managerial effort and centralized management. 
D. encourages profit centre managers to agree on the amount of goods and services to be transferred at a level that is consistent with organizational aims. 

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Question # 16

It is often claimed that a two-part transfer pricing system offers a number of advantages to organizations which use it.Which of the following statements is NOT an advantage of using a two-part transfer pricing system?  

A. Transfers are made at the marginal cost of the supplying division and both divisions should be able to report profits from inter-divisional trading. 
B. The receiving division is made aware of and charged for the full cost of obtaining intermediate products from other divisions. 
C. It stimulates planning, communication and coordination amongst divisions. 
D. The agreed fixed fee simply compensates the supplying division for incurring the fixed costs associated with the item transferred. 

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Question # 17

Company S has two divisions, X and Y. Division X transfers 50,000 component units to Division Y each quarter. The market price of the component is $20. Division X's variable cost is $10 per unit and its fixed cost is $150,000 each quarter. What price would be credited to Division X for each component that it transfers to Division Y under: two-part tariff pricing (where the two divisions have agreed that the fixed fee will be $100,000); and dual pricing (based on market price and marginal cost). 

A. Two-part tariff pricing = $10 Dual pricing = $22 
B. Two-part tariff pricing = $12 Dual pricing = $18 
C. Two-part tariff pricing = $10 Dual pricing = $20 
D. Two-part tariff pricing = $13 Dual pricing = $22 

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Question # 18

A project is viable because it has a positive net present value (NPV). Details of four of the input variables, together with the sensitivity of the viability of the project to a change in each one in isolation, are given below.   Which of the following statements is correct? 

A. A 1% change in the initial investment will result in a change of 3% in the NPV. 
B. The resale value at the end of the project is the most sensitive of the four variables. 
C. If the incremental annual cash contributions reduce by more than 8% then the project will no longer be viable. 
D. If the rate of taxation on profits increases to 40% then the project will no longer be viable. 

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Question # 19

The Chief Executive of a large manufacturing company has made the following comment."All of our competitors are using both just-in-time(JIT) and Total Quality Management (TQM) whereas we have never used either. Consequently we are lagging behind our competitors because their levels of inventory and quality costs are significantly below ours. I want to see JIT fully implemented, both for purchasing and for production, in 4 weeks' time and TQM fully implemented 4 weeks after that." Which of the following provide appropriate advice to the Chief Executive? Select ALL that apply.  

A. Full implementation of JIT is unlikely to be successful unless a TQM environment has first been established. 
B. Implementing TQM from scratch within 8 weeks should be feasible for a large manufacturing company, but implementing JIT within 4 weeks is unlikely to be feasible. 
C. Total quality costs are likely to begin declining immediately once the process of implementing TQM has commenced. 
D. JIT offers the long run prospect of significantly reducing inventory. 
E. It would be possible to implement TQM without implementing JIT. 
F. It is not possible to implement JIT for production without first implementing JIT for purchasing. 

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Question # 20

The performance report for the production manager of a company for the last month included the following.1,000 direct labor hours were worked at a basic rate of pay of $10 per hour. 200 of these hours were worked during overtime for which a 30% overtime premium was paid. 80 of these overtime hours were to fulfill a customer order that had originally been planned for manufacture next month. The sales manager had agreed to bring forward the delivery of this order at the request of the customer. The remaining overtime hours were due to unexpected inefficiency of the workforce; this has been traced to poor supervision by a junior managerMaterial costs included the following: ? $5,300 of material A. Material A is a commodity and, due to changes on the global market, the actual unit cost of this material for last month was 6% higher than had been expected ? $5,250 of material B. The usage of material B last month was 5% higher than it should have been due to faulty workmanship on the production line. What is the total value of the above costs that was controllable by the production manager?  

A. $20,610 
B. $19,810 
C. $20,910 
D. $20,360 

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Question # 21

GHY has two subsidiaries. GHY-Motor manufactures car engines and GHY-Build designs and assembles cars. In the car industry it is common for manufacturers to buy parts, including engines, from other manufacturers.GHY has granted GHY-Motor and GHY-Build full autonomy. GHY-Build is considering using an engine from another company for a new model that it is designing. GYY-Motor has a suitable engine, but it charges more than GHY-Build's preferred supplier. Which of the following statements is correct? Select ALL that apply.  

A. GHY should consider permitting GHY-Motor to charge part of the selling price on engines sold to GHY-Build to head office. 
B. Forcing GHY-Motor to grant a discount to GHY-Build could lead to dysfunctional behavior. 
C. There could be significant non-financial issues associated with GHY-Build's decision to buy another engine. 
D. Parent companies should never grant subsidiaries full autonomy on matters such as intragroup sales. 
E. The threat of dysfunctional behavior is largely theoretical and managers can be trusted to maximise shareholder wealth. 

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Question # 22

Beyond Budgeting is essentially an approach that places modern management practices within a cultural framework. Analyze the following statements: 1. The organization structure should have clear principles and boundaries. 2. Managers should be given a high degree of freedom to make decisions. 3. Frontline managers should be made responsible for relationships with customers.  4. Information system should be transparent and ethical. Which of the above statements relate to Beyond Budgeting? 

A. 1, 2 and 4 only 
B. 2, 3 and 4 only 
C. 1, 2 and 3 only 
D. All the statements

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Question # 23

Which of the following statements is true? 

A. Risk transfer means the management of a portfolio of different risks. 
B. Insuring risks means that businesses will not need to take any measures to reduce those risks. 
C. High frequency, high severity risks are always strategic risks. 
D. Risk hedging is taking action to offset one risk by incurring a new risk in the opposite direction. 

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Question # 24

LL produces an item, the Z, for which the demand curve is estimated to be:P = 10 - 0.0001Q where, P is the unit price in $ and Q is the annual sales volume in units;Marginal revenue (MR) = 10 - 0.0002QThe variable cost of producing the Z is $2 per unit. The annual fixed costs of production are $110,000. What is the profit maximizing output level? 

A. 50,000 units 
B. 45,000 units 
C. 40,000 units 
D. 35,000 units 

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Question # 25

Product WB currently sells for $13 per unit. Annual demand at that price is 20,000 units. If the price increases to $15, the annual demand falls by 500 units.What is the formula for the demand curve? 

A. {exhibit 6649} 
B. {exhibit 6660} 
C. {exhibit 6671} 
D. {exhibit 6682} 

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Question # 26

SDF is a newly-established production company that is experiencing high staff turnover in its factory. The production department is studying the manufacturing process and its associated learning curve.Which of the following statements is correct?  

A. SDF's staff turnover will disrupt the observation and measurement of the learning curve. 
B. SDF's staff turnover will affect the learning curve. 
C. SDF's rapid staff turnover means that knowledge of the learning curve has little value. 
D. SDF can use the learning curve to determine labor budgets for the remainder of the first year of operation.

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Question # 27

Which of the following activities are included within activity based management (ABM)?1. Cost reduction 2. Product design decisions 3. Variance analysis 4. Operational control 5. Performance evaluation  

A. 3, 4 and 5 only. 
B. 1, 2 , 4 and 5 only. 
C. 1, 3, 4 and 5 only 
D. All of them. 

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Question # 28

ZZZ is a divisionalised company that uses the balanced scorecard approach to monitor divisional performance. Each measure on the scorecard is classified as green (if they are better than expected), amber (if expectations have been met) or red (if they are poorer than expected).The Southern Division's scorecard shows that 90% of the measures are amber, 3% are green and 7% are red. All of the red classifications are listed under the Learning and Growth perspective and have arisen largely because the division has lost a lot of staff to a major competitor who offered a better rate of pay. Which THREE of the following statements are correct?  

A. The Southern Division's financial performance is acceptable. 
B. The numbers for the measures that have been classified as red and green are not necessarily indicative of overall performance. 
C. The Southern Division's managers should be asked to provide a commentary on the scorecard. 
D. The Southern Division's managers should be reprimanded for having only a small proportion of green classifications. 
E. The Southern Division's managers should be reprimanded for having red classifications. 

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Question # 29

Firefighters risk serious and potentially fatal accidents whenever they attend an incident.Which of the following statements is correct?  

A. The risk of serious accidents should be accepted in all but the most extreme incidents. 
B. The risk of serious accidents should always be accepted because that is what firefighters are paid to do. 
C. The risk of serious accidents should be avoided because the risk has a high probability and a high impact. 
D. Every incident should be the subject of a detailed and thorough risk assessment before the firefighters are permitted to respond. 

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Question # 30

SDF makes cars. Demand for one of SDF's most popular models has declined because of a longrunning television program. SDF's car is driven by a villainous character in the program and that has created such a negative association that sales have declined so significantly that SDF is planning to discontinue production.Which of the following statements is correct? Select ALL that apply.  

A. Business risks can arise from unexpected events. 
B. The use of a product in a television program can create upside risks. 
C. SDF should have considered the possibility that sales of this car could be affected by public perception, even though the car's practical attributes are unchanged. 
D. SDF's board should accept full responsibility for permitting this to happen. 
E. SDF's sales department should have prevented the television production company from buying the car. 

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Question # 31

An airline prides itself on using highly reliable aircraft that are maintained to the highest possible standard and that its flight crews are arguably the best in the industry. Despite that, the directors accept that there remains a slight possibility that there will be a fatal accident. Which THREE of the following statements are correct? 

A. The airline appears to be behaving responsibly. 
B. It is unlikely that any airline could totally eliminate all possibility of a fatal accident. 
C. The airline's directors can justify their behavior on the basis that they insist on exceeding all relevant statutory and industry safety standards. 
D. Fatal air accidents can be justified on the basis that some risk is inevitable. 
E. The airline should cease operations in order to eliminate the risk of a fatal accident. 

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Question # 32

Which of the following statements is correct? 

A. Risk can be quantified and probabilities can be assigned reliably to the possible outcomes. 
B. Uncertainty cannot be quantified and probabilities can be assigned reliably to the possible outcomes. 
C. Risk cannot be quantified and probabilities cannot be assigned reliably to the possible outcomes. 
D. Uncertainty can be quantified and probabilities can be assigned reliably to the possible outcomes. 

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Question # 33

Four mutually exclusive projects have been appraised as follows using net present value (NPV), internal rate of return (IRR), accounting rate of return (ARR) and payback period (PP).  Recommend which of the projects should be chosen. 

A. Project A 
B. Project B 
C. Project C 
D. Project D 

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Question # 34

A manufacturing company has just developed a new product and must now determine the most appropriate pricing strategy for its initial launch.The product will initially be unique because it will include highly desirable features that no competitive product offers. Its development has involved substantial expenditure and the company wishes to recover this as soon as possible. The product's uniqueness is expected to last for only six months before a competitor launches a similar product. It is expected that the competitor will avoid any significant development costs by reverse engineering the company's own product. At that point, to remain competitive, the company must ensure that its selling price matches that of the competitor. Which of the following pricing strategies would be most suitable for the initial launch of the company's product?  

A. Market skimming 
B. Penetration pricing 
C. Dual pricing 
D. Own label pricing 

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Question # 35

A small company currently uses an information system that was implemented several years ago and is based entirely on internal data. The company is considering replacing it with a more up to date system. It has been suggested that the new system should include the use of big data.Which TWO of the following statements are correct?  

A. Big data can provide a small company with useful information in the quest for competitive advantage. 
B. Big data is concerned solely with a dramatic increase in the amount of internal data stored. 
C. Big data can be used by a small company to identify new opportunities. 
D. It is not possible to value the potential benefits to a small company of an improved information system. 
E. Big data is only applicable to large companies which have substantial funds to invest in information systems. 

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Question # 36

Which TWO of the following statements are correct? 

A. It is worthwhile for a company to sell further units when the marginal revenue is greater than the marginal cost. 
B. Price is the only factor affecting the demand for products and services. 
C. Premium pricing is possible when there is a measure of product or service differentiation. 
D. Loss leadership pricing is appropriate for a new product which is not part of a range of products. 
E. Demand functions can be predicted accurately and the relationship between price and quantity demanded is always constant. 

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Question # 37

An airline company has operated passenger flights with low ticket prices to various airports from a busy airport for several years. It now faces increased competition on a number of its routes and has decided to use the balanced scorecard to monitor its performance.Which of the following statements are correct? Select ALL that apply.  

A. Customer satisfaction measures will not be needed because the company pursues a low price strategy for competitive advantage. 
B. The proportion of seats that are occupied on flights could be a suitable measure for the internal business process perspective. 
C. The number of new flights to different destinations could be a suitable measure for the learning and growth perspective. 
D. The number of on time take-offs could be a suitable measure for the internal business process perspective. 
E. Non-financial objectives will be met as a result of financial objectives being achieved. 
F. A survey of passengers could be a suitable measure for the customer perspective. 

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Question # 38

The directors of a company wish to evaluate two mutually exclusive capital investment projects. Both projects have conventional cash flows: an initial outflow followed by a series of annual cash inflows.The directors are aware of the following three investment appraisal methods: internal rate of return (IRR), net present value (NPV) and accounting rate of return (ARR). The directors have asked for your advice about which method should be used to evaluate these two projects. Which of the following is valid advice to give to the directors?  

A. IRR should be used because both NPV and ARR could lead to an incorrect investment decision. 
B. ARR should be used because it is based on profit whereas both IRR and NPV are based on cash flows. 
C. IRR should NOT be used because it could result in multiple IRRs. 
D. NPV should be used because it focuses on wealth creation whereas IRR and ARR are both relative measures. 

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Question # 39

A company is investing $150,000 in a project which will yield an annual cash inflow of $40,000 for eight years. The company's cost of capital is 10%.To the nearest $100, what is the project's equivalent annual net present value?  

A. $11,900 
B. $7,900 
C. $63,400 
D. $21,300

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Question # 40

Which of the following statements are correct with regard to responsibility centres?Select ALL that apply.  

A. Revenue centre managers have a lower level of decision-making authority than profit centre managers. 
B. Revenue centre managers and profit centre managers are accountable for controllable costs only. 
C. Profit centre managers and investment centre managers are responsible for the majority of operating costs incurred. 
D. Investment centre managers have a higher level of managerial authority than profit centre managers. 
E. Managers of profit centres have authority over the level of investment in working capital but managers of cost centres do not. 

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