Cima - P3 - Advanced Investment Appraisal Techniques

Front 1

Payments of tax or reductions of tax payments are ?

Back 1

Cash flows and should be taken into account in discounted cash flow projections. Tax allowances do represent inflows as they reduce the amount of tax actually to be paid in cash.

Front 2

Who should discounted cash flow (DCF) calculation treat depreciation ?

Back 2

These items have to be added back to profits or losses to arrive at operational cash flows.

(or other non-cash items, including accruals and prepayments),

Front 3

Any inflation element in the cost of capital should be excluded from the discount rate.

Back 3

But If a money cost of capital is employed, then the cash flows on which the analysis is performed should also include any inflation which is expected.

Front 4

Information Strategy is?

Back 4

IS strategy looks at the way in which the information systems in various parts of the entity are organised;

Front 5

Information technology is

Back 5

IT strategy looks at the technology infrastructure of the systems;

Front 6

Information Management is ?

Back 6

IM strategy considers how the systems support management processes

Front 7

Sensitivity analysis is

Back 7

A modelling and risk assessment procedure in which changes are made to significant variables in order to determine the effect of these changes on the planned outcome.

Front 8

The decision tree represents

Back 8

A form of probability estimating where the decision-maker thinks clearly through a sequence of events triggered by an initial action,

Front 9

Managers calculate certainty equivalents, especially where ?

Back 9

The high risk of a project makes it desirable to know how far net cash flows can change adversely before the project outcome becomes negative.

Front 10

The adjusted rate is the basis of the concept of adjusted present value (APV), which suggests?

Back 10

That the NPV of a project can be increased or decreased by the side-effects of financing.

Front 11

Investment projects can be related to financial call options, where the project provides the right, but not the obligation, to purchase an asset in the future. When an irreversible investment decision is made?

Back 11

The call option becomes exercised.

Front 12

The investment cycle is represented as follows:

Back 12

Gather information.

Make predictions.

Accept project.

Implement decision.

Evaluate performance.

Use knowledge gained.

Front 13

A post-completion audit (PCA) is an objective and independent appraisal of all phases of the capital expenditure process as it relates to a specific project. The main purposes may be summarised as?

Back 13

project control.

improving the investment system.

assisting the assessment of performance of future projects.

Front 14

Financial strategy depends on objectives. For a profit-making entity the main strategic objective is to optimise the wealth of the proprietors, which means

Back 14

Achieving the maximum profit possible consistent with balancing the needs of the various stakeholders in the entity, including shareholders, fund lenders, customers, suppliers, employees and government.

Front 15

Managers in practice may have broader objectives which can lead to?

Back 15

Perhaps undertaking decisions that will achieve satisfactory returns rather than those that may optimise returns.

Front 16

Shareholder wealth is based on the present value of future cash flows. Shareholder wealth may be measured by?

Back 16

The return that shareholders receive from their investment, represented partly by the dividend received each year and partly by the capital gain from the increase in the value of the shares over that period.

Front 17

A profit-making entity may also have a number of important non-financial objectives which may be related to

Back 17

customer satisfaction,

welfare of employees,

welfare of management and the environment.

Front 18

The agency theory explains how?

Back 18

Where ownership is separated from the day-to-day management of an entity, managers may be motivated to behave in ways that are not optimal to the shareholders of the organisation.

Front 19

Shareholder value analysis (SVA) is used to indicate the amount of economic value created in a period. It does so by

Back 19

measuring and managing cash flows of the entity taking account of risk and the true value of money.

Front 20

Not-for-profit entities also need adequate investment in resources in order to satisfy needs. This can be done only if the value of their outputs is more than the value of inputs. Therefore?

Back 20

The criterion used in resource allocation should be the same across private and public sectors.

Front 21

In the case of not-for-profit entities, their customers are not synonymous with their clients. meaning?

Back 21

There is no direct link between consumption and price (High demand)

Front 22

The public sector is usually credited with having drawn attention to the distinctions between the following?

Back 22

Economy,

Efficiency,

Effectiveness

Front 23

Economy, which is

Back 23

Generally thought of in terms of doing things as cheaply as possible, and is therefore associated with the operational level of control.

Front 24

Efficiency, which is

Back 24

Generally thought of in terms of productivity (the ratio of output to input) and is therefore associated with the tactical level of control.

Front 25

Effectiveness, which is

Back 25

Generally thought of in terms of doing the right things, and is therefore associated with the strategic level of control.

Front 26

In the case of both the private and public sectors, it is never possible to say whether or not value has been maximised. Why?

Back 26

We do not know what opportunities have been missed.

Front 27

Value judgements are subjective in both the private and public sectors. which is more difficult?

Back 27

There are usually higher degrees of difficulty — discomfort, even — in making value judgements in the public sector.

Front 28

The financial indicators are:

Back 28

Cash generation

Value added

Profitability

Return on assets

Front 29

The non-financial indicators are:

Back 29

Market share

Customer satisfaction

Competitive position

Risk exposure

Front 30

what are certainty equivalents?

Back 30

Investment securities that are short-term, have high credit quality and are highly liquid.

Front 31

What company would have a negative beta

Back 31

One that does better than market in recession and worse in market rises.

E.g. Insolvency Business

Front 32

What do different companies beta suggest

Back 32

Reflecting the fact that they are more or less sensitive to the general market factors that cause systematic risk