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CIMA Exam CIMAPRO19-P02-1 Topic 7 Question 87 Discussion

Actual exam question for CIMA's CIMAPRO19-P02-1 exam
Question #: 87
Topic #: 7
[All CIMAPRO19-P02-1 Questions]

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:

Show Suggested Answer Hide Answer
Suggested Answer: A

by Kent at May 07, 2024, 11:49 PM

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Shawn
6 months ago
But given typical behavior in finance, A makes sense. IRR stays the same if not recalculating it.
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Eva
6 months ago
Interesting. I thought it could be E because they didn't set the new discount rate.
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Shaquana
6 months ago
Correct. IRR is independent of the discount rate, but NPV is sensitive to it.
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Deeanna
7 months ago
You mean, NPV will reduce and IRR will not change? Why?
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Shaquana
7 months ago
Yeah, it was tricky. I think it's option A.
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Eva
7 months ago
Did you see the question about correcting the underestimation of the discount rate?
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