Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CIMA P2 > Capital Investment Decision Making - 35% > Flashcards

Capital Investment Decision Making - 35% Flashcards

1
Q

What is a relevant cash flow?

A

Future, incremental cash flow

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are non relevant costs?

A

Sunk or past costs
Absorbed fixed overheads
Committed costs
Historical cost depreciation
Notional costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is an opportunity cost?

A

The value of the benefit is sacrificed when one course of action is chosen in preference to an alternative

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are avoidable costs?

A

The specific costs of an activity or sector of a business which would be avoided if that activity or sector did not exist

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are differential/incremental costs?

A

The difference in total cost between alternatives. This is calculated to assist decision making.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is incremental revenue?

A

Difference I revenues between the alternatives

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are some quantitative costs?

A

Purchase price of machine
Installation and training costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are some quantitative benefits?

A

Lower direct labour costs
Lower scrap costs and items requiring rework
Lower stock costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are some qualitative costs?

A

Increased noise level
Lower morale if existing staff have to be made redundant

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are some qualititative benefits?

A

Reduction in product development time
Improved product quality and service
Increase in manufacturing flexibility

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are some internal sources of data?

A

Sales ledger system
Purchase ledger system
Payroll system
Fixed asset system
Production
Sales and marketing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are some external sources of data?

A

Suppliers
Newspapers, journals
Government
Customers
Employees
Banks
Business enquiry agents
Internet

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the benefits of collecting, analysing, and presenting high-quality data?

A

Collaborative working
Customer insight
Risk management
Governance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the costs of collecting data?

A

Software licence costs
Software maintenance costs
IT training costs
User training costs
Integration costs
Redundant infrastructure costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the two forms of IT controls?

A

General controls
Application or program controls

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are general IT controls?

A

Ensure the organisation has overall control over its information systems.

Personal controls
Access controls
Computer equipment controls
Business continuity planning

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are application or program controls?

A

Performed automatically by the system and include:
Completioness checks to ensure data is processed
Validity checks
Identification and authorisation checks
Problem management facilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What does the term BI often used to describe?

A

Technical architecture of systems that extract, assemble, store and access data to provide reports and analysis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is at the base of the BI stack?

A

Source data systems from where date is extracted, translated, and loaded by extract, transform, and load system into a data warehouse.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is data analytics?

A

Process of collecting, organising, and analysing large sets of data to generate trends and other information to aid decision making

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is Data mining?

A

Process of sorting through data to identify patterns and relationships within a data set

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the benefits of BI?

A

Sales people are better informed
Greater transparency
Negotiators can be better informed
Advertising and promotional spend can be better focused
Some data may have value outside the business

23
Q

What is the creation phase of the capital investment process?

A

Identify objectives
Search for investment opportunities
Identify states of nature

24
Q

What is the decision phase of the capital investment process?

A

List possible outcomes
Measure payoffs
Select investment projects

25
Q

What is the implementation phase of the capital investment process?

A

Obtain authorisation and implement projects
Review capital investment decisions

26
Q

What are the functions of a capital expenditure committee?

A

Coordinate capital expenditure policy
Appraise and authorise capital expenditure on specific projects
Review actual expenditure on capital projects against budget

27
Q

In a capital investment appraisal what do we initially assume?

A

All cash inflows and outflows are known with certainty
Sufficient funds are available to undertake all profitable investments
Zero inflation
Zero taxation

28
Q

What is time value of money?

A

Money received today is worth more than the same sum received in the future

29
Q

What are the four widely used investment appraisal methods?

A

Net present value
Internal rate of return
Payback period
Accounting rate of return

30
Q

What is the NPV?

A

Net benefit or loss of benefit in present value terms from an investment opportunity

31
Q

What is the IRR?

A

Rate of return at which the project has a NPV if zero

32
Q

When does capital rationing occur?

A

When insuffiencient funds are available to undertake all beneficial projects

33
Q

How do we calculate the profitability index in capital rationing?

A

NPV of project/inital cash outflows

34
Q

How do we calculate the discounted payback profitability index?

A

Present value of net cash inflows/initial cash outlay

35
Q

What are the different classifications of real options in investment appraisal?

A

Option to delay/defer
Option to switch/redeploy
Option to expand/contract
Option to abandon

36
Q

How do you calculate the payback period?

A

Initial investment/annual cash inflow

37
Q

How do we calculate the ARR?

A

Average annual profit/average value of investment

38
Q

How do you calculate the average value of investment?

A

Intitial investment plus residual value/2

39
Q

What are the advantages of payback?

A

Simplicity
Useful under improving investment conditions
Pray back favours projects with a quick return
Uses cash flows not profits

40
Q

What are the disadvantages of payback?

A

Project returns may be ignored
Cash flow timing ignored
Lack of objectivity
Project profitability is ignored

41
Q

What are the advantages of ARR?

A

Simple to understand
Widely used and accepted
Considers the whole like of the project
Link with other accounting measures

42
Q

What are the disadvantages of ARR?

A

Ignores time value of money
Not a measure of absolute profitability
Does not consider cash flows
Vary with specific accounting policies, and the extent to which project costs are capitalised.
No definite investment signal
Does not provide a reliable basis for project evaluation

43
Q

How do you calculate the real rate of return?

A

1 + money cost of capital/1 + rate of inflation

44
Q

How do u calculate the equivalent annual cost?

A

PV of costs/annuity factor for year n

45
Q

What is the method of solution when deciding to replace assets?

A

Consider each possible replacement cycle
Calculate PV of costs for each cycle
Divide this PV by annuity factor to find equivalent annual cost
Select replacement cycle with the lowest equivalent annual cost

46
Q

What does the replacement analysis model ignore?

A

Changing technology
Inflation
Change in production plans

47
Q

What does the price elasticity of demand measure?

A

The change in demand as a result of a change in its price

48
Q

How do u calculate price elasticity?

A

Change in quantity demanded/change in price

49
Q

What does it mean if demand is elastic?

A

Very responsive to change in price.

Revenue increases when price is reduced
Revenue decreases when price increase

50
Q

What does it mean if demand is inelastic?

A

Not very responsive to changes in price.

Revenue decreases when price is reduced
Revenue increases when price increases

51
Q

What factors affect price elasticity?

A

Scope of the market
Information within the market
Availability of substitutes
Complementary products
Disposable income
Necessities
Habit

52
Q

What are the limitations of the profit maximisation model?

A

Unlikely org will be able to determine the demand function for their function
Orgs aim to achieve a target profit
Determining an accurate and reliable figure for marginal or variable cost poses difficulties for the management accountant
Unit marginal costs are likely to vary depending on quantity sold

53
Q

What are some pricing strategies based on cost?

A

Target cost plus pricing
Marginal cost plus pricing
Premium pricing
Market skimming
Penetration pricing
Price differentiation
Loss leader pricing
Discount pricing
Controlled pricing
Product bundling

CIMA P2 (19 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions