Core Activity A

Question 1

What is WACC?

Answer 1

Weighted Average Cost of Capital; the weighted average cost of different sources of long-term finance, weighted by monetary value.

Question 2

How is the Cost of Debt measured?

Answer 2

Return earned by lenders; present value of future interest and redemption amounts, adjusted for tax savings.

Question 3

How is the Cost of Equity measured?

Answer 3

Return earned by shareholders; present value of future dividends or capital gains.

Question 4

Why can excessive debt increase WACC?

Answer 4

Excessive debt raises the financial risk for shareholders, increasing their required return.

Question 5

What is the impact of WACC on investment appraisals?

Answer 5

WACC is used as the discount rate; higher WACC reduces project NPV.

Question 6

Summarise High vs Low WACC.

Answer 6

High WACC = Bad (higher risk); Low WACC = Good (higher investment value).

Question 7

What is a business ecosystem?

Answer 7

Networks of organisations collaborating to produce greater value.

Question 8

Define the CIMA business model steps.

Answer 8

Define, Create, Deliver.

Question 9

What is digital disruption?

Answer 9

Technology changes and disrupts existing business models.

Question 10

Strategies to build disruptive models?

Answer 10

Build, Buy, Partner, Invest, Incubate/Accelerate.

Question 11

Give an example of a Digital Operating Model.

Answer 11

Booking systems.

Question 12

How to prioritise stakeholders?

Answer 12

By power, legitimacy, and urgency.

Question 13

How is value created and delivered?

Answer 13

Build trust, allocate resources, design processes, segment customers, and meet expectations.

Question 14

What is residual value (RV)?

Answer 14

Revenue exceeding cost of creating value, crucial for shareholders.

Question 15

How to survive digital disruption?

Answer 15

Leadership, strategic direction, collaboration, external influence, judgment, talent development.

Question 16

What is Price Elasticity of Demand?

Answer 16

Measures sensitivity of demand to price changes.

Question 17

What is Cost-plus pricing?

Answer 17

Setting a price by adding a profit margin to total costs.

Question 18

Define Premium Pricing

Answer 18

High price to signal superior quality.

Question 19

What is Market Skimming?

Answer 19

High initial price, lowered over time.

Question 20

Define Penetration Pricing.

Answer 20

Low initial price to quickly gain market share.

Question 21

What is Price Differentiation?

Answer 21

Different prices charged to different customer segments.

Question 22

What is a Loss Leader Strategy?

Answer 22

Selling at a loss to attract customers.

Question 23

What is Discount Pricing?

Answer 23

Temporary price reductions to boost sales.

Question 24

What is Controlled Pricing?

Answer 24

Prices regulated by the market or government.

Question 25

What is Product Bundling?

Answer 25

Offering multiple products together at a discount.

Question 26

How does pricing change over the Product Lifecycle?

Answer 26

Prices are high at launch, lower during maturity, and may decline further.

Question 27

What cash flows are relevant for investment decisions?

Answer 27

Future and incremental; exclude sunk, non-cash, notional items.

Question 28

Difference between Internal and External Management Information?

Answer 28

Internal = Reliable but limited. External = Broader but needs critical evaluation.

Question 29

What are Business Intelligence Systems used for?

Answer 29

Reduce costs, find opportunities, improve decisions.

Question 30

How does Data Analytics help?

Answer 30

Identify patterns, optimise strategies, gain competitive advantage.

Question 31

What is Net Present Value (NPV)?

Answer 31

NPV measures added shareholder wealth; uses discounted cash flows.

Question 32

What is Internal Rate of Return (IRR)?

Answer 32

Discount rate making NPV = 0; assumes reinvestment at IRR.

Question 33

What is Modified Internal Rate of Return (MIRR)?

Answer 33

Adjusts for realistic reinvestment assumptions; more accurate than IRR.

Question 34

What is Payback Period?

Answer 34

Time needed to recover initial investment.

Question 35

Define ROCE (Return on Capital Employed).

Answer 35

Operating profit / Capital employed x 100.

Question 36

What is Capital Rationing?

Answer 36

Prioritising investments when funds are limited.

Question 37

What is Equivalent Annual Cost?

Answer 37

Standardises costs across projects of different lengths.

Question 38

What are Real Options in Appraisal?

Answer 38

Flexibility to delay, defer, switch, expand, contract, or abandon projects.

Question 39

What is Asset Replacement?

Answer 39

Evaluating when to replace old assets based on cost and benefits.

Question 40

What Other Considerations affect Investment Decisions?

Answer 40

Environmental, social, quality, and reputational factors.

Question 41

Final Evaluation Questions in Investment Decisions?

Answer 41

What do results mean? What do they tell us? What decisions should follow?