Question 1

You have been assigned the role of lead internal auditor. Your task is to carryout the annual assessment of the production line maintenance department.
When planning for this audit, which of the following must be completed?

Options :

A : Prepare the report.

B : Establish whether the controls are adequate or not.

C : Decide how the controls will be tested.

D : Learn all about the systems and controls in the department.

E : Carefully consider any control weaknesses that are reported.

F : Review previous audit findings for the department.

Answer: A,C,D

Question 2

A capital investment project shows a NPV of 3,450 at a discounted rate of 8% and an NPV of 1,210 at a discounted rate of 9%.
Whatistheinternal rate ofreturn?

Options :

A : 11.85%

B : 10.85%

C : 10.54%

D : 9.54%

Answer: D

Question 3

An electricity company owns and operates a nuclear power station located ten miles from a large city. A recent and very extensive engineering examination of the power station concludes with the estimate that the probability of a major nuclear disaster within the next 20 years is 0.2%.
Which of the following best explains the relevance of quantifying the risk in that way?

Options :

A : There is no acceptable level of risk for a major nuclear accident and so the probability has little information value in itself.

B : The probability is so low as to be ignored.

C : The directors will be able to argue that they were not negligent in the event of a major disaster within the 20 year period.

D : The calculation of a precise probability demonstrates that the engineers who conducted the inspection are experts in their field.

Answer: A

Question 4

Having carried out a full capital appraisal for a construction project, HCompanyhasapproved the project with initial outflows of $6,000,000 anda net present value of $1,200,000.
The implementation phase has been commenced with 25% of the costs already committed.However whenthe ground was opened, an underground waterway was revealedwhich will need to be diverted if the project is to proceed. Work to carry out this diversion has been estimated at $1,300,000.
Which of the following factors will define whether the project should go ahead or not?

Options :

A : The project actually has a higher NPV than before.

B : The project now has a negative NPV.

C : Abandoning the project will have an adverse effect on shareholder confidence.

D : There will be abandonment costs to restore the site.

E : There may be other unexpected costs to be met if the project continues.

Answer: A,D

Question 5

A UK manufacturing company has simultaneously:
* purchased a put option to sell USD 1million at an exercise price of GBP1.00 = USD1.65
* sold a call option that grants the option holder the right to buy USD 1million at a price of GBP1.00 = USD1.61(this option has the same maturity date as the put).
Which of the following is a valid explanation for entering into these option positions?

Options :

A : The company expects to receive USD 1million from a customer and wishes to offset the cost of the put option by the premium on the call option.

B : The company expects to pay USD 1million to a supplier and wishes to offset the premium from the call option against the cost of the put option.

C : The company expects to receive USD 1million from a customer and wishes to obtain an additional benefit if the USD strengthens beyond GBP 1.00 = USD 1.61.

D : The company expects to pay USD 1million to a supplier and wishes to obtain additional protection against the USD strengthening beyond GBP 1.00 = USD 1.65.

Answer: A