Question 1

A very large organization is financed by both debt and equity. It evaluates all projects on the basis of their net present value (NPV) using an organization wide weighted average cost of capital as the discount rate.
For a small project, which TWO of the following would affect the project's cash flows AND the discount rate?

Options :

A : Taxation rates

B : Inflation rates

C : Depreciation rates

D : Changes in working capital

E : The project-s terminal value

Answer: A,B

Question 2

Which TWO of the following actions taken during the budgetary planning process will result in the creation of budgetary slack?

Options :

A : Overestimating costs

B : Underestimating costs

C : Underestimating revenues

D : Overestimating revenues

E : Overestimating profit

Answer: A,C

Question 3

Which of the following statements is TRUE about the activity based costing system when compared to absorption costing method?

Options :

A : ABC is easier to administer than an absorption costing system

B : ABC will be less detailed than an absorption costing system

C : ABC will provide more accurate overhead allocation than absorption costing

D : ABC will cost less to administer than an absorption costing system

Answer: C

Question 4

A company has three divisions, each of which is an investment centre. The divisional managers' performance is assessed using return on investment (ROI). A higher ROI will result in a higher bonus for the divisional manager.
The company's cost of capital is 15%.

For the forthcoming year each divisional manager has one investment opportunity available as follows:

The manager(s) of which division(s) will proceed with their respective investment opportunity?

Options :

A : Division 1 and Division 3

B : Division 2 and Division 3

C : Division 3 only

D : Division 1 only

Answer: B

Question 5

Which of the following statements about the use of traditional budgeting compared with a beyond budgeting approach is correct?

Options :

A : If the organization has devolved decision making, beyond budgeting is not appropriate because it does not allow the same level of empowerment as traditional budgeting.

B : If the organization-s products are subject to rapid technological change, beyond budgeting would allow managers to respond more quickly than under traditional budgeting.

C : If there is a dynamic external environment with fast moving opportunities, beyond budgeting will inhibit the organization-s ability to take advantage of these opportunities whereas traditional budgeting will not.

D : If the organization-s culture is such that a top down budgeting system is desired then this is better achieved by adopting beyond budgeting rather than traditional budgeting.

Answer: B