Financial Decision-Making

ICMA – Nov 2024 – L1 – Q3b – Relevant Cost Concepts

Explains two key concepts of relevant cost used in decision-making.

Question

Relevant Cost
Relevant cost should be used for assessing the economic and financial consequences of any decision made by management. Only relevant cost and benefits should be taken into consideration when evaluating the financial consequences of a decision.

Required:
Explain TWO key concepts of relevant cost.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Costs, Financial Decision-Making, Management Accounting, Relevant Cost
Level: Level 1

Topic: Relevant Cost and Revenue
Series: Nov 2024

CSME – May 2017 – L2 – SB – Q3 – Risk Management and Corporate Strategy

Explain business risk to a conservative investor and discuss strategies for risk control and monitoring.

Question

Mallam Danladi is a civil servant who has won a sum of one hundred million Naira in a lottery. Being a very conservative person who is averse to risks, Mallam Danladi is contemplating putting the money in a fixed deposit account at an interest rate of 14% per annum or into treasury bills at an interest rate of 18.5% per annum. These two options are considered to be virtually risk-free. Mr. Madoff, a risk consultant, advised him to invest in the production of shea butter, coconut oil, and black soap, with a promise of 52% profit per annum. In an attempt to convince Mallam Danladi to invest in the production of these items, Mr. Madoff tried to educate him on the nature of risks and how to effectively monitor and control them in ways that will ensure that business remains highly profitable.

Required:

a. Explain briefly the nature of risk in business to Mallam Danladi. (2½ Marks)

b. Discuss FOUR distinct means of controlling business risk. (10 Marks)

c. Explain briefly the purpose of monitoring risks in business. (3 Marks)

d. Discuss THREE ways of monitoring risks in business. (4½ Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Business risk, Financial Decision-Making, Fixed Deposit, Risk Control, Risk Monitoring, Treasury bills
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: MAY 2017

MA – May 2017 – L2 – Q1a – Introduction to capital budgeting,

Calculate the break-even rate for a taxi service investment considering a 5% annual cash flow increase over five years.

Question

Kwame, after his National Service and with no hope of securing a job in the formal sector, has decided to run a taxi service. The following forecast has been made for the operation of a service between Abisim and Sunyani:

Revenue totaling GH¢300 a week for 52 weeks in a year. This is net of fuel and other variable costs.
Tyres: four pieces for a year at GH¢120 per unit.
Maintenance and servicing: GH¢120 per month.
Salaries: GH¢3,000 per year.
Insurance: GH¢350 per year.

The net cash flow will increase at 5% per annum for the next five years due to inflation. The cost of the vehicle is estimated at GH¢28,000. The project appears quite profitable based on the NPV criteria using the Government policy rate of 26%. However, the banks are offering rates far higher than the policy rate.

Required:

You are to calculate the break-even rate for the project.

(10 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Break-even Analysis, Capital Budgeting, Financial Decision-Making, Inflation impact, NPV Calculation
Level: Level 2

Topic: Introduction to capital budgeting
Series: MAY 2017

FM – DEC 2023 – L2 – Q3 – Discounted cash flow | Sources of finance: debt | Working Capital Management

Identification of cash flow patterns, present value calculation for two payment strategies, and explanation of the benefits and factors related to credit rating.

Question

a) TekApps is a small technology company that develops financial technology (FinTech) applications for mobile devices. The company is selling one of its highly rated FinTech apps to a financial institution. The financial institution has proposed the following strategic payment options for TekApps’ consideration:

Strategy 1: An immediate payment of GH¢1.2 million followed by payments of GH¢50,000 at the end of each quarter during the next five years.

Strategy 2: Payment of GH¢55,000 at the beginning of each month for the next five years.

TekApps’ required rate of return is 25% per annum.

Required:
i) Identify the type of cash flow pattern described under each option. (3 marks)
ii) Compute the present value of the cash flows for each strategy and advise TekApps on the best payment option. (7 marks)

b) BKB Entertainment Ltd (BKB) currently borrows at an average rate of 24% per annum. The Treasury Manager of the company believes that BKB can borrow at a lower interest rate if its creditworthiness is assessed and rated by a rating agency. He has therefore recommended to the Board of Directors to consider requesting a credit rating.

Required:
i) Explain TWO (2) benefits of credit rating to BKB. (4 marks)
ii) Advise the directors on THREE (3) factors rating agencies will consider in determining the company’s credit rating. (6 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Annuity, Cash Flow Patterns, Financial Decision-Making, Payment Options, Present Value
Level: Level 2

Topic: Discounted cash flow, Sources of finance: debt, Working Capital Management
Series: DEC 2022

ICMA – Nov 2024 – L1 – Q3b – Relevant Cost Concepts

Explains two key concepts of relevant cost used in decision-making.

Question

Required:
Explain TWO key concepts of relevant cost.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Costs, Financial Decision-Making, Management Accounting, Relevant Cost
Level: Level 1

Topic: Relevant Cost and Revenue
Series: Nov 2024

CSME – May 2017 – L2 – SB – Q3 – Risk Management and Corporate Strategy

Explain business risk to a conservative investor and discuss strategies for risk control and monitoring.

Question

Required:

a. Explain briefly the nature of risk in business to Mallam Danladi. (2½ Marks)

b. Discuss FOUR distinct means of controlling business risk. (10 Marks)

c. Explain briefly the purpose of monitoring risks in business. (3 Marks)

d. Discuss THREE ways of monitoring risks in business. (4½ Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Business risk, Financial Decision-Making, Fixed Deposit, Risk Control, Risk Monitoring, Treasury bills
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: MAY 2017

MA – May 2017 – L2 – Q1a – Introduction to capital budgeting,

Calculate the break-even rate for a taxi service investment considering a 5% annual cash flow increase over five years.

Question

Revenue totaling GH¢300 a week for 52 weeks in a year. This is net of fuel and other variable costs.
Tyres: four pieces for a year at GH¢120 per unit.
Maintenance and servicing: GH¢120 per month.
Salaries: GH¢3,000 per year.
Insurance: GH¢350 per year.

Required:

You are to calculate the break-even rate for the project.

(10 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Break-even Analysis, Capital Budgeting, Financial Decision-Making, Inflation impact, NPV Calculation
Level: Level 2

Topic: Introduction to capital budgeting
Series: MAY 2017

FM – DEC 2023 – L2 – Q3 – Discounted cash flow | Sources of finance: debt | Working Capital Management

Identification of cash flow patterns, present value calculation for two payment strategies, and explanation of the benefits and factors related to credit rating.

Question

Strategy 1: An immediate payment of GH¢1.2 million followed by payments of GH¢50,000 at the end of each quarter during the next five years.

Strategy 2: Payment of GH¢55,000 at the beginning of each month for the next five years.

TekApps’ required rate of return is 25% per annum.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Annuity, Cash Flow Patterns, Financial Decision-Making, Payment Options, Present Value
Level: Level 2

Topic: Discounted cash flow, Sources of finance: debt, Working Capital Management
Series: DEC 2022

Question Tag: Financial Decision-Making

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ICMA – Nov 2024 – L1 – Q3b – Relevant Cost Concepts

Explains two key concepts of relevant cost used in decision-making.

CSME – May 2017 – L2 – SB – Q3 – Risk Management and Corporate Strategy

Explain business risk to a conservative investor and discuss strategies for risk control and monitoring.

MA – May 2017 – L2 – Q1a – Introduction to capital budgeting,

Calculate the break-even rate for a taxi service investment considering a 5% annual cash flow increase over five years.

FM – DEC 2023 – L2 – Q3 – Discounted cash flow | Sources of finance: debt | Working Capital Management

Identification of cash flow patterns, present value calculation for two payment strategies, and explanation of the benefits and factors related to credit rating.

ICMA – Nov 2024 – L1 – Q3b – Relevant Cost Concepts

Explains two key concepts of relevant cost used in decision-making.

CSME – May 2017 – L2 – SB – Q3 – Risk Management and Corporate Strategy

Explain business risk to a conservative investor and discuss strategies for risk control and monitoring.

MA – May 2017 – L2 – Q1a – Introduction to capital budgeting,

Calculate the break-even rate for a taxi service investment considering a 5% annual cash flow increase over five years.

FM – DEC 2023 – L2 – Q3 – Discounted cash flow | Sources of finance: debt | Working Capital Management

Identification of cash flow patterns, present value calculation for two payment strategies, and explanation of the benefits and factors related to credit rating.

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ICMA – Nov 2024 – L1 – Q3b – Relevant Cost Concepts

Explains two key concepts of relevant cost used in decision-making.

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CSME – May 2017 – L2 – SB – Q3 – Risk Management and Corporate Strategy

Explain business risk to a conservative investor and discuss strategies for risk control and monitoring.

You're reporting an error for "CSME – May 2017 – L2 – SB – Q3 – Risk Management and Corporate Strategy"

MA – May 2017 – L2 – Q1a – Introduction to capital budgeting,

Calculate the break-even rate for a taxi service investment considering a 5% annual cash flow increase over five years.

You're reporting an error for "MA – May 2017 – L2 – Q1a – Introduction to capital budgeting,"

FM – DEC 2023 – L2 – Q3 – Discounted cash flow | Sources of finance: debt | Working Capital Management

Identification of cash flow patterns, present value calculation for two payment strategies, and explanation of the benefits and factors related to credit rating.

You're reporting an error for "FM – DEC 2023 – L2 – Q3 – Discounted cash flow | Sources of finance: debt | Working Capital Management"

ICMA – Nov 2024 – L1 – Q3b – Relevant Cost Concepts

Explains two key concepts of relevant cost used in decision-making.

You're reporting an error for "ICMA – Nov 2024 – L1 – Q3b – Relevant Cost Concepts"

CSME – May 2017 – L2 – SB – Q3 – Risk Management and Corporate Strategy

Explain business risk to a conservative investor and discuss strategies for risk control and monitoring.

You're reporting an error for "CSME – May 2017 – L2 – SB – Q3 – Risk Management and Corporate Strategy"

MA – May 2017 – L2 – Q1a – Introduction to capital budgeting,

Calculate the break-even rate for a taxi service investment considering a 5% annual cash flow increase over five years.

You're reporting an error for "MA – May 2017 – L2 – Q1a – Introduction to capital budgeting,"

FM – DEC 2023 – L2 – Q3 – Discounted cash flow | Sources of finance: debt | Working Capital Management

Identification of cash flow patterns, present value calculation for two payment strategies, and explanation of the benefits and factors related to credit rating.

You're reporting an error for "FM – DEC 2023 – L2 – Q3 – Discounted cash flow | Sources of finance: debt | Working Capital Management"

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