Risk analysis – NBC Institute

AAA – Nov 2020 – L3 – Q3 – Audit of Specialized Industries

Audit planning, risk assessment, internal control, audit evidence, and reporting in a not-for-profit organization.

Question

Question:
You are the Audit Manager at HWO, an audit firm. HWO has secured the audit of SIGMA For Africa, a not-for-profit organization. You have been assigned the audit of SIGMA For Africa. An extract of the unaudited financial statements is as follows:

SIGMA For Africa Statement of Financial Position
As at 31 December

Furthermore, you were assigned an audit senior. Based on preliminary discussions with your audit senior, you noted that the senior had no prior experience with audits of not-for-profit entities.

Required:
To help your audit senior understand how to audit a not-for-profit organization, prepare a presentation note summarizing the key considerations in the audit for the following areas:

a. Planning (4 Marks)
b. Risk analysis (4 Marks)
c. Internal control (4 Marks)
d. Audit evidence (4 Marks)
e. Reporting (4 Marks)

Answer

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Tags: Audit evidence, Financial Reporting, Internal Controls, Not-for-Profit Audit, Risk analysis
Level: Level 3

Topic: Audit of Specialized Industries

FM – Nov 2023 – L3 – SB – Q4 – Financial Risk Management

Assess whether debt or equity financing is more suitable for a business expansion and discuss related financial concepts.

Question

Xeco is considering a N15 million expansion to increase profit before interest and tax by 20%. Financial details for Xeco are as follows:

Item	Amount (N’000)
Profit before interest	13,040
Finance charges (interest)	(240)
Profit before tax	12,800
Taxation	(3,840)
Profit for the year	8,960

Financing Options:

Debt: Issue N15m in 8% loan notes, with each note at a nominal value of N100.
Equity: 1-for-4 rights issue at a 20% discount to current share price (N6.25/share). Xeco has 12 million shares outstanding.
Corporate tax rate: 30%.

Required:

a. Evaluate whether Xeco should finance the expansion with debt or equity. (10 Marks)
b. Explain the relationship between systematic and unsystematic risk. (5 Marks)
c. Discuss the assumptions made by the Capital Asset Pricing Model (CAPM). (5 Marks)

Answer

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Tags: CAPM, Debt Financing, Equity Financing, Rights Issue, Risk analysis, Systematic risk, Unsystematic Risk
Level: Level 3

Topic: Financial Risk Management
Series: NOV 2023

PM – Nov 2021 – L2 – Q5 – Decision-Making Techniques

Calculate and compare the expected net present value of two projects under uncertainty.

Question

Gaskiya Nigeria Limited is considering whether or not to invest in any of the two projects where the initial cash investment would be ₦13,000,000 for A and ₦14,000,000 for B. The projects would have a five-year life and the estimated annual cash flows are as follows:

Year	Project A (N)	Project A Outflows (N)	Project B (N)	Project B Outflows (N)
1	6,000,000	3,000,000	10,000,000	5,000,000
2	8,000,000	4,000,000	9,000,000	4,000,000
3	10,000,000	4,000,000	8,000,000	3,000,000
4	9,000,000	3,000,000	8,000,000	3,000,000
5	6,000,000	3,000,000	4,000,000	2,000,000

The company’s cost of capital is 10%. Several factors could impact the inflows:

Factor 1: 20% probability of government measures reducing inflows by 25%.
Factor 2: 30% probability of a competitor entering the market, reducing inflows by 10%.
Factor 3: 40% probability of stronger-than-expected demand, increasing inflows by 5%.

Required:
a. Calculate the expected net present value of the two projects. (13 Marks)
b. Which of the projects will be more profitable? (2 Marks)

Answer

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Tags: Expected Value, Net Present Value, Project Appraisal, Risk analysis
Level: Level 2

Topic: Decision-making techniques
Series: NOV 2021

SCS – May 2020 – L3 – Q5 – Strategy implementation

Identify and explain the specific risks faced by Customer Focused Ltd in the proposed contract with Look and Like Ltd.

Question

Customer Focused Ltd has received a proposal from a potential supplier, Look and Like
Ltd, to provide fresh produce (Exhibit 2a) and is considering whether to accept. Kpakpo
Armah has written a note (Exhibit 2b) about Look and Like Ltd.
Required:
Using the information available, including information you feel relevant from your answer
to Section A:

Identify and explain the specific risks faced by Customer Focused Ltd in the proposed contract.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Business Risks, Contract Risks, Inventory Management, Risk analysis
Level: Level 3

Topic: Strategy implementation
Series: MAY 2020

MA – May 2020 – L2 – Q4b – Discounted cash flow

Explain the elements that determine the time value of money and its importance in investment appraisal.

Question

b) The main reason why discounted cash flow methods of investment appraisal are considered theoretically superior is that they take into account the time value of money.

Required:

Explain THREE (3) elements that determine the time value of money and why it is important to take them into consideration when appraising investment projects. (6 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Discounted Cash Flow, Investment Appraisal, Risk analysis, Time value of money
Level: Level 2

Topic: Discounted cash flow
Series: MAY 2020

AAA – Nov 2020 – L3 – Q3 – Audit of Specialized Industries

Audit planning, risk assessment, internal control, audit evidence, and reporting in a not-for-profit organization.

Question

SIGMA For Africa Statement of Financial Position
As at 31 December

Furthermore, you were assigned an audit senior. Based on preliminary discussions with your audit senior, you noted that the senior had no prior experience with audits of not-for-profit entities.

Required:
To help your audit senior understand how to audit a not-for-profit organization, prepare a presentation note summarizing the key considerations in the audit for the following areas:

a. Planning (4 Marks)
b. Risk analysis (4 Marks)
c. Internal control (4 Marks)
d. Audit evidence (4 Marks)
e. Reporting (4 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit evidence, Financial Reporting, Internal Controls, Not-for-Profit Audit, Risk analysis
Level: Level 3

Topic: Audit of Specialized Industries

FM – Nov 2023 – L3 – SB – Q4 – Financial Risk Management

Assess whether debt or equity financing is more suitable for a business expansion and discuss related financial concepts.

Question

Xeco is considering a N15 million expansion to increase profit before interest and tax by 20%. Financial details for Xeco are as follows:

Item	Amount (N’000)
Profit before interest	13,040
Finance charges (interest)	(240)
Profit before tax	12,800
Taxation	(3,840)
Profit for the year	8,960

Financing Options:

Debt: Issue N15m in 8% loan notes, with each note at a nominal value of N100.
Equity: 1-for-4 rights issue at a 20% discount to current share price (N6.25/share). Xeco has 12 million shares outstanding.
Corporate tax rate: 30%.

Required:

a. Evaluate whether Xeco should finance the expansion with debt or equity. (10 Marks)
b. Explain the relationship between systematic and unsystematic risk. (5 Marks)
c. Discuss the assumptions made by the Capital Asset Pricing Model (CAPM). (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: CAPM, Debt Financing, Equity Financing, Rights Issue, Risk analysis, Systematic risk, Unsystematic Risk
Level: Level 3

Topic: Financial Risk Management
Series: NOV 2023

PM – Nov 2021 – L2 – Q5 – Decision-Making Techniques

Calculate and compare the expected net present value of two projects under uncertainty.

Question

Year	Project A (N)	Project A Outflows (N)	Project B (N)	Project B Outflows (N)
1	6,000,000	3,000,000	10,000,000	5,000,000
2	8,000,000	4,000,000	9,000,000	4,000,000
3	10,000,000	4,000,000	8,000,000	3,000,000
4	9,000,000	3,000,000	8,000,000	3,000,000
5	6,000,000	3,000,000	4,000,000	2,000,000

The company’s cost of capital is 10%. Several factors could impact the inflows:

Factor 1: 20% probability of government measures reducing inflows by 25%.
Factor 2: 30% probability of a competitor entering the market, reducing inflows by 10%.
Factor 3: 40% probability of stronger-than-expected demand, increasing inflows by 5%.

Required:
a. Calculate the expected net present value of the two projects. (13 Marks)
b. Which of the projects will be more profitable? (2 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Expected Value, Net Present Value, Project Appraisal, Risk analysis
Level: Level 2

Topic: Decision-making techniques
Series: NOV 2021

SCS – May 2020 – L3 – Q5 – Strategy implementation

Identify and explain the specific risks faced by Customer Focused Ltd in the proposed contract with Look and Like Ltd.

Question

Identify and explain the specific risks faced by Customer Focused Ltd in the proposed contract.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Business Risks, Contract Risks, Inventory Management, Risk analysis
Level: Level 3

Topic: Strategy implementation
Series: MAY 2020

MA – May 2020 – L2 – Q4b – Discounted cash flow

Explain the elements that determine the time value of money and its importance in investment appraisal.

Question

b) The main reason why discounted cash flow methods of investment appraisal are considered theoretically superior is that they take into account the time value of money.

Required:

Explain THREE (3) elements that determine the time value of money and why it is important to take them into consideration when appraising investment projects. (6 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Discounted Cash Flow, Investment Appraisal, Risk analysis, Time value of money
Level: Level 2

Topic: Discounted cash flow
Series: MAY 2020

Question Tag: Risk analysis

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AAA – Nov 2020 – L3 – Q3 – Audit of Specialized Industries

Audit planning, risk assessment, internal control, audit evidence, and reporting in a not-for-profit organization.

FM – Nov 2023 – L3 – SB – Q4 – Financial Risk Management

Assess whether debt or equity financing is more suitable for a business expansion and discuss related financial concepts.

PM – Nov 2021 – L2 – Q5 – Decision-Making Techniques

Calculate and compare the expected net present value of two projects under uncertainty.

SCS – May 2020 – L3 – Q5 – Strategy implementation

Identify and explain the specific risks faced by Customer Focused Ltd in the proposed contract with Look and Like Ltd.

MA – May 2020 – L2 – Q4b – Discounted cash flow

Explain the elements that determine the time value of money and its importance in investment appraisal.

AAA – Nov 2020 – L3 – Q3 – Audit of Specialized Industries

Audit planning, risk assessment, internal control, audit evidence, and reporting in a not-for-profit organization.

FM – Nov 2023 – L3 – SB – Q4 – Financial Risk Management

Assess whether debt or equity financing is more suitable for a business expansion and discuss related financial concepts.

PM – Nov 2021 – L2 – Q5 – Decision-Making Techniques

Calculate and compare the expected net present value of two projects under uncertainty.

SCS – May 2020 – L3 – Q5 – Strategy implementation

Identify and explain the specific risks faced by Customer Focused Ltd in the proposed contract with Look and Like Ltd.

MA – May 2020 – L2 – Q4b – Discounted cash flow

Explain the elements that determine the time value of money and its importance in investment appraisal.

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AAA – Nov 2020 – L3 – Q3 – Audit of Specialized Industries

Audit planning, risk assessment, internal control, audit evidence, and reporting in a not-for-profit organization.

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FM – Nov 2023 – L3 – SB – Q4 – Financial Risk Management

Assess whether debt or equity financing is more suitable for a business expansion and discuss related financial concepts.

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PM – Nov 2021 – L2 – Q5 – Decision-Making Techniques

Calculate and compare the expected net present value of two projects under uncertainty.

You're reporting an error for "PM – Nov 2021 – L2 – Q5 – Decision-Making Techniques"

SCS – May 2020 – L3 – Q5 – Strategy implementation

Identify and explain the specific risks faced by Customer Focused Ltd in the proposed contract with Look and Like Ltd.

You're reporting an error for "SCS – May 2020 – L3 – Q5 – Strategy implementation"

MA – May 2020 – L2 – Q4b – Discounted cash flow

Explain the elements that determine the time value of money and its importance in investment appraisal.

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AAA – Nov 2020 – L3 – Q3 – Audit of Specialized Industries

Audit planning, risk assessment, internal control, audit evidence, and reporting in a not-for-profit organization.

You're reporting an error for "AAA – Nov 2020 – L3 – Q3 – Audit of Specialized Industries"

FM – Nov 2023 – L3 – SB – Q4 – Financial Risk Management

Assess whether debt or equity financing is more suitable for a business expansion and discuss related financial concepts.

You're reporting an error for "FM – Nov 2023 – L3 – SB – Q4 – Financial Risk Management"

PM – Nov 2021 – L2 – Q5 – Decision-Making Techniques

Calculate and compare the expected net present value of two projects under uncertainty.

You're reporting an error for "PM – Nov 2021 – L2 – Q5 – Decision-Making Techniques"

SCS – May 2020 – L3 – Q5 – Strategy implementation

Identify and explain the specific risks faced by Customer Focused Ltd in the proposed contract with Look and Like Ltd.

You're reporting an error for "SCS – May 2020 – L3 – Q5 – Strategy implementation"

MA – May 2020 – L2 – Q4b – Discounted cash flow

Explain the elements that determine the time value of money and its importance in investment appraisal.

You're reporting an error for "MA – May 2020 – L2 – Q4b – Discounted cash flow"

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