Institute of Actuaries of India 2008 CT-2 Finance and Financial Reporting - Question Paper

unions working together.
C. An oil rigging company where government takes a great interest.
D. A retailing business where owner is the manager [2]

Q. 7) Which of the subsequent is NOT a valid cause for using simulation in order to
evaluate an investment project?
A. The cash flows are uncertain.
B. The needed rate of return might vary during the life of the project.
C. Decision makers are interested in the range of possible results.
D. Decision makers require an right forecast. [2]

Q. 8) XYZ plc is a listed company. Which of the subsequent is a specific risk that can be
diversified away by shareholders?
A. XYZ Plc is highly geared and it is exposed to increases in interest rates.
B. XYZ Plc has a great deal of foreign competition and so modifications in
exchange rates can affect its competitive position.
C. XYZ Plc's main product line requires a steady supply of a rare mineral
that is only obtained in a region that is politically unstable.
D. XYZ Plc produces luxury goods, demand for which is highly vulnerable
to change in the economic climate. [2]

Q. 9) You are an actuarial consultant helping a leading manufacturing company ABC Plc
in evaluating the projects they want to undertake and the subsequent info is
provided. At 16% discount rate the NPV of Project A is INR 350,000 and NPV of
Project B is INR 500,000. Which of the subsequent are accurate statements?
A. The payback period need not be considered in evaluating the projects.
B. If ABC Plc has set a hurdle rate of 16% then both the Projects are viable.
C. Project A is preferable for Project B.
D. The internal rate of return for Project A is higher than the Project B. [2]

Q. 10) Which of the subsequent is the most improper basis for determining the needed rate
of return on a major project considered by a quoted company?
A. The company's weighted avg. cost of capital (WACC).
B. The interest rate on the bank loan raised in order to finance the project.
C. A specific rate for the project determined according to project's total risk.
D. A specific rate for the project determined according to the project's

Earning:   Approval pending.