A UK based company is considering an investment of GB£1,000,000 in a project in the USA. It is anticipated that the following cash flows will arise from this project.

The cash flows will be either US$400,000 with a probability of 40% or US$700,000 with a probability of 60% for each of the next three years; remitted to the UK at the end of each year.

Currently GB£1.00 is worth US$1.30.

The expected inflation rates in the two countries over the next four years are 2% in the UK and 4% in the US.

Applying the Purchasing Power Parity Theory, which of the following represents the expected net present value of the project in GP£ (to the nearest whole pound)?

James owns a small company which sometimes suffers from credit risk.

Which of the following measures should he put in place to help reduce this risk?

YHU manufactures flour from wheal (hat it purchases from wheat wholesalers who buy the gram in bulk from farmers around the world and import it to YHU ' s home country.

YHU sells its flour as " organic and free from genetically modified grain " It is difficult to test wheat to ensure that it is organic and impossible to prove that it has not been obtained from genetically modified crops YHU must trust its wholesalers to check the provenance of the wheat that they buy for resale to YHU.

Without YHU ' s knowledge, a consignment of wheat that it has used to make flour was purchased from a farmer who used genetically modified seed. The wholesaler made an error in tracking this consignment through its inventory system and sold it to YHU as organic and free from genetically modified gram

Which TWO of the following are correct?

A government department is conducting a value for money audit on a school.

The school ' s pupils sit leaving exams. Classify each of the audit tests as either economy and efficiency or effectiveness.

GHY is a listed company. Tom is GHY ' s CEO and Peter is its non-executive Chair of the Board. Tom and Peter both have substantial relevant business and industrial experience and both are believed to have considerable integrity. Tom and Peter quickly developed a good working relationship after Peter ' s appointment. They have become close friends.

Tom briefs Peter on every aspect of the business. Tom and Peter jointly agree the agenda for every board meeting and both agree on the manner in which matters will be presented to the board.

Taking account of the principles of good corporate governance, which of the following statements is correct?

K Ltd is an on-line travel agency specialising in budget package holidays to a small number of popular locations. The holidays that it sells are made up of a " package " of flights, hotel accommodation and food. K Ltd ' s Finance Director is concerned that the company ' s scope of operation is too narrow and wishes to diversify.

Identify TWO actions that K Ltd should take immediately.

A project has been evaluated on the basis that it will cost $14 million and will have a net present value of $2.3 million.

The project has commenced and $3 million of the initial $14 million has been invested. A problem has been discovered that will cost an additional $2.5 million to rectify. The $2.5 million will be payable immediately.

What is the NPV of continuing with this project?

Zia is an accountant and wishes to take out a Forward Rate Agreement (FRA) as a hedging instrument. The company treasurer has advised that a short-term interest rate (STIR) future would be better.

Which of the following is true of an STIR?

Which method of quantifying risk exposure can be used to calculate the maximum loss on a portfolio occurring within a period of time with a given probability?

YGH has recently completed a post completion audit on a five year contract that has only recently come to a conclusion. The main finding was that the project delivered most of the expected benefits, but that it cost significantly more to implement than had been anticipated at the project appraisal stage. YGH would not have proceeded if the true cost had been known at that stage.

The project was the responsibility of the production department, which is presently managed by G.

When the project was proposed, the production department was managed by H. H is now YGH ' s Director of Operations.

How should the finding from this post completion audit be interpreted?