The IOA Division is also considering whether to undertake an investment in the West of the country (the West Project).
An initial cash outlay investment of ￡12 million will be required and a net cash inflow amounting to ￡5 million is
expected to arise in each of the four years of the life of the project.
The activities involved in the West project will cause the local river to become polluted and discoloured due to the
discharge of waste substances from mining operations.
It is estimated that at the end of year four a cash outlay of ￡2 million would be required to restore the river to its
original colour. This would also clear 90% of the pollution caused as a result of the mining activities of the IOA
Division.
The remaining 10% of the pollution caused as a result of the mining activities of the IOA Division could be cleared
up by a further cash outlay of ￡2 million.
(c) Evaluate the West project and, stating your reasons, comment on whether the board of directors of NCL plc
should spend the further ￡2 million in order to eliminate the remaining 10% of pollution. (6 marks)
(Ignore Taxation).
(c) The net present value of the West project is dependent upon the level of environmental expenditure that will be incurred by
Division IOA at the conclusion of the project. The potential NPV of the West project can be calculated using a discount rate
of 12% per annum which assumes that the West project has similar characteristics to the North, East and South projects.
Net cash inflows for each of years 1–4 = ￡5 million
Cumulative discount factor at 12% per annum = 3·037
Therefore the present value of cashflows is ￡5 million x 3·037 = ￡15,185 million and the net cash flow after the initial
outlay of ￡12 million is ￡3,185,000.
There is now the strategic consideration regarding whether to spend ￡2 million which will restore the river to its original colour
and also clear 90% of the pollution caused as a result of the mining activities of the IOA Division, or to incur expenditure of
a further ￡2 million which will completely redress any damage done to the environment by the activities of the IOA Division.
第1题：
Which of the following is not a measure of the profitability of a project or program?
A . Return on original investment.
B . Net present value.
C . Depreciation.
D . Discounted cash flow.
E . None of the above
第2题：
115 The technique most commonly used to determine the profitability of a project includes _____ methods.
A. Net present value (NPV).
B. Return on investment (ROI).
C. Discounted cash flow (DCF)
D. Payout time and risk sensitivity analysis.
E. All of the above
第3题：
Present value measures
A.the value to us today of future cash flows.
B.the rate of return on an investment when we take account of cash inflows and outflows
C.the current estimates of our project budget
D.the dollars worth of work accomplished as of today
E.All of the above.
第4题：
(b) Misson has purchased goods from a foreign supplier for 8 million euros on 31 July 2006. At 31 October 2006,
the trade payable was still outstanding and the goods were still held by Misson. Similarly Misson has sold goods
to a foreign customer for 4 million euros on 31 July 2006 and it received payment for the goods in euros on
31 October 2006. Additionally Misson had purchased an investment property on 1 November 2005 for
28 million euros. At 31 October 2006, the investment property had a fair value of 24 million euros. The company
uses the fair value model in accounting for investment properties.
Misson would like advice on how to treat these transactions in the financial statements for the year ended 31
October 2006. (7 marks)
Required:
Discuss the accounting treatment of the above transactions in accordance with the advice required by the
directors.
(Candidates should show detailed workings as well as a discussion of the accounting treatment used.)
第5题：
136 A technique that can be used to measure the total income of a project compared to the total moneys expended at any period of time is:
A. return on investment (ROI)
B. net present value (NPV)
C. discounted cash flow (DCF)
D. B and C
E. All of the above
第6题：
The technique most commonly used to determine the profitability of a project includes _____ methods.
A . Net present value (NPV).
B . Return on investment (ROI).
C . Discounted cash flow (DCF)
D . Payout time and risk sensitivity analysis.
E . All of the above.
第7题：
137 Which of the following is not a measure of the profitability of a project or program?
A. Return on original investment.
B. Net present value.
C. Depreciation.
D. Discounted cash flow.
E. None of the above
第8题：
A technique that can be used to measure the total income of a project compared to the total moneys expended at any period of time is:
A . return on investment (ROI)
B . net present value (NPV)
C . discounted cash flow (DCF)
D . B and C
E . All of the above.
第9题：
3 The managers of Daylon plc are reviewing the company’s investment portfolio. About 15% of the portfolio is represented by a holding of 5,550,000 ordinary shares of Mondglobe plc. The managers are concerned about the effect on portfolio value if the price of Mondglobe’s shares should fall, and are considering selling the shares. Daylon’s investment bank has suggested that the risk of Mondglobe’s shares falling by more than 5% from their current value could be protected against by buying an over the counter option. The investment bank is prepared to sell an appropriate six month option to Daylon for ￡250,000.
Other information:
(i) The current market price of Mondglobe’s ordinary shares is 360 pence.
(ii) The annual volatility (variance) of Mondglobe’s shares for the last year was 169%.
(iii) The risk free rate is 4% per year.
(iv) No dividend is expected to be paid by Mondglobe during the next six months.
Required:
(a) Evaluate whether or not the price at which the investment bank is willing to sell the option is a fair price.(10 marks)
3 (a) The investment bank is offering to sell to Daylon plc an option to sell Mondglobe ordinary shares at a price no worse than 5% below the current market price of 360 pence. This is a put option on Mondglobe shares at a price of 342 pence. The Black-Scholes option pricing model may be used to estimate whether or not the option price is a fair price. The value of a put option may be found by first estimating the value of a call option and then using the put-call parity theorem.
Basic data:
Share price 360 pence
Exercise price 342 pence
Risk free rate 4% (0·04)
Volatility is measured by the standard deviation. The variance is 169% therefore the standard deviation, σ is 13% (0·13)
The relevant period is six months (0·5)
第10题：
(c) At 1 June 2006, Router held a 25% shareholding in a film distribution company, Wireless, a public limited
company. On 1 January 2007, Router sold a 15% holding in Wireless thus reducing its investment to a 10%
holding. Router no longer exercises significant influence over Wireless. Before the sale of the shares the net asset
value of Wireless on 1 January 2007 was $200 million and goodwill relating to the acquisition of Wireless was
$5 million. Router received $40 million for its sale of the 15% holding in Wireless. At 1 January 2007, the fair
value of the remaining investment in Wireless was $23 million and at 31 May 2007 the fair value was
$26 million. (6 marks)
Required:
Discuss how the above items should be dealt with in the group financial statements of Router for the year ended
31 May 2007.Required:
Discuss how the above items should be dealt with in the group financial statements of Router for the year ended
31 May 2007.