Question 1

Glitter Kitten Ltd is a leading manufacturer of cat food and is currently looking into expanding its operations into new markets. The CEO has committed to providing the funds for expansion and he has commissioned a financial appraisal of two different options. The Senior Leadership team are currently reviewing the Net Present Values of each option.

The CEO is getting frustrated with the length of time the Senior Leadership are taking in their appraisals so has done a quick analysis using the payback method. The second option, to expand into making dog food, produced the best results, which are based on an estimated total outflow of £50m and annual inflows of £10m.

The CEO is also looking into methods for improving current products. He has assembled a Project Team of researchers who is looking into their current range of cat food, taking particular notice of customer opinions and reviews. The goal is to, based on this research, investigate opportunities within the supply chain to enhance the quality of the product, as well as potentially reducing the costs of manufacturing.

Raw materials for Glitter Kitten’s most popular cat food will soon be provided by Paw Ltd who is a new supplier. The contract is still under negotiation and is expected to last for the next 3 years. The CEO is keen to have visibility over Paw Ltd’s costs and profit margin.

5. Which of the following pricing mechanisms is most suitable for use with Paw Ltd?

Options :

A : open book costing

B : cost reimbursable contract

C : bottom up pricing

D : activity based costing

Answer: A

Question 2

Which of the following statements about the Critical Path are true? Select all that apply

Options :

A : the critical path is calculated by combining the expected duration of each activity which needs to be completed in order for the project to achieve its objectives

B : the critical path shows activities which have no slack

C : the critical path shows dependencies between activities

D : the critical path is often depicted pictorially with activities in boxes and arrows between the activities

Answer: A,B,C,D

Question 3

Golden Rainbow Ltd has invested £4m in a new research project which was started three years ago. The CFO has calculated that the average rate of return on the project is -6%. Is this possible?

Options :

A : yes- projects can have a negative rate of return

B : yes- but this is likely to change to a positive figure shortly

C : no- a rate of return is always displayed as a positive number

D : no- a rate of return is expressed in years rather than as a percentage

Answer: A

Question 4

Under what circumstances can Specific Performance be used to compensate an innocent party for a contractual breach? Select All that apply

Options :

A : The innocent party did not fulfil their contractual obligations under the contract

B : Adequate remedies are not available

C : Money cannot remedy the situation such as in the case of sale of rare goods

D : When the innocent party wishes to avoid going to court

E : A contract has a liquidated damages clause

Answer: B,C

Question 5

In a fixed lump sum contract, this pricing mechanism doesn't allow for any changes in price. Is this statement TRUE?

Options :

A : yes- the price is fixed before the contract is signed

B : yes- the contractor assumes all risks should they exceed the budget

C : no- price changes are allowed as it is impossible to predict prices concretely in advance

D : no- price variations are permitted if they are written into the contract

Answer: D

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