Answering Questions

  • Read each question carefully.
  • When you answer a question, your answer will automatically be saved.
  • You can revisit questions and change your answers at any time during the exam.
  • The only permitted characters for numerical answers are:
    • Numbers
    • One full stop as a decimal point if required
    • One minus symbol at the front of the figure if the answer is negative.

              For example: -10234.35

No other characters, including commas, are accepted.

Navigating between questions

  • Click Next Button to move to the next question.
  • Click Previous Button to move back to the previous question.
  • Click on a question number from the Exam Progress Details panel (see next page) to move directly to that question.
  • A message will be displayed when you click to move away from a question which has been partially attempted. You can choose to stay on the question and review your answer(s) or continue.
  • When reviewing your answer(s) for partially attempted questions ensure you read any message displayed in red text below the question in Section A or below the question
    part(s) in Section B

Project E (6/14, amended)

Project E is a strategically important project which the board of OAP Co has decided must be undertaken in order for the company to remain competitive, regardless of its financial acceptability. The project has a life of four years. Information relating to the future cash flows of this project are as follows:






Sales volume (units)





Selling price ($/unit)





Variable cost ($/unit)





Fixed costs ($'000)





These forecasts are before taking into account of selling price inflation of 5.0% per year, variable cost inflation of 6.0% per year and fixed cost inflation of 3.5% per year. The fixed costs are incremental fixed costs which are associated with Project E. At the end of 4 years, machinery from the project will be sold for scrap with a value of $400,000. Tax-allowable depreciation on the initial investment cost of Project E is available on a 25% reducing balance basis and OAP Co pays corporation tax of 28% per year, one year in arrears. A balancing charge or allowance is available at the end of the fourth year of operation.

OAP Co has a nominal after-tax cost of capital of 13% per year. The initial investment for Project E is $5,000,000


A. Calculate the nominal after-tax net present value of Project E and comment on the financial acceptability of this project.
B. Discuss the reasons why the board of OAP Co may decide to limit the funds that are available to finance projects.

Leave a Reply

Your email address will not be published. Required fields are marked *