C 1 and 2 are ture D 1 and 2 are fales Answer：C

17 Making budgets work

17.1 Participation by staff in the budgeting process is often seen as an aid to the creation of a

realistic budget and to the motivation of staff. There are, however, limitations to the effectiveness of such participation.

Which of the following illustrates one of these limitations A Participation allows staff to buy into the budget

B Staff suggestions may be ignored leading to de-motivation C Staff suggestions may be based on local knowledge

D Budgetary slack can be built in by senior manager as well as staff Answer：B

17.2 Which of the following statements about budgeting and motivation are true? 1 A target is more motivationing than no target at all

2 The problem with a target is setting an appropriate degree of difficulty 3 Employees who are challenged tend to withdraw their commitment A All of them B 2 and 3 only C 1 and 2 only D 3 only Answer：C

17.3 Which of the following best describes a top-down budget?

A A budget which has been set by scaling down individual expenditure items until the

total budgeted expenditure can be met from available resources

B A budget which is set by delegating authority from top management, allowing budget

holders to participate in setting their own budget

C A budget which is setting without permitting the ultimate budget holder to participate

in the budgeting process

D A budget which is set within the framework of strategic plans determined by top

management

Answer：C

17.4 In which of the following situations are imposed budgets effective? A In large businesses

B During periods of economic boom C In well established businesses

D When the organisation?s different units require precise organization Answer：D

17.5 In which of the following circumstances are participative budgets effective?

1 In decentralised organization

2 During periods of economic affluence

3 When an organisation?s different units act autonomously A All of them B 2 and 3 only C 1 and 2 only D 3 only Answer：A

17.6 Which of the following best describes a controllable cost?

A A cost which can be easilly forecast and is therefore readily controllable using

budgetary control techniques

B A cost which can be specifically identified with a particular cost object

C A.cost which is easily controlled because it is not affected by fluctuations in the level

of activity

D A cost which can be influenced by its budget holder Answer：D

18 Capital expenditure budgeting

18.1 You are currently employed as a Management Accountant in an insurance company. You are

contemplating starting your own business. In considering whether or not to start your own business, your current salary level would be:

A A sunk cost C An irrelevant cost B An incremental D An opportunity cost Answer：D

18.2 In decision making, costs which need to be considered are said to be relevant costs. Which of

the following are characteristics associated with relevant costs?

1 Future costs

2 Unavoidable costs

3 Incremental costs 4 Differential costs A 1 and 3 only B 1 and 2 only C 1,3 and 4 only D All of them Answer：C

18.3 A machine owned by a company has been idle for some months but could now be used on a

one year contract which is under consideration. The net book value of the machine is $1,000. If not used on this contract, the machine could be sold now for a net amount of $1,200. After used on the contract, the machine would have no saleable value and the cost of disposing of it in one year?s time would be $800.

What is the total relevant cost of the machine to the contract? A $400 C $1,200 B $800 D $2,000 Answer：D

18.4 Which of the following would be part of the capital espenditure budget? 1 Purchase of a new factory premises 2 Replacement of existing machinery

3 Refurbishment of existing factory premises 4 Purchases of raw materials

A 1 and 2 only B 3 and 4 only C 1,2 and 3 only D 2 and 4 only Answer：C

19 Methods of project appraisal

19.1 A building society adds interest monthly to investors? accounts even though interest rates are

expressed in annual terms. The current rate of interest is 6% per annum.

An investor deposits $1,000 on 1 January. How much interest will have been earned by 30

June?

A $30.00 B $30.38 C $60.00 D $300 Answer：B

19.2 A one-year investment yields a return og 15%. The cash returned from the investment,

including principal and interest, is $2,070. The interest is

A $250 B $270 C $300 D $310.50 Answer：B

19.3 If a single sum of $12,000 is invested at 8% per annum with interest compounded quarterly,

the amount to which the principal will have grown by the end of year three is approximately

A $15,117 B $9,528 C $15,219 D $30,924 Answer：C

19.4 Which is worth most, at present values, assuming an annual rate of interest of 8%? A $1,200 in exactly one year from now B $1,400 in exactly two year from now C $1,600 in exactly three year from now D $1,800 in exactly four year from now Answer：D

19.5 A bank offers depositors a nominal 4% pa, with interest payable quaterly. What is the effective

annual rate of interest?

A 1% B 4% C 1.025% D 4.06% Answer：D

19.6 A project requiring an investment of $1,200 is expected to generate returns of $400 in years 1

and 2 and $350 in years 3 and 4. If the NPV=$22 at 9% and the NPV=-$4 at 10%, what is the IRR for the project?

A 9.15% B 9.85% C 10.15% D 10.85% Answer：B

19.7 A sum of money was invested for 10 years at 7% per annum and is now worth $2,000. The

original amount invested (to the nearest $) was

A $1,026 B $1,016 C $3,937 D $14,048

Answer：B

19.8 Home prices rise at 2% per calendar month. The annual rate of increase correct to one decimal

place is A 24% B 26.8% C 12.7% D 12.2% Answer：B

19.9 Find the present value of ten annual payments of $700, the first paid immediately and

discounted at 8%, giving your answer to the nearest $. A $4,697 B $1,050 C $4,435 D $5,073 Answer：D

19.10 An investor is to receive an annuity of $19,260 for six years commencing at the end of year 1.

It has a present value of $86,400.

The rate of interest (to the nearest whole percent) is A 4% B 7% C 9% D 11% Answer：C

19.11 How much should be invested now (to the nearest $) to receive $24,000 per annum in

perpetuity if the annual rate of interest is 5%?

A $1,200 B $25,200 C $120,000 D $480,000 Answer：D

19.12 The net present value of an investment at 12% is $24,000, and at 20% is -$8,000. What is the

internal rate of return of this investment?

A 6% B 12% C 16% D 18% Answer：D

State your answer to the nearest whole percent.

The following data is relevant for questions 19.13 and 19.14

Diamond Ltd has a payback period limit of three years and is considering investing in one of the following projects. Both projects require an initial investment of $800,000. Cash inflows accrue evenly throughtout the year. Project Alpha Project Beta Year Cash inflow Year Cash inflow $ $ 1 250,000 1 250,000 2 250,000 2 350,000