Page 9 - CIMA MCS Workbook November 2018 - Day 2 Tasks

ADVANCED MANAGEMENT ACCOUNTING (P2) ‐ PRACTICE TASKS

TASK 3 – DEALING WITH UNCERTAINTY IN INVESTMENT
APPRAISAL

Trigger and Task

The Finance Director has sent the following email to you

To: Finance Manager

Date: today

Subject: Evaluation of risk of projects

We’re currently considering a number of projects, one of which is to develop a new kind of
packaging for our fruit juices. We’ve been pressured by Choice TV to attend one of their
discussion programmes to address how we’re going to tackle the issue of recommended sugar
intakes in our products, particularly for our fruit juice products.

Nisha Mistry has had some ideas about how we could incorporate a recommended portion size
into the packaging itself by splitting the bottles into ‘daily’ segments, but I feel that there is a lot
of uncertainty about how successful this would be, along with uncertainty about the cost values
involved in implementing it.

I’d like for us to put together a net present value appraisal for this project but don’t know how we
can incorporate such a large level of uncertainty into the numbers we produce.

Could you produce a report that summarises the techniques that we could use to incorporate the
uncertainty into our recommendations for the project?

Regards,

David Guy

Prepare the work that David has requested. (Time 45 minutes)

KAPLAN PUBLISHING 29