BA1 FUNDAMENTALS OF BUSINESS ECONOMICS CIMA EXAM PRACTICE KIT S UB J E CT B A1 : F UNDA ME N TA LS OF B US INES S ECONOMICS Published by: Kaplan Publishing UK Unit 2 The Business Centre, Molly Millars Lane, Wokingham, Berkshire RG41 2QZ Copyright © 2018 Kaplan Financial Limited. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher. Acknowledgements We are grateful to the CIMA for permission to reproduce past examination questions. Notice The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. 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P 2 CONTENTS Page Syllabus Guidance, Learning Objectives and Verbs P.5 Objective tests P.9 Syllabus outline – BA1 P.11 Learning outcomes and indicative syllabus content P.12 Section 1 Objective test questions 1 2 Answers to objective test questions 49 3 Practice Assessment questions 77 4 Answers to Practice Assessment questions 91 Quality and accuracy are of the utmost importance to us so if you spot an error in any of our products, please send an email to mykaplanreporting@kaplan.com with full details. Our Quality Co‐ordinator will work with our technical team to verify the error and take action to ensure it is corrected in future editions. P 3 INDEX TO QUESTIONS AND ANSWERS OBJECTIVE TEST QUESTIONS PAGE NUMBER MICROECONOMIC AND ORGANISATIONAL CONTEXT I: THE GOALS AND DECISIONS OF ORGANISATIONS 1 49 MICROECONOMIC AND ORGANISATIONAL CONTEXT II: THE MARKET SYSTEM 5 51 FINANCIAL CONTEXT OF BUSINESS I 15 56 MACROECONOMIC AND INSTITUTIONAL CONTEXT I: THE DOMESTIC ECONOMY 18 58 MACROECONOMIC AND INSTITUTIONAL CONTEXT II: THE INTERNATIONAL ECONOMY 22 60 FINANCIAL CONTEXT OF BUSINESS II: INTERNATIONAL ASPECTS 26 63 FINANCIAL CONTEXT OF BUSINESS III: DISCOUNTING AND INVESTMENT APPRAISAL 30 65 INFORMATIONAL CONTEXT OF BUSINESS I: SUMMARISING AND ANALYSING DATA 34 68 MACROECONOMIC AND INSTITUTIONAL CONTEXT III: INDEX NUMBERS 39 70 INFORMATIONAL CONTEXT OF BUSINESS II: INTER‐RELATIONSHIPS BETWEEN VARIABLES 41 71 INFORMATIONAL CONTEXT OF BUSINESS III: FORECASTING 45 73 P 4 Section 1 OBJECTIVE TEST QUESTIONS MICROECONOMIC AND ORGANISATIONAL CONTEXT I: THE GOALS AND DECISIONS OF ORGANISATIONS 1 2 3 4 Which of the following is NOT a key feature of an organisation? A Controlled performance B Collective goals C Social arrangements D Creation of a product or service The public sector is normally concerned with which of the following? A making profit from the sale of goods B providing services to specific groups funded from charitable donations C the provision of basic government services D raising funds by subscriptions from members to provide common services Which of the following statements is correct? A Not‐for‐profit organisations are only found in the public sector B Not‐for‐profit organisations are only found in the private sector C Not‐for‐profit organisations can be found in both the public and the private sector D Not‐for‐profit organisations cannot survive without profits Consider the following list of different organisations: (i) Government departments (ii) Partnerships (iii) Charities (iv) Companies 1 S UB J E CT B A1 : F UNDA ME N TA LS OF B US INES S ECONOMICS Which of these organisations would normally be classified as BOTH a not‐for‐profit organisation AND a private sector organisation? 5 A (i) and (iii) only B (iii) only C (i) only D (ii) and (iii) only Consider the following statements: (i) Not‐for‐profit organisations (NFPs) have varied objectives, which depend on the needs of their members or the sections of society they were created to benefit. (ii) The primary objective of government‐funded organisations is to reduce costs of their operations and thus minimise the burden on tax payers. Which of these statements is/are correct? 6 A (i) only B (ii) only C Both D Neither An example of the principal‐agent problem in business is where principals, such as _ , delegate control to agents, such as _. The problem is one of devising methods to ensure that agents act in the best interest of the principals. Managerial reward systems which link pay and bonuses to the improvement in _ is one such method. Choose from the following 'drop down' options to complete the above sentence 7 management stakeholders shareholder wealth shareholders efficiency Over the past year the X Co earned profits before tax and interest of $110,000. It has interest charges of $45,000 and a tax bill of $30,000. Preference share dividends of $15,000 were paid out, as were ordinary dividends of $5,000. X Co has $125,000 of share capital in issue and the shares each have a nominal value of $0.50. Calculate the earnings per share for the year in $ to the nearest cent. $Xxx xx 2 OBJE CTIVE T E S T QUESTI ONS : S E CTI O N 1 The next two questions are based on the following information. Dividend per share Net profit after taxation 8.6c $17,000 Interest paid $2,000 Number of ordinary shares 70,000 Market price of share 8 9 10 11 12 204c The dividend yield is A 8.6% B 6.4% C 4.2% D 2.1% The earnings per share is A $0.15 B $0.185 C $0.214 D $0.243 In the short run, companies will attempt to improve shareholder wealth by maximising: A Return On Capital Employed B Net Present Value C Normal profits D Average revenue Earnings Per Share (eps) is sometimes used to make decisions about shareholder investment in the short run. What is the main weakness of this measure? A It is difficult to calculate B It varies depending on the profit achieved by the company C It does not measure change in shareholder wealth D It can only be calculated once each year The main technique used to measure increase in shareholder value in the long run is: A Earnings Per Share B Return On Capital Employed C Discounted cash flows D Net profit 3 S UB J E CT B A1 : F UNDA ME N TA LS OF B US INES S ECONOMICS 13 Employees are stakeholders, while finance providers are _ stakeholders. Which TWO words fill the gaps in the above sentence? 14 15 16 17 A Internal, Connected B External, Internal C Connected, Outsider D Internal, Supplier FCC is a large bank. Which TWO of the following would be classified as connected stakeholders for FCC? A FCC’s shareholders B FCC’s employees C Customers who borrow money from FCC D FCC’s managers and directors E The government banking regulator F The trade union representing FCC’s employees Which of the following is unlikely to be a cause of conflict between directors and shareholders? A ‘Fat cat’ salaries B Maximisation of short‐term profitability C Maximisation of long‐term cash flows D Mergers and acquisitions Which of the following is NOT normally seen to be an objective of corporate governance? A Improving employee welfare B Increasing disclosure to stakeholders C Ensuring that the company is run in a legal and ethical manner D Increasing the level of confidence in the company for investors and shareholders Indicate by clicking in the appropriate box whether the following statements are true or false. Statement True False One of the main benefits of corporate governance is improved access to capital markets. Under the principles of good corporate governance, the CEO and chairman of the board will normally be the same person. 4 ... Market price of share 8 9 10 11 12 204c The dividend yield is A 8.6% B 6.4% C 4.2% D 2 .1% The earnings per share is A $0 .15 B $0 .18 5 C $0. 214 D $0.243 In the short run, companies will attempt to improve shareholder wealth by maximising: ... Syllabus outline – BA1 P .11 Learning outcomes and indicative syllabus content P .12 Section 1 Objective test questions 1 2 Answers to objective test questions 49 3 Practice Assessment questions ... ISBN: 978 1 78740 17 7‐8 Printed and bound in Great Britain. P 2 CONTENTS Page Syllabus Guidance, Learning Objectives and Verbs P.5 Objective tests P.9 Syllabus outline – BA1 P .11