Project Cash Flows and Investment Appraisal
Relevant cash flows, tax, inflation, working capital, NPV, IRR, payback and accounting return.
How to study CIMA Management Level
Secure E2, P2 and F2 knowledge before practising integrated medium-term judgement. These single-best-answer study questions do not reproduce or claim to simulate the pre-seen, unseen information, timed written sections, professional formats and human marking of the Management Case Study.
Core concepts
Concept 1
Construct incremental after-tax project cash flows.
Exam cue: Include only future cash flows that change because of the decision.
Concept 2
Apply NPV and other investment-appraisal methods.
Exam cue: Model tax timing, allowances and working-capital recovery explicitly.
Concept 3
Keep nominal or real cash flows consistent with the discount rate.
Exam cue: Prefer value impact while explaining liquidity and measurement limits.
Risk pitfalls and guardrails
Including sunk cost or accounting depreciation as cash flow.
Guardrail: Check the applicable blueprint, task verb, assumptions, units, timing, evidence provenance, stakeholders and whether the conclusion follows.
Mixing real cash flows with a nominal discount rate.
Guardrail: Check the applicable blueprint, task verb, assumptions, units, timing, evidence provenance, stakeholders and whether the conclusion follows.
Selecting mutually exclusive projects by IRR alone.
Guardrail: Check the applicable blueprint, task verb, assumptions, units, timing, evidence provenance, stakeholders and whether the conclusion follows.
Memory anchors
Net present value
Present value of incremental project cash inflows less outflows.
Relevant project cash flow
A future incremental cash flow caused by accepting the project.
Nominal consistency
Nominal cash flows must be discounted at a nominal rate.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
A project requires equipment costing £500,000 and installation £40,000. What is initial asset cash outflow?
A feasibility study cost £25,000 was paid last year. How is it treated in project NPV?
Answer all questions to submit.
Next step personalized recommendations
Continue learning
Move forward only after this module is stable.
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