NEWEST MANAGEMENT CASE STUDY
EXAM (CIMA) | ULTIMATE EXAM WITH
CORRECT ANSWERS AND RATIONALES
FOR CERTIFICATION SUCCESS
Scenario: Apex Manufacturing Group
Apex Manufacturing Group is a diversified
manufacturer with three divisions: Automotive
Components, Industrial Equipment, and Consumer
Products. The company has been profitable but is
facing increasing competition and technological
disruption. The board has asked you, a management
accountant, to analyse the current position and
recommend strategic options.
**Financial data for the year ended 31 December
20X4 (in $ millions):**
| Item | Automotive | Industrial | Consumer | Total |
|------|------------|------------|----------|-------|
| Revenue | 500 | 300 | 200 | 1,000 |
| Profit before tax | 60 | 40 | 10 | 110 |
,| Capital employed | 400 | 200 | 150 | 750 |
Additional information:
- The Automotive division has a strong market
position but faces pressure from electric vehicle
transition. Its return on capital employed (ROCE) is
15%.
- The Industrial division has recently invested in new
technology and has a ROCE of 20%.
- The Consumer division has been struggling with
increased competition and a ROCE of only 6.7%.
- The company's weighted average cost of capital
(WACC) is 12%.
- The board is considering three strategic options:
1. Invest $100 million in the Automotive division to
develop electric vehicle components (expected
additional profit $15 million per year).
2. Divest the Consumer division (estimated
proceeds $120 million; book value $150 million).
3. Acquire a competitor in the Industrial division for
$80 million (expected additional profit $12 million per
year).
,Questions
1. Calculate the current return on capital employed
(ROCE) for the Consumer division.
A) 5.0%
B) 6.7%
C) 7.5%
D) 8.0%
E) 10.0%
Correct answer: B
Rationale: ROCE = Profit before tax / Capital
employed = $10 million / $150 million = 0.0667 = 6.7%.
2. Which division currently has the highest ROCE?
A) Automotive
B) Industrial
C) Consumer
D) All equal
, E) Cannot be determined
Correct answer: B
Rationale: Automotive 15%, Industrial 20%,
Consumer 6.7%. Industrial is highest.
3. The company's current overall ROCE is:
A) 10.0%
B) 11.7%
C) 12.5%
D) 14.7%
E) 15.0%
Correct answer: D
Rationale: Total profit = $110 million, total capital
employed = $750 million, ROCE = 110/750 = 14.67%.
4. The WACC is 12%. Which divisions are currently
creating shareholder value (ROCE > WACC)?
A) Automotive only
EXAM (CIMA) | ULTIMATE EXAM WITH
CORRECT ANSWERS AND RATIONALES
FOR CERTIFICATION SUCCESS
Scenario: Apex Manufacturing Group
Apex Manufacturing Group is a diversified
manufacturer with three divisions: Automotive
Components, Industrial Equipment, and Consumer
Products. The company has been profitable but is
facing increasing competition and technological
disruption. The board has asked you, a management
accountant, to analyse the current position and
recommend strategic options.
**Financial data for the year ended 31 December
20X4 (in $ millions):**
| Item | Automotive | Industrial | Consumer | Total |
|------|------------|------------|----------|-------|
| Revenue | 500 | 300 | 200 | 1,000 |
| Profit before tax | 60 | 40 | 10 | 110 |
,| Capital employed | 400 | 200 | 150 | 750 |
Additional information:
- The Automotive division has a strong market
position but faces pressure from electric vehicle
transition. Its return on capital employed (ROCE) is
15%.
- The Industrial division has recently invested in new
technology and has a ROCE of 20%.
- The Consumer division has been struggling with
increased competition and a ROCE of only 6.7%.
- The company's weighted average cost of capital
(WACC) is 12%.
- The board is considering three strategic options:
1. Invest $100 million in the Automotive division to
develop electric vehicle components (expected
additional profit $15 million per year).
2. Divest the Consumer division (estimated
proceeds $120 million; book value $150 million).
3. Acquire a competitor in the Industrial division for
$80 million (expected additional profit $12 million per
year).
,Questions
1. Calculate the current return on capital employed
(ROCE) for the Consumer division.
A) 5.0%
B) 6.7%
C) 7.5%
D) 8.0%
E) 10.0%
Correct answer: B
Rationale: ROCE = Profit before tax / Capital
employed = $10 million / $150 million = 0.0667 = 6.7%.
2. Which division currently has the highest ROCE?
A) Automotive
B) Industrial
C) Consumer
D) All equal
, E) Cannot be determined
Correct answer: B
Rationale: Automotive 15%, Industrial 20%,
Consumer 6.7%. Industrial is highest.
3. The company's current overall ROCE is:
A) 10.0%
B) 11.7%
C) 12.5%
D) 14.7%
E) 15.0%
Correct answer: D
Rationale: Total profit = $110 million, total capital
employed = $750 million, ROCE = 110/750 = 14.67%.
4. The WACC is 12%. Which divisions are currently
creating shareholder value (ROCE > WACC)?
A) Automotive only
