September exam q1

I think the following are particularly relevant: Q1 (a) Financial issues: Syllabus area G Non-financial issues: Syllabus areas C (eg environmental issues) Q1 (b) Syllabus areas D and F

Hi Thanks so much for your help. In relation to question 1 (a) is there anywhere in the notes or any of the SBL textbooks that would show you how to analyse the financial issues regarding the acceptance of a contract? In syllabus area G (Financial Analysis) I can see sections on Investment Appraisal, Forecasting, Standard Costing etc but I can't see anything in relation to Contracts.

Contracts are not particularly special: they are just another form of cost v revenue. The kind of things to look at are: 1 NPV as some contracts can last several years and revenue deferred. 2 Break-even 3 Following from break-even, margins of safety 4 For overseas contracts, the potential impact of currency fluctuations. In addition, for long-term contracts, forecasting can be difficult eg inflation, interest rates and exchange rates.

Thanks again. How can you look at NPV as there is no discount rate given?

If necessary ypu can talk about the approach in general. If no discount rate were given or none could be estimated it implies no calculation is expected.