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- INF 2011.pdf
- www.acca-live.com | ACCA - F2 Management Accounting CBE based Mock Exam
- ACCA F2 Final Mocks
- ACCA F9 Workbook Questions & Solutions 1.1 PDF
- F4 Passcard 2015
- ACCA PAPER F5 PERFORMANCE MANAGEMENT JUNE 2011 REVISION CLASS
- MMAE Old BoardNew Board Meeting Minutes May 09
- Rollover Statistics(From July 2010 Series to August 2010 Series)
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- 2012 Paper F9 Mnemonics and Charts Sample Download v1
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F9 test 1 Introduction to financial management and governance

Q1. What is the role of financial management?

A

C

To manage the link between the company and the external environment to do with

financial decisions?

D

Q2. When considering financial management would it normally be considered as which of the

following categories?

A

An operational function

A tactical function

A strategic function

An institutional function

Q3. When considering a financial investment over the short-term which order would best

describe the priorities of the investor highest first?

A

1

Q4. When considering the dividend to pay out which of the following should be considered?

1

Shareholder expectations

Investment opportunities

Current profitability

1,2 and 3

1,3 and 4

2,3 and 4

Q5. When considering the permanent financing of the business, what should debt and equity

cover in balance sheet terms?

A

Current assets

Total assets

A

Maximising profit

Satisficing

Q7. As an employee how would you best assess your return from the organisation?

A

Salary

Payment terms

Service

Q8. What theory best describes the relationship between senior management and

shareholders?

A

Tenancy theory

Expectancy theory

Portfolio theory

Agency theory

Q9. Which of the following may be considered areas of conflict between shareholders and

directors?

1

Executive pay

Takeover strategy

Prestige projects

Risk assessment

1, 2 and 3

2, 3 and 4

1, 2 and 4

3

A.

B.

C.

D.

Management, Investment and Financing

Management, Investment and Dividend

Management, Financing and Dividend

Q1. When calculating the cost of equity using the dividend valuation model which time value of

money concept is most likely to be used?

A

Annuity

Compounding

Present values

Perpetuities

Q2. Given a share price of $10 and a dividend per annum of $0.5 what would be the cost of

equity if there is no expected growth in the dividend?

A

4%

5%

6%

10%

Q3. If we are calculating the growth rate for dividends using the average method what would

the growth rate be using the following information to 2 decimal places?

Current dividend

5c

4c

7.72%

25%

7.49%

8.33%

Q4. Using Gordons Growth Model what would be the estimated growth rate of the dividends

given the following information?

Profit after tax

20%

60%

8%

10%

12%

14%

Q5. If a loan note (par value = $100) is irredeemable what would be the cost of debt given that

the current market value is $105 and the coupon rate is 8%. The debt is tax deductible and the

current corporation tax rate is 25%. (Calculations to 2 decimal places)

A

5.00%

5.71%

8.00%

8.71%

Q6. If we have a redeemable loan note repayable at par ($100) in one year with a coupon rate of

6% which is currently trading at $95. What is the cost of debt if the tax rate is 30% (to 2 decimal

places).

A

9.68%

4.20%

5.00%

10.00%

Q7. Given that we expect the growth rate of dividends to be 5% and the current market value of

the share is $4.5 ex div. What is the cost of equity if the dividend paid this year is 55c?

A

5.00%

10.83%

12.83%

17.83%

Q8. What is the cost of capital of a bank loan with an interest charge of 10% per annum. Tax is

payable at 35%

A

5.0%

6.5%

10.0%

Unable to be calculated

Q9. Given the following information what is the WACC to 2 decimal places?

Market Value

Return

Debt

$4m

6%

Equity

$40m

12%

9%

10.5%

11.0%

11.45%

Q10. Given the following information relating to a convertible debt would the debtholder elect

to convert or redeem the debt in year 4?

The current market value of a share is $4 and the share is expected to rise by 6% per annum.

The debt is convertible into 20 shares in three years or alternatively redeemable at par ($100).

A

Convert

Redeem

Either

Test 3 Paper F9 Financial Management NPV, IRR and investment appraisal methods

Q1. Why is investment appraisal considered such a critical decision for the organisation?

1

The uncertainty associated with the inflows generated from the investment

The size of the potential investment relative to the size of the business

1 and 2

1 and 3

2 and 3

Q2. Which investment appraisal methods primarily assesses the risk of the project?

A

Payback

ROCE

NPV

IRR

Q3. Which investment appraisal method considers the impact of the investment on accounting

profit?

A

Payback

ROCE

NPV

IRR

Q4. Which are the fundamental reason(s) for time value of money?

1. Inflation

2. Opportunity cost of capital

3 Risk

A

1 and 2

2 only

2 and 3

Discount Rate

5%

12%

NPV

+400

-200

9.66%

8%

10.66%

7.33%

Q6. What is the present value of an annuity of $500 payable over 4 years at 10% commencing in

year 2?

A

$1,309`

$1,441

$1,585

$1,703

10

A

$6,000

$7,434

$9,375

$10,500

Q8. Calculate the value of $1,250 today in 4 years time at a cost of capital of 9%

A

$1,460

$1,700

$1,764

$1,840

Q9. If the cash inflow per annum are $40,000 and the investment is $110,000 what will the

payback period be?

A

2.0 years

2.5 years

2.7 years

3.0 years

Q10. What is the assumed relationship between net cash inflow per annum and profit?

A

11

Q1. If the question has more than one inflation rate illustrated in the question which combination of

cash flows and rate must be used in the analysis?

A

Q2. Which eminent economist provided the formula to convert real to money rate and vice

versa?

A

Keynes

Smith

Fisher

Friedman

Q3. Which specific investment appraisal technique may be only concerned with the present

value of the costs?

A

Sensitivity analysis

12

Q4. If a project has a revenue per annum of $100,000 and a contribution per annum of $25,000

for 4 years and a NPV of $10,000 and the cost of capital is 8%, what is the amount by which the

sales volume may change before the NPV drops to zero?

A

3%

6%

9%

12%

Q5. If a project has a revenue per annum of $100,000 and a contribution per annum of $25,000

for 4 years and a NPV of $10,000 and the cost of capital is 8%, what is the amount by which the

sales price may change before the NPV drops to zero?

A

3%

6%

9%

12%

Q6. Using asset replacement theory which replacement strategy would be selected from the

following at a discount rate of 10%

Project

PV of cost

1

$8,000

$13,000

$18,000

2 years

3 years

Project 1

Project 2

Project 3

13

Q7. In capital rationing if the project can be taken in part and the return is proportionate to the

part undertaken which of the following describes that situation?

A

Divisible projects

Q8. In capital rationing which reasons are there for hard capital rationing?

1. Economy wide factors

2. Company specific factors

3. Internal decisions

A

1 only

1 and 2

2 and 3

Q9. If inflation is evident in the question, what is the inflated value of labour in year 4 if we

know that inflation is at 3.5% and the cash flow in real terms is $30,500?

A

$35,000

$34,770

$33,816

$33,703

14

A

15

This data relates to question 1-4

A company is investing $70m in a new project and will be funding part of the investment by debt

and the remainder by equity through a rights issue. The current share price is $4 and the market

capitalisation is $200m. The rights issue price will be at a discount of 20% to the current share

price. The rights issue will be on a 1 for 5 basis

Issue costs are expected to be $2m. Current equity gearing (debt/equity) is 40%

Q1 How many new shares will be issued?

A

5 million

10 million

50 million

60 million

A

$16m

$20m

$32m

$40m

A

$3.87

$4.00

$4.64

$5.00

16

A

40.0%

42.9%

40.7%

41.5%

A company has the following data for the past three years

3

Turnover ($m)

28.0

24.0

22.0

PBIT ($m)

10.0

8.8

7.5

Earnings ($m)

5.4

4.0

3.8

Dividends ($m)

2.3

2.1

2.0

4.0

4.0

4.0

Reserves ($m)

12.0

10.1

8.3

15.0

15.0

15.0

7.65

4.95

4.08

A

14.89%

28.36%

30.24%

82.47%

17

A

14.89%

28.36%

30.24%

82.47%

A

52.63%

42.59%

52.50%

50.00%

A

7.52%

3.76%

4.23%

6.41%

A

21.32%

18.36%

27.76%

6.43%

18

A

50c

67.5c

72c

81.5c

19

Q1. Which of the following are necessary pre-requisites for using the WACC measure for

investment appraisal purposes?

1. Similar risk profile

2. Relatively small size of investment

3. Capital structure is unchanged

A

1 and 2

1 and 3

2 and 3

Q2. When considering the traditional theory of capital structure which of the following best

describes the impact on the WACC?

A

Q3. Given that a proxy company from the appropriate industry has an equity beta of 1.70 and

currently has a capital structure (debt:equity) of 30:70 what is the industry sector asset beta (tax

rate = 30%)?

A

1.19

1.31

2.21

2.43

20

A

The risk of both the financial risk and the systematic risk of the business

The overall risk of the industry including both systematic and unsystematic risk

Q5. If the asset beta for the industry is the 1.6 and the company is financing the project wholly

by equity what will be the equity beta applying to the project?

A

1.0

1.6

2.0

Capital structure

(d/e)

Ke

12%

Kd

6%

6%

7.2%

10.8%

12%

20/80

21

Q7. What is the cost of equity if we are given the following information?

Beta

1.1

Rf

4%

Risk premium

5%

9.5%

9.9%

5.1%

4.8%

Q8. Which of the following are assumptions relating to the use of project specific discount

rates?

1

A risk free return may be earned by investing solely in short-dated government bonds

The risk is calculated in relation to the existing risk suffered by the company

1 and 2

1, 2 and 3

2, 3 and 4

1, 2 and 4

22

Q9. In what circumstance is it necessary to use project specific discount rates rather than the

WACC to appraise investments?

A

New investment

New technology

Q10. If we know the risk free rate of return is 4% and the return on the investment is 10%. If the

beta of the investment is 0.6 what is the market rate of return?

A

6%

10%

14%

23.3%

23

Q1. Which profitability measure shows the underlying profitability of the business before

financing?

A

ROCE

ROE

Q2. If you are asked to calculate the financial gearing measure by dividing the debt by equity

what would this be best called?

A

Operational gearing

Capital gearing

Total gearing

Equity gearing

A

Something else

24

Q4. When raising equity capital as an unlisted company what is the critical initial consideration

that all companies face?

A

Q5. When floating (or listing) a company on the stock exchange, which method is associated

with raising no new capital?

A

Bonus issue

Introduction

Placing

Q6. If the existing share price is $4 and a rights issue is made on a 1 for 4 basis at a discount to

the issue price of 25% what will the theoretical ex-rights price be?

A

$3.0

$3.4

$3.5

$3.8

25

Q7. If a company has an existing share price of $6 and the issue price in a rights issue is $4.5

based on a 1 for 5 issue what is the value of a right per existing share?

A

$0.25

$0.30

$1.23

$1.50

1.

2.

3.

4.

A

Profitability

Cash flow

Dividend Policy

Legal restrictions

1,2 and 4

1,3 and 4

2,3 and 4

Q9. If a company is unlisted which of the following are ways that it may raise equity capital?

1

venture capital

bonus issue

rights issue

1 and 2

1,2 and 3

1,2 and 4

26

Q10. If a company wishes to list by offering shares to the widest range of possible investors

what method of listing would it use?

A

Placing

Introduction

Rights issue

27

Q1.

The finance has a redemption date when issued. It provides funding for at least one year and it

offers a fixed return and the cash return is tax deductible.

A

Overdraft

Bonds

Preference shares

Equity

Q2.

The investors are part owners in the business and normally enjoy full voting rights. The cash

return from this investment is not tax deductible

A

Overdraft

Bonds

Preference shares

Equity

An option to buy shares in the future at a pre-determined price and on a fixed date. These may

be linked to bonds to make them more attractive

A

Convertibles

Leases

Ordinary shares

Warrants

28

Q4. As a small unlisted company which of the following are most likely sources of finance

1. Debentures

2. Government grants

3. Retained earnings

4. Convertible debt

A

1, 2 and 3

2 and 3

1, 3 and 4

2 and 4

Q5.

Q6 What are the two conflicting issues when managing working capital

A

29

Finance provided normally relating to a specific asset which allows the use of the asset without

any ownership rights. The term may from a few days up to the effective life of the asset.

A

Hire purchase

Finance lease

Operating lease

Q8 What are the specific symptoms of overtrading from the following list

1

1,2, 3 and 5

1,2 and 4

1,3 and 4

2,3 and 5

30

Q9 What measures could be identified when a company assesses the credit status of a new

customer

1. Trade references

2. Published accounts

3. Credit rating agencies

4. Bank references

A

1, 2 and 4

1, 3 and 4

2 and 3

Q10

A company has sales of $75m and its customers take on average 100 days to pay. The overdraft

rate is 7%. By how many days would the company have to decrease the receivables days by to

reduce the cost of receivables to below $1m.

A

30 days

31 days

69 days

71 days

31

Q1. A company has to decide whether to use a factor to collect receivables. It currently collects

the receivables over an average of 80 days and the current sales of the company are $50m.

If the company factors the debt then it is expected that there will be cost saving in the

administration of the credit control of $400,000. The use of a factor is expected to reduce the

receivables collection period by 20 days. The factor charges a fee of 1.2% of sales value for its

services.

The current overdraft rate is 10%

Required: Calculate the net benefit/(cost) of factoring the debts

A

Saving $619,178

Saving $19,178

Cost ($380,822)

Cost ($600,000)

Q2. In the EOQ model which of the following cost is assumed to be zero

A

Ordering costs

Holding costs

Stock-out costs

Purchase costs

32

Q3 A company may either use the EOQ or alternatively it may order 1,000 units per order. If it

orders 1,000 units it will benefit from a trade discount of 2% of sales value.

Ordering cost

$15/ order

Holding cost

$10/unit

Monthly demand

5,000 units

A

Benefit $12,415

Benefit $415

Cost

($415)

Cost

($12,000)

Q4 Which of the following are not likely to be benefits of adopting just in time purchasing

arrangements with suppliers

A

33

The minimum cash balance is $30,000. The standard deviation of the daily cash flows is $5,000.

The transaction cost is $50 for en-cashing and investing funds and the annual interest rate is

10.95%

Required

A

$13,876

$14,620

$25,789

$34,873

A

$34,873

$46,620

$51,962

$69,746

A

$14,620

$25,789

$46,620

$34,873

34

Q8. A company generates a surplus of $120,000 per annum. The interest rate available to short

term investments is 5% per annum. Transaction costs are $50 for investing in short-term

securities.

Required: using the Baumol model what is the amount that should be invested in short term

securities in each transaction (to the nearest $)

A

$12,000

$15,492

$18,000

$18,342

Q9. When a company is considering whether to finance its working capital it may consider longterm or short-term sources. Which of the following would be considered advantages of using

short-term funding?

1. Cheaper financing cost

2. Relatively easy to arrange

3. Secure over time

4. Matching concept

A

1 and 2

3 and 4

1, 2 and 3

1, 2 and 4

35

Q10. What overall measure of working capital would best illustrate the efficiency of the

organisation?

A

Current ratio

Receivables days

Operating cycle

36

Q1 Company A has an earnings yield of 8% and currently generates $20m per annum profit after

tax. It is being considered as a takeover target by another company, B, that believe that they will

be able to generate cash savings of $5m before tax. Corporation tax is at 30%

What is the value of company A to company B using the earning yield method?

A

$200m

$250m

$293.75m

$312.5m

The information below relates to company C

Current earnings per share

50c

40%

15c

6%

6%

1.3

Required

A

20c

15c

30c

50c

37

Q3 What is the expected annual growth rate for dividends given that the average method is

used?

A

7.6%

10.1%

11.1%

13.3%

Q4 What is the current cost of equity for Company C using the CAPM?

A

6%

12%

13.8%

15.6%

Q5 What is the share price valuation of Company C using the dividend valuation model?

A

145c

159c

541c

595c

38

Z Company, a company that trades in $s, has made a sale in a European country for 300,000

receivable in 3 months time. It has the following information.

Spot rate

$: 1.2505

$: 1.2707

Borrowing

Deposit

4.8%

4.5%

4.1%

3.7%

A

Economic risk

Transaction risk

Translation risk

Political risk

Q7 Using the forward market hedge what should the company receive in dollars?

A

$236,090

$239,904

$375,150

$381,210

39

Q8 Using the money market hedge method what should the company receive in dollars?

A

$239,252

$374,131

$371,212

$352,751

A

Q10 Which of the following hedging techniques will assist in hedging interest rates over the

long-term?

A

Swaps

40

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