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June 2015 Edition

REVISION QUESTION BANK

ACCA Paper F9 | FINANCIAL MANAGEMENT

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ACCA

PAPER F9 FINANCIAL MANAGEMENT

REVISION QUESTION BANK

For Examinations to June 2015

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(ii)

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REVISION QUESTION BANK – FINANCIAL MANAGEMENT (F9) CONTENTS Question

Page

Answer

Marks

1001 1001 1002 1003 1004 1005 1007 1008 1010 1010 1011 1012 1012 1013 1014

22 20 12 20 10 12 34 22 16 18 14 12 14 30 30

Date worked

MULTIPLE CHOICE QUESTIONS (Section A Questions) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

The Financial Management Function The Financial Management Environment Investment Decisions Discounted Cash Flow Techniques Applications of Discounted Cash Flow Techniques Project Appraisal under Risk Equity Finance and Debt Finance Cost of Capital Capital Asset Pricing Model Working Capital Management Inventory Management Cash Management Management of Accounts Receivable and Payable Risk Management Business Valuation and Ratio Analysis

1 3 4 6 8 10 12 15 17 19 21 22 23 25 28

Section B of the Examination will not include questions with less than 10 marks. Those included below provide additional question practice on topics that could be examined within longer questions. THE FINANCIAL MANAGEMENT FUNCTION 1 2 3 4 5 6 7 8 9

Company objectives The financial management function Financial management decisions (ACCA J10) Value for money (ACCA J03) Non-For-Profit (ACCA D11) QSX Co (ACCA J10) Agency problem (ACCA D08) Listed company objectives (ACCA J13) Goal congruence (ACCA D13)

32 32 32 32 32 32 33 33 33

1016 1018 1018 1019 1019 1020 1022 1022 1023

10 10 10 6 10 10 10 6 6

33 34 34

1024 1024 1025

6 10 5

34 35

1025 1026

10 10

35 36 36 37 38 39

1027 1030 1031 1034 1036 1038

15 10 15 15 15 15

THE FINANCIAL MANAGEMENT ENVIRONMENT 10 11 12

Money markets Tagna (ACCA J03) Financial intermediaries (ACCA D09)

INVESTMENT DECISIONS 13 14

Payback and ROCE (ACCA D04) Directors’ views (ACCA D10)

DISCOUNTED CASH FLOW TECHNIQUES 15 16 17 18 19 20

OKM Co (ACCA J10) Limitations of NPV Ridag Co (ACCA J12) BQK Co (ACCA D12) HDW (ACCA J13) Darn Co (ACCA D13)

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(iii)

FINANCIAL MANAGEMENT (F9) – REVISION QUESTION BANK Question

Page

Answer

Marks

39 40 41 41 42 42

1040 1042 1044 1045 1047 1048

15 15 15 15 10 15

42 43 43

1049 1049 1051

10 15 10

43 43 44 44 45 46 46 46 47

1052 1054 1055 1056 1059 1060 1061 1063 1064

10 10 10 15 15 10 15 10 10

47 48 48 49 49

1065 1067 1068 1069 1071

15 10 15 15 10

Project-specific discount rate (ACCA D08) 50 CJ Co (ACCA D10) 50 Business, financial and systematic risk (ACCA J12) 51 CAPM and risk (ACCA J13) 51 Card Co (ACCA D13) 51

1071 1072 1074 1075 1075

10 15 10 10 15

1077 1079 1080 1082 1083 1085

15 10 15 10 15 10

Date worked

APPLICATIONS OF DISCOUNTED CASH FLOW TECHNIQUES 21 22 23 24 25 26

Replacement cycles (ACCA J10) Basril Co (ACCA D03) Cavic Co (ACCA D06) ASOP Co (ACCA D09) Equivalent annual benefit (ACCA D09) Spot Co (ACCA D13)

PROJECT APPRAISAL UNDER RISK 27 28 29

Risk and uncertainty (ACCA D07) Warden Co (ACCA D11) Incorporating risk (ACCA J12)

EQUITY FINANCE AND DEBT FINANCE 30 31 32 33 34 35 36 37 38

Islamic finance Short-term finance SME finance (ACCA D01) Nugfer Co (ACCA D10) Bar Co (ACCA D11) Dividend policy (ACCA D10) Zigto Co (ACCA J12) Bonds, placing and venture capital (ACCA J13) Riba (ACCA D13)

COST OF CAPITAL AND GEARING 39 40 41 42 43

KFP Co (ACCA J09) DD Co (ACCA D09) BKB Co (ACCA D12) AMH Co (ACCA J13) Capital structure and company value (ACCA D13)

CAPITAL ASSET PRICING MODEL 44 45 46 47 48

WORKING CAPITAL MANAGEMENT 49 50 51 52 53 54

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Blin (ACCA J04) Bold Co (ACCA D11) AXP Co (ACCA D09) Working capital policy (ACCA J12) TGA Co (ACCA J13) Objectives, role and policy (ACCA D13)

52 52 53 54 54 55

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REVISION QUESTION BANK – FINANCIAL MANAGEMENT (F9) Question

Page

Answer

Marks

55 56 56

1086 1088 1088

15 15 10

57 57 58 59

1089 1090 1093 1095

10 15 15 10

59 60 61 62 62

1096 1098 1099 1100 1102

15 15 15 10 15

63 64 65 65 66 66 67

1103 1104 1105 1106 1107 1108 1109

10 10 10 10 10 10 10

67 68 68 69 69 70 71 72 73

1110 1111 1111 1113 1113 1114 1115 1117 1118

10 10 10 6 10 15 15 10 15

74 80 80 81 82 83

1120 1121 1122 1123 1124 1126

40 10 10 10 15 15

Date worked

INVENTORY MANAGEMENT 55 56 57

EOQ and JIT FLG Co (ACCA J08) Product KN5 (ACCA D10)

CASH MANAGEMENT 58 59 60 61

Baumol model (ACCA D05) HRG Co (ACCA J09) Wobnig (ACCA J12) Cash and receivables management (ACCA D12)

MANAGEMENT OF ACCOUNTS RECEIVABLE AND PAYABLE 62 63 64 65 66

PKA (ACCA D07) WQZ Co (ACCA D10) Bolder Co (ACCA D11) KXP (ACCA D12) Plot Co (ACCA D13)

RISK MANAGEMENT 67 68 69 70 71 72 73

GN Co (ACCA D09) Gorwa Co (ACCA D08) Boluje Co (ACCA D08) Zigzag (ACCA J12) Interest rate risk (ACCA D12) BNB Co (ACCA D12) Types of currency risk (ACCA J13)

BUSINESS VALUATION 74 75 76 77 78 79 80 81 82

NSX (ACCA J10) XB Co Closer (ACCA D11) Phobia Co (ACCA D07) Efficient Markets Hypothesis (ACCA D07) NN Co (ACCA D10) Corhig Co (ACCA J12) WWW Co (ACCA D12) GXG Co (ACCA J13)

ACCA SPECIMEN EXAMINATION PAPER 1 2 3 4 5

MCQ Cat Co GWW Co ZPS Co PV Co DD Co

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(v)

FINANCIAL MANAGEMENT (F9) – REVISION QUESTION BANK Formula Sheet Economic order quantity

C oD Ch

=

2

Miller – Orr Model Return point = Lower limit + (1/3 × spread) 1

ª3 º3 « 4 u transaction cost u variance of cash flows » Spread = 3 « » interest rate « » ¬« ¼» The Capital Asset Pricing Model

E(ri) = Rf + βi(E(rm)–Rf) The asset beta formula ª

º

Ve

βa = «

¬

e

ª

d

β» + « VT V ¼ d 1  ¬

e



º T 1  V e βd»     1 V V T d ¼

The Growth Model

PO =

D O 1  g   re  g 

Gordon’s growth approximation

g = bre The weighted average cost of capital

ª ª Ve º WACC = « » Ke + « ¬ ¬ Ve  Vd ¼

º » K d 1  T   d¼

Vd e

V

V

The Fisher formula

(1 + i) = (1 + r) (1 + h) Purchasing power parity and interest rate parity

S1 = S0 ×

(vi)

1  h c  1  h b 

F 0 = S0 ×

1  ic  1  ib 

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REVISION QUESTION BANK – FINANCIAL MANAGEMENT (F9) Present Value Table

Present value of 1 i.e. (1 + r)–n where

r = discount rate n = number of periods until payment Discount rate (r)

Periods (n) 1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1 2 3 4 5

0.990 0.980 0.971 0.961 0.951

0.980 0.961 0.942 0.924 0.906

0.971 0.943 0.915 0.888 0.863

0.962 0.925 0.889 0.855 0.822

0.952 0.907 0.864 0.823 0.784

0.943 0.890 0.840 0.792 0.747

0.935 0.873 0.816 0.763 0.713

0.926 0.857 0.794 0.735 0.681

0.917 0.842 0.772 0.708 0.650

0.909 0.826 0.751 0.683 0.621

1 2 3 4 5

6 7 8 9 10

0.942 0.933 0.923 0.914 0.905

0.888 0.871 0.853 0.837 0.820

0.837 0.813 0.789 0.766 0.744

0.790 0.760 0.731 0.703 0.676

0.746 0.711 0.677 0.645 0.614

0.705 0.665 0.627 0.592 0.558

0.666 0.623 0.582 0.544 0.508

0.630 0.583 0.540 0.500 0.463

0.596 0.547 0.502 0.460 0.422

0.564 0.513 0.467 0.424 0.386

6 7 8 9 10

11 12 13 14 15

0.896 0.887 0.879 0.870 0.861

0.804 0.788 0.773 0.758 0.743

0.722 0.701 0.681 0.661 0.642

0.650 0.625 0.601 0.577 0.555

0.585 0.557 0.530 0.505 0.481

0.527 0.497 0.469 0.442 0.417

0.475 0.444 0.415 0.388 0.362

0.429 0.397 0.368 0.340 0.315

0.388 0.356 0.326 0.299 0.275

0.350 0.319 0.290 0.263 0.239

11 12 13 14 15

(n)

11%

12%

13%

14%

15%

16%

17%

18%

19%

20%

1 2 3 4 5

0.901 0.812 0.731 0.659 0.593

0.893 0.797 0.712 0.636 0.567

0.885 0.783 0.693 0.613 0.543

0.877 0.769 0.675 0.592 0.519

0.870 0.756 0.658 0.572 0.497

0.862 0.743 0.641 0.552 0.476

0.855 0.731 0.624 0.534 0.456

0.847 0.718 0.609 0.516 0.437

0.840 0.706 0.593 0.499 0.419

0.833 0.694 0.579 0.482 0.402

1 2 3 4 5

6 7 8 9 10

0.535 0.482 0.434 0.391 0.352

0.507 0.452 0.404 0.361 0.322

0.480 0.425 0.376 0.333 0.295

0.456 0.400 0.351 0.308 0.270

0.432 0.376 0.327 0.284 0.247

0.410 0.354 0.305 0.263 0.227

0.390 0.333 0.285 0.243 0.208

0.370 0.314 0.266 0.225 0.191

0.352 0.296 0.249 0.209 0.176

0.335 0.279 0.233 0.194 0.162

6 7 8 9 10

11 12 13 14 15

0.317 0.286 0.258 0.232 0.209

0.287 0.257 0.229 0.205 0.183

0.261 0.231 0.204 0.181 0.160

0.237 0.208 0.182 0.160 0.140

0.215 0.187 0.163 0.141 0.123

0.195 0.168 0.145 0.125 0.108

0.178 0.152 0.130 0.111 0.095

0.162 0.137 0.116 0.099 0.084

0.148 0.124 0.104 0.088 0.074

0.135 0.112 0.093 0.078 0.065

11 12 13 14 15

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(vii)

FINANCIAL MANAGEMENT (F9) – REVISION QUESTION BANK Annuity Table

Present value of an annuity of 1 i.e. where

1  ( 1  r ) n r

r = discount rate n = number of periods Discount rate (r)

Periods (n) 1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1 2 3 4 5

0.990 1.970 2.941 3.902 4.853

0.980 1.942 2.884 3.808 4.713

0.971 1.913 2.829 3.717 4.580

0.962 1.886 2.775 3.630 4.452

0.952 1.859 2.723 3.546 4.329

0.943 1.833 2.673 3.465 4.212

0.935 1.808 2.624 3.387 4.100

0.926 1.783 2.577 3.312 3.993

0.917 1.759 2.531 3.240 3.890

0.909 1.736 2.487 3.170 3.791

1 2 3 4 5

6 7 8 9 10

5.795 6.728 7.652 8.566 9.471

5.601 6.472 7.325 8.162 8.983

5.417 6.230 7.020 7.786 8.530

5.242 6.002 6.733 7.435 8.111

5.076 5.786 6.463 7.108 7.722

4.917 5.582 6.210 6.802 7.360

4.767 5.389 5.971 6.515 7.024

4.623 5.206 5.747 6.247 6.710

4.486 5.033 5.535 5.995 6.418

4.355 4.868 5.335 5.759 6.145

6 7 8 9 10

11 12 13 14 15

10.37 11.26 12.13 13.00 13.87

9.787 10.58 11.35 12.11 12.85

9.253 9.954 10.63 11.30 11.94

8.760 9.385 9.986 10.56 11.12

8.306 8.863 9.394 9.899 10.38

7.887 8.384 8.853 9.295 9.712

7.499 7.943 8.358 8.745 9.108

7.139 7.536 7.904 8.244 8.559

6.805 7.161 7.487 7.786 8.061

6.495 6.814 7.103 7.367 7.606

11 12 13 14 15

(n)

11%

12%

13%

14%

15%

16%

17%

18%

19%

20%

1 2 3 4 5

0.901 1.713 2.444 3.102 3.696

0.893 1.690 2.402 3.037 3.605

0.885 1.668 2.361 2.974 3.517

0.877 1.647 2.322 2.914 3.433

0.870 1.626 2.283 2.855 3.352

0.862 1.605 2.246 2.798 3.274

0.855 1.585 2.210 2.743 3.199

0.847 1.566 2.174 2.690 3.127

0.840 1.547 2.140 2.639 3.058

0.833 1.528 2.106 2.589 2.991

1 2 3 4 5

6 7 8 9 10

4.231 4.712 5.146 5.537 5.889

4.111 4.564 4.968 5.328 5.650

3.998 4.423 4.799 5.132 5.426

3.889 4.288 4.639 4.946 5.216

3.784 4.160 4.487 4.772 5.019

3.685 4.039 4.344 4.607 4.833

3.589 3.922 4.207 4.451 4.659

3.498 3.812 4.078 4.303 4.494

3.410 3.706 3.954 4.163 4.339

3.326 3.605 3.837 4.031 4.192

6 7 8 9 10

11 12 13 14 15

6.207 6.492 6.750 6.982 7.191

5.938 6.194 6.424 6.628 6.811

5.687 5.918 6.122 6.302 6.462

5.453 5.660 5.842 6.002 6.142

5.234 5.421 5.583 5.724 5.847

5.029 5.197 5.342 5.468 5.575

4.836 4.988 5.118 5.229 5.324

4.656 4.793 4.910 5.008 5.092

4.586 4.611 4.715 4.802 4.876

4.327 4.439 4.533 4.611 4.675

11 12 13 14 15

(viii)

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REVISION MULTIPLE CHOICE QUESTION BANK – FINANCIAL MANAGEMENT (F9) MULTIPLE CHOICE QUESTIONS 1

The Financial Management Function

1.1

Which of the following is one of the 3Es “value for money” concept? A B C D

1.2

Which of the following is most consistent with maximising shareholder wealth? A B C D

1.3

Profit before interest and tax Sales revenues Market price of the share Price/earnings ratio

Which of the following is not a consequence or symptom of the agency problem? A B C D

1.6

Profit maximisation results in shareholder wealth maximisation Divorce of ownership and control can lead to agency costs Maximising earnings per share results in shareholder wealth maximisation Increasing market share will lead to increased shareholder wealth

Which of the following is the best indicator of shareholder wealth? A B C D

1.5

Profit maximisation Market share growth Minimising the firm’s cost of capital Maximising earnings per share

Which of the following statements is correct? A B C D

1.4

Earnings Equity Evaluation Effectiveness

Managers diverting funds into their own pet projects Managers selecting quick payback projects Managers engaging in empire building Managers increasing the firm’s level of financial gearing

Hathaway Co has just paid a dividend of 21 cents per share and its share pri...