MOCK EXAM Solutions
You can download Mock Exam Questions on:opentuition/acca/
PAPER F9FINANCIAL MANAGEMENT This material is © protected and is licensed by Kevin J Kelly to OpenTuition
Live Online tuition includes
•Focused advice & help on WHAT and HOW to learn for the December F9 Exam, plus targeted EXAM TIPS
•Revise a topic that you  nd di fficult,
•Essential THEORY skills  – I will teach you the
APPROACH required to be MARK – TIME
aware in the exam … don’t lose easy marks
anymore. Instead, let me show you how to pick up the easy marks to help you pass
rst time! Students frequently forget that in
F9 50% of the marks are available for
theory!
•
Essential NUMERIC skills  – don’t risk failing the
exam because you have got bogged down on a
particular numeric question in the exam. Do you have a reliable and structured approach for dealing with important numerical questions on Investment Appraisal, Financial Analysis, Working Capital Management, Cost of Capital, calculating WACC, Foreign Exchange calculations, etc., ? I will teach you essential numeric skills quickly and e ffectively using my unique “TEMPLATES ”.
Can you provide your answers to numeric and theory questions at speed, demonstrating e ffective planning & logical layout? If not, let me show you how.
•
EXAM TECHNIQUE  skills  signi  cantly improved – students often frequently under-perform in the exam when dealing with questions on Financial analysis, Investment Appraisal. Calculating WACC, Forex, etc., •Past F9 Exam Papers  - explained in a simple and easy to understand fashion
one-to-one  tuition with ACCA Tutor Kevin Kelly
www.accaresidential For further information email Kevin Kelly: info@accaresidential  or visit: www.accaresidential
Paper F9Book your one-to-one tuition with ACCA F9 Tutor,  Kevin Kelly,(You choose any topic from within the F9 syllabus)Available Live on-line now £9.99 for 15 minutes or only £35.00 for 1 hr  (All you will need is access to the internet and Skype)Contact: info@accaresidential  or www.accaresidential Mock Exam Service – Correction, Feedback and Assessment
•
Mock exam Assessment and Feedback. Correction Service for only £3.00 per question (£9.99 per paper - 4 questions). Marked and returned to you with DETAILED comments and suggestions for improvements online within 24 hours.•Revision questions  marked and returned to you with comments and suggestions for
improvements £3.00 per question (£9.99 per paper - 4 questions)Mock Exam Assessment From only £3.00
Solution 1Cost of Capital and Investment Appraisal
Before attempting this question you are advised to have carefully revised the following chapters of the OpenTuition Course Notes
Chapter 6 Management of Working Capital (4) - Cash
mockplus怎么导出图片Chapter 7  Investment Appraisal
Chapter 8  Relevant Cash Flows for DCF
Chapter 11 Sources of Finance - Equity
Chapter 12 Sources of Finance – Debt
Chapter 14 The Valuation of Securities – theoretical approach
Chapter 15 The Valuation of Securities – practical issues
Chapter 16 The Cost of Capital
Chapter 17  When (and when not!) to use the WACC for Investment Appraisal
Solution 1
a)Calculate the after-tax weighted average cost of capital of Orihuela SA (6 marks)
*Tutors Note: Firstly, let’s recap on the procedure (Answer Plan) to follow in the exam … so that you produce an answer with a well structured layout that the marker can easily      follow.
WACC procedure may be summarised under the following headings. You will then only need to decide on which components of the following structure will be relevant to answering our specific exam question.
WACC states: Ko = Ke (%) + Kdat (%)
Approach / Procedure in the EXAM
Ke DVM (Growth or no Growth in Dividends?)
P/E model
CAPM
NPV # 1 Kdat Redeemable => IRR => NPV # 2
Interpolate
IRRedeemable    => IRR => CI (1-t) / MV Weightings  Preferably Market Values
*Tutors Note: Looking at our question it is easily apparent that in our answer we will need to calculate Ke (the cost of equity) by reference to a suitable Dividend Valuation Model (DVM.. in this case Gordon’s Dividend Growth Formula) and the Kdat (the cost of redeemable debt AFTER TAX) by reference to first principles, using IRR.
1
This material is © protected and is licensed by Kevin J Kelly to Opentuition
Ke -  Cost of Equity
Gordon’s formula states that  Ke  = Do (1+g)  + g
Pe
*Tutors Note:  “Just Paid”  =  Do =  $53, Current MPS  =  $18, Growth =  g  = 0.06
Filling in the blanks we get:Ke  =    3.0 (1+.06)  + .06
18
Ke= 23.67%
KDAT - Cost of Redeemable Debt
*Tutors Note:  We calculate Kdat from first principles - based on examination of the Relevant Cash Flows (Relevant Costs) associated with the bond. These c/f’s may be summarized as follows
Calculation of NPV @ say 5%
Table of Relevant Cash Flows
T o t1t2!!!.>t10
Cost (MV) (93)
Coupon Interest (1-t)    4.2    4.2……..>  4.2
Redemption @par 100
Redemption premium 10% 10
Net Cash Flows (93)  4.2    4.2……. 114.20
Df @5%    1 0.952 0.907 ….      0.614
P.V. (93)    4.0    3.81 ……. 70.12
NPV =  6.97
*Tutors Note: Within the strict time constraints of the exam it would be a little time consuming to work out the NPV in this “normal” fashion. Clearly, it would be more efficient to use the Cumulative Discount Tables (or Annuity Factor Tables) to work out the Present Value of the constant CI cash flow ($4.20) be
tween years 1 & 10 as follows:
KDAT- Cost of Redeemable Debt
Calculation of NPV @ say 5%
Summary of Relevant Cash Flows
PV
Cost T o  (93) x 1.00    (Real Cost)    (93)
CI after tax t1  to t10    4.20 x 7.722  (AF for 10 yrs)  32.43 Redemption  t10 110  x .614    (df for yr 10)  67.54
NPV+ 6.97
2
This material is © protected and is licensed by Kevin J Kelly to Opentuition
This material is © protected  and is licensed by Kevin J Kelly to Opentuition
3
*Tutors Note: The 2nd  approach to calculating the NPV is much faster in this instance. Therefore, I will derive the 2nd  NPV in this way also.
Calculation of NPV @ say 10%
Summary of Relevant Cash Flows                PV  Cost  T o      (93) x  1.00    (Real Cost)      (93)
CI after tax  t 1 to  t 10      4.20 x 6.145  (AF for 10 yrs)  25.81
Redemption  t 10      110  x .386    (df for yr 10)    42.46
NPV                        - 24.73
NPV  =    (24.73)
*Tutors Note: We can now proceed to INTERPOLATE in order to estimate the Cost of Capital (df) that gives us a breakeven NPV … => the Kdat (of Redeemable Debt).
*Tutors Note: The Formula for the IRR is either:
IRR    !
- or if you prefer  -
Difference in    Pos. NPV    IRR    ! Pos. Coc  +          Coc    X  Sum of NPV’s Where:
L  =  Lower rate of Interest
H  =  Higher rate of Interest
N L  =  NPV @ Lower rate of Interest
H L  = NPV @ Higher rate of Interest
Interpolate
Kdat  =  IRR    !  !    6.10%
Weightings (based on Market Values)
Market
# ‘000  MPU  Value  %
[E ] Equity  1,500  18.00  27,000  85.31
[D ] Debt  5,000  93%  4,650  14.69
[V ] Value      31,650  100%
WACC states: Ko = Ke (%) + Kdat (%)
*Tutors Note: Now, filling in the blanks in the formula we get:
! Ko  = 23.67(.8531) + 6.10(.1469) ! 21.09%
Solution 1 contd.,
(b)Advise the MD of Orihuela SA, with reasons, whether or not you believe the
investment appears worthwhile.        (6 marks) *Tutors Note: Questions of this nature, which question the economic value of investments (whether or not they are worthwhile) require you ALWAYS (unless you are instructed otherwise) to calculate the NPV of the investments. The DECISION CRITERION is then to choose the investment with the highest NPV.
Why is this? The answer is simple, NPV is THEORETICALLY, the superior decision making technique.
Calculation of NPV
Based on examination of the Relevant Cash Flows (Relevant Costs)
Table of Relevant Cash Flows
- 000’s -
t0    t1    t2  t3    t4    t5    t6
Cash from Operations:
Operating cash flows 710 745.5 782.8 821.9 863
Tax  - Payable (213) (223.6) (234.8) (246.6) (258.9) - Saved on CA’s (W1)  225 168.7 126.6  94.9  248.8 Other Relevant Cash Flows:
Cost (3,000)
Scrap Value 120
Working Capital (W2)(390) (19.50) (20.5) (21.5) (22.5) 474
Net Cash Flow (3,390)
690.5    737 706.4 691.2 1305.3
(10.1)
d.f @21%(W3)      1.0 .826  .683  .564 .466 .385  .319
P.V. (3,390) 570.3  503.4  398.4  322.1 502.5  (3.2) NPV  = (1,096)  Negative REJECT
(W1)Calculation of Tax Relief on Capital Allowances
Tax
Year  WDV CA Relief Timing
1 3,000 750 225    t2
2 2,250 562.5 168.75    t3
3 1,687.5 421.9 126.57    t4
4 1,265.6 316.4 94.92    t5
5 949.2 *829.2          248.7
6    t6
Total Entitlement 2,880 x 30% 864
This material is © protected and is licensed by Kevin J Kelly to Opentuition 4

版权声明：本站内容均来自互联网，仅供演示用，请勿用于商业和其他非法用途。如果侵犯了您的权益请与我们联系QQ:729038198，我们将在24小时内删除。