Paper F7: Financial Management - Revision kit 2016

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https://www.facebook.com/chiasetailieuACCA/ACCA APPROVED CONTENT PROVIDER ACCA F9 ACCA approved content provider BPP Learning Media is dedicated to supporting aspiring business professionals with top-quality learning material as they study for demanding professional exams, often whilst working full time. BPP Learning Media’s commitment to student success is shown by our record of quality, innovation and market leadership in paper-based and e-learning materials. BPP Learning Media’s study Financial Management materials are written by professionally qualified specialists who know from personal experience the importance of top-quality materials for exam success. Paper F9 Financial Management This Kit provides material specifically for the One of a suite of products supporting Paper F9 practice and revision stage of your studies for Financial Management, for use independently or Paper F9 Financial Management that has been as part of a package, this Kit is targeted at ACCA’s Practice & Revision Kit comprehensively reviewed by the ACCA examining exams from 1 September 2015 to 31 August 2016 team. This unique review ensures that the questions, and contains: solutions and guidance provide the best and most • Banks of questions on every syllabus area effective resource for practising and revising for the • Answers with detailed guidance on approaching exam. questions • Three mock exams with full answers and guidance ACCA Approved Free access Practice & Revision Kit 2015 to 31 August 2016 For exams from 1 September to our Exam Paper F9 Success site Contact us BPP House 142-144 Uxbridge Road Financial Management Look inside London W12 8AA United Kingdom Practice & Revision Kit for exams from T 0845 075 1100 (UK) T +44 (0)20 8740 2211 (Overseas) 1 September 2015 to 31 August 2016 E Learningmedia@bpp.com bpp.com/learningmedia April 2015 £18.00 https://www.facebook.com/chiasetailieuACCA/ ACF9BRK15 (RICOH).indd 1-3 31/03/2015 11:48
https://www.facebook.com/chiasetailieuACCA/ ACCA APPROVED CONTENT PROVIDER As the first accredited publisher of ACCA materials, BPP Learning Media has set the benchmark for producing exceptional study materials for students and tutors alike. Our Study Texts, Practice & Revision Kits and i-Passes (for ACCA F1/FIA FAB, ACCA F2/FIA FMA, ACCA F3/ FIA FFA and ACCA F4) are reviewed by the ACCA examining team and are written by our in-house authors with industry and teaching experience who understand what is required for exam success. EXAM SUCCESS SITE To help maximise your chances of succeeding in your exams, we’ve put together a suite of exclusive ACCA resources. Our Exam Success site provides you with access to a free digital version of this publication, as well as extra resources designed to focus your efforts on exams and study methods. To access the Exam Success site, please email learningmedia@bpp.com with the subject line “Access to Exam Success site - eBook”, including your order reference number and the name of the book you’ve bought (ie ACCA F7 Study Text) for your access code. Once you have received your code, please follow the instructions below: To access the BPP ACCA Exam Success site for this material please go to: www.bpp.com/ExamSuccessSite n Create a user account if you don’t already have one. Make sure you reply to the confirmation email. n Log in using your registered username and password. Select the paper you wish to access. n Enter the code you received when prompted. You will only have to do this once for each paper you are studying. https://www.facebook.com/chiasetailieuACCA/
https://www.facebook.com/chiasetailieuACCA/ P R A C T I C PAPER F9 E FINANCIAL MANAGEMENT & R E V BPP Learning Media is an ACCA Approved Content Provider for the ACCA qualification. This means we work closely with ACCA to ensure our products fully prepare you for your I ACCA exams. S In this Practice & Revision Kit, which has been reviewed by the ACCA examination team, we: I  Discuss the best strategies for revising and taking your ACCA exams O  Ensure you are well prepared for your exam  Provide you with lots of great guidance on tackling questions N  Provide you with three mock exams  Provide ACCA exam answers as well as our own for selected questions Our Passcard product also supports this paper. K I T FOR EXAMS FROM 1 SEPTEMBER 2015 TO 31 AUGUST 2016 https://www.facebook.com/chiasetailieuACCA/
https://www.facebook.com/chiasetailieuACCA/ First edition 2007 Ninth edition April 2015 ISBN 9781 4727 3203 3 (previous ISBN 9781 4727 1106 9) (Second edition ISBN 9781 4727 2691 9) e-ISBN 9781 4727 3280 4 All our rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, British Library Cataloguing-in-Publication Data photocopying, recording or otherwise, without the prior A catalogue record for this book written permission of BPP Learning Media Ltd. is available from the British Library We are grateful to the Association of Chartered Certified Published by Accountants for permission to reproduce past examination questions. The suggested solutions in the BPP Learning Media Ltd Practice & Revision Kit have been prepared by BPP BPP House, Aldine Place Learning Media Ltd, except where otherwise stated. London W12 8AA www.bpp.com/learningmedia Printed in the United Kingdom by RICOH UK Limited Unit 2 Wells Place Merstham © RH1 3LG BPP Learning Media Ltd 2015 Your learning materials, published by BPP Learning Media Ltd, are printed on paper obtained from traceable sustainable sources. https://www.facebook.com/chiasetailieuACCA/ ii
https://www.facebook.com/chiasetailieuACCA/ Contents Page Finding questions Question index .................................................................................................................................................................. v Topic index ...................................................................................................................................................................... ix Helping you with your revision ..................................................................................................................... xi Revising F9 Topics to revise............................................................................................................................................................... xii Question practice ............................................................................................................................................................ xii Passing the F9 exam ...................................................................................................................................................... xiii Exam formulae ............................................................................................................................................................... xvi Exam information ........................................................................................................................................................... xix Useful websites .............................................................................................................................................................. xx Questions and answers Questions..........................................................................................................................................................................3 Answers ..........................................................................................................................................................................81 Exam practice Mock exam 1  Questions ............................................................................................................................................................235  Plan of attack .......................................................................................................................................................245  Answers...............................................................................................................................................................246 Mock exam 2  Questions ............................................................................................................................................................261  Plan of attack .......................................................................................................................................................271  Answers...............................................................................................................................................................272 Mock exam 3 (December 2014 paper)  Questions ............................................................................................................................................................287  Plan of attack .......................................................................................................................................................297  Answers...............................................................................................................................................................298 ACCA examiner's answers  June 2014 exam ..................................................................................................................................................313  December 2014 exam ..........................................................................................................................................323 Mathematical tables and formulae............................................................................................................333 Review Form https://www.facebook.com/chiasetailieuACCA/ iii
https://www.facebook.com/chiasetailieuACCA/ A note about copyright Dear Customer What does the little © mean and why does it matter? Your market-leading BPP books, course materials and e-learning materials do not write and update themselves. People write them: on their own behalf or as employees of an organisation that invests in this activity. Copyright law protects their livelihoods. It does so by creating rights over the use of the content. Breach of copyright is a form of theft – as well as being a criminal offence in some jurisdictions, it is potentially a serious breach of professional ethics. With current technology, things might seem a bit hazy but, basically, without the express permission of BPP Learning Media:  Photocopying our materials is a breach of copyright  Scanning, ripcasting or conversion of our digital materials into different file formats, uploading them to Facebook or emailing them to your friends is a breach of copyright You can, of course, sell your books, in the form in which you have bought them – once you have finished with them. (Is this fair to your fellow students? We update for a reason.) Please note the e-products are sold on a single user licence basis: we do not supply 'unlock' codes to people who have bought them second-hand. And what about outside the UK? BPP Learning Media strives to make our materials available at prices students can afford by local printing arrangements, pricing policies and partnerships which are clearly listed on our website. A tiny minority ignore this and indulge in criminal activity by illegally photocopying our material or supporting organisations that do. If they act illegally and unethically in one area, can you really trust them? https://www.facebook.com/chiasetailieuACCA/ iv Finding questions
https://www.facebook.com/chiasetailieuACCA/ Question index The headings in this checklist/index indicate the main topics of questions, but questions often cover several different topics. The exam format changed in December 2014. The format of old questions has been modified to reflect the new exam structure. Time Page number allocation Marks Mins Question Answer Part A: Financial management function 1 MCQ bank – Financial management and financial objectives 20 36 3 81 2 MCQ bank – Financial management and financial objectives 10 18 5 82 3 ABC Co 10 18 6 82 4 Bark Co (12/11, amended) 10 18 6 83 Part B: Financial management environment 5 MCQ bank – Financial management environment 10 18 7 84 6 MCQ bank – Financial management environment 10 18 8 85 7 MCQ bank – Financial management environment 10 18 9 86 8 Tagna (FMC, 6/03, amended) 10 18 10 86 9 Phoenix 10 18 10 87 Part C: Working capital management 10 MCQ bank – Working capital 10 18 11 88 11 MCQ bank – Managing working capital 20 36 12 89 12 MCQ bank – Working capital finance 10 18 13 90 13 JIT 15 27 14 91 14 EOQ 10 18 15 92 15 Thorne Co (FMC, 12/05, amended) 15 27 15 94 16 Anjo Co 10 18 16 95 17 Joan Co 15 27 17 96 18 Special Gift Suppliers (FMC, 12/01, amended) 15 27 17 98 19 Ulnad Co (Specimen paper 2007, amended) 10 18 17 99 20 Danul Co (Specimen paper 2007, amended) 10 18 18 100 21 PKA Co (12/07, amended) 10 18 18 102 22 HGR Co (6/09, amended) 15 27 18 104 23 RGH Co (6/09, amended) 10 18 19 106 24 APX Co (12/09, amended) 15 27 19 107 25 ZSE Co (6/10, amended) 15 27 20 109 26 WQZ Co (12/10, amended) 15 27 21 111 https://www.facebook.com/chiasetailieuACCA/ Finding questions v
https://www.facebook.com/chiasetailieuACCA/ Time Page number allocation Marks Mins Question Answer 27 Bold Co (12/11, amended) 10 18 21 112 28 Wobnig Co (6/12, amended) 15 27 22 114 29 ZPS Co (6/11, amended) 15 27 23 115 30 KXP Co (12/12, amended) 10 18 23 117 31 PXK Co (12/12, amended) 10 18 24 119 32 Gorwa (2) Co (12/08, amended) 10 18 24 121 33 CSZ Co (6/14, amended) 10 18 25 122 Part D: Investment appraisal 34 MCQ bank – Investment decisions 20 36 26 123 35 MCQ bank – Investment appraisal using DCF 20 36 28 125 36 MCQ bank – Allowing for tax and inflation 20 36 30 127 37 MCQ bank – Project appraisal and risk 10 18 32 129 38 MCQ bank – Specific investment decisions 20 36 33 130 39 Calvic Co 15 27 35 131 40 Trecor Co (Specimen paper 2007, amended) 15 27 35 133 41 Corter Co (Specimen paper 2007, amended) 10 18 36 135 42 OKM Co (6/10, amended) 15 27 36 136 43 CJ Co (12/10, amended) 10 18 37 138 44 BRT Co (6/11, amended) 15 27 37 139 45 Umunat Co (FMC, 12/04, amended) 10 18 38 141 46 Duo Co (12/07, amended) 15 27 38 142 47 Tan Co (FMC, 12/04, amended) 15 27 39 144 48 SC Co (6/08, amended) 15 27 39 146 49 Project E (6/14, amended) 15 27 40 148 50 AGD Co (FMC, 12/05, amended) 15 27 40 150 51 Leaminger Co (FMC, 12/02, amended) 15 27 40 152 52 ASOP Co (12/09, amended) 15 27 41 153 53 Capital rationing 10 18 42 155 54 Basril Co (FMC, 12/03, amended) 10 18 42 156 55 OAP Co (6/14, amended) 10 18 43 158 56 Filtrex Co 15 27 43 159 57 Warden Co (12/11, amended) 15 27 44 160 58 Ridag Co (6/12, amended) 10 18 44 162 59 Gadir Co (6/12, amended) 15 27 45 164 60 BQK Co (12/12, amended) 15 27 45 165 https://www.facebook.com/chiasetailieuACCA/ vi Finding questions
https://www.facebook.com/chiasetailieuACCA/ Time Page number allocation Marks Mins Question Answer Part E: Business finance 61 MCQ bank – Sources of finance 10 18 46 167 62 MCQ bank – Dividend policy 10 18 47 167 63 MCQ bank – Gearing and capital structure 20 36 48 168 64 MCQ bank – The cost of capital 20 36 50 169 65 MCQ bank – Capital structure 20 36 52 171 66 Tirwen Co (FMC, 12/04, amended) 15 27 53 173 67 Food retailers 1 15 27 54 174 68 Food retailers 2 10 18 54 176 69 TFR Co (FMC, 6/07, amended) 15 27 54 177 70 Echo Co (12/07, amended) 10 18 55 178 71 Echo Beach Co (12/07, amended) 15 27 56 180 72 Nugfer Co (12/10, amended) 15 27 57 182 73 Nug Co (12/10, amended) 10 18 57 184 74 YNM Co (6/11, amended) 10 18 58 185 75 Bar Co (12/11, amended) 10 18 59 187 76 IML Co 15 27 59 188 77 Li Co 10 18 60 189 78 FAQ 15 27 60 190 79 Droxfol Co (Specimen paper 2007, amended) 15 27 61 192 80 Burse Co (6/08, amended) 10 18 61 194 81 Purse Co (6/08, amended) 15 27 62 196 82 DD Co (12/09, amended) 15 27 62 197 83 YGV Co (6/10, amended) 15 27 63 200 84 NN Co (12/10, amended) 10 18 63 201 85 NNN Co (12/10, amended) 10 18 64 202 86 AQR Co (6/11, amended) 15 27 64 203 87 Corhig Co (6/12, amended) 15 27 65 206 88 BKB Co (12/12, amended) 15 27 66 208 89 Zigto Co (6/12, amended) 10 18 66 210 90 Fence Co (6/14, amended) 15 27 66 211 91 MFZ Co (6/14, amended) 15 27 67 212 https://www.facebook.com/chiasetailieuACCA/ Finding questions vii
https://www.facebook.com/chiasetailieuACCA/ Time Page number allocation Marks Mins Question Answer Part F: Business valuations 92 MCQ bank – Business valuations 20 36 68 215 93 MCQ bank – Market efficiency 10 18 70 216 94 Phobis Co (12/07, amended) 10 18 70 217 95 Close Co (12/11, amended) 10 18 71 218 96 Boluje Co (12/08, amended) 10 18 71 220 97 THP Co (6/08, amended) 10 18 72 221 98 BST Motors Co 10 18 72 222 Part G: Risk management 99 MCQ bank – Foreign currency risk 20 36 74 223 100 MCQ bank – Interest rate risk 10 18 75 225 101 Gorwa Co (12/08, amended) 10 18 77 225 102 Ziggazigto Co (6/12, amended) 10 18 77 227 103 Edwen Co (Specimen paper 2007, amended) 10 18 78 228 104 Nedwen Co (Specimen paper 2007, amended) 10 18 78 229 Mock exam 1 Mock exam 2 Mock exam 3 (December 2014 exam) https://www.facebook.com/chiasetailieuACCA/ viii Finding questions
https://www.facebook.com/chiasetailieuACCA/ Topic index Listed below are the key Paper F9 syllabus topics and the numbers of the questions in this Kit covering those topics. If you need to concentrate your practice and revision on certain topics or if you want to attempt all available questions that refer to a particular subject, you will find this index useful. Syllabus topic Question numbers Asset replacement decisions 39, 59 Betas 76, 78 Business valuation 95, 96. Mock 2 Q2 Capital rationing 39, 51, 53, 54, 56 CAPM 76, 78, 81, 87 Cash management 15, 19, 22, 28, 31, 53 Cash operating cycle 16, 27 Dividend policy 68, 70, 74, 82, 84, Mock 2 Q5 Exchange rate risk 100, Mock 1 Q2, Mock 2 Q3 Financial intermediaries 9 Gearing 70, 72, 83 Interest rates 8, 73, 99 Inventory management 13, 14, 21, Mock 2 Q1 IRR 41, 47, 48, 49, Mock 1 Q4 Leasing 50, 51, 52, 71 NPV 39, 42, 43, 44, 47, 48, 49, 52, 57, 58, 59,Mock 2 Q4 Objectives 4, 8 Overtrading 28, 32, 72 Payables management 29, 30, Mock 1 Q1 Payback 45 Pecking order 96 Project-specific discount rate 78 Ratio analysis 3, 16, 28, 32, 66, 67, 69, 74, 83 Receivables management 17, 18, 19, 20, 26, 30, 31 Rights issue 66, 71, 75, Mock 1 Q3 Risk and uncertainty 23, 25, 45, 46 Sensitivity analysis 46, 57, 59 Shareholder wealth maximisation 74 Sources of finance 68, 69, 71, 72, 89 Stock market efficiency 73, 94 Total shareholder return 3 Value for money 4, 8 WACC 77, 79, 80, 81, 83, 85, 86, 87, 88, Mock 1 Q5, Mock 2 Q5 https://www.facebook.com/chiasetailieuACCA/ Finding questions ix
https://www.facebook.com/chiasetailieuACCA/ Syllabus topic Question numbers Working capital financing 18, 20, 22, 24 Working capital management 17, 21, 25, 26, 27, 29, Mock 1 Q1, Mock 2 Q1 https://www.facebook.com/chiasetailieuACCA/ x Finding questions
https://www.facebook.com/chiasetailieuACCA/ Helping you with your revision BPP Learning Media – ACCA Approved Content Provider As an ACCA Approved Content Provider, BPP Learning Media gives you the opportunity to use exam team reviewed revision materials. By incorporating the examiner's comments and suggestions regarding syllabus coverage, the BPP Learning Media Practice and Revision Kit provides excellent, ACCA-approved support for your revision. Tackling revision and the exam Using feedback obtained from the ACCA exam team review:  We look at the dos and don'ts of revising for, and taking, ACCA exams  We focus on Paper F9; we discuss revising the syllabus, what to do (and what not to do) in the exam, how to approach different types of question and ways of obtaining easy marks Selecting questions We provide signposts to help you plan your revision.  A full question index  A topic index listing all the questions that cover key topics, so that you can locate the questions that provide practice on these topics, and see the different ways in which they might be examined Making the most of question practice At BPP Learning Media we realise that you need more than just questions and model answers to get the most from your question practice.  Our top tips included for certain questions provide essential advice on tackling questions, presenting answers and the key points that answers need to include.  We show you how you can pick up easy marks on some questions, as we know that picking up all readily available marks often can make the difference between passing and failing.  We include marking guides to show you what the examiner rewards.  We include comments from the examiners to show you where students struggled or performed well in the actual exam.  We refer to the BPP Study Text for exams between 1 September 2015 and 31 August 2016 for detailed coverage of the topics covered in questions.  In a bank at the end of this Kit we include the official ACCA answers to the June and December 2014 exams. Used in conjunction with our answers they provide an indication of all possible points that could be made, issues that could be covered and approaches to adopt. Attempting mock exams There are three mock exams that provide practice at coping with the pressures of the exam day. We strongly recommend that you attempt them under exam conditions. Mock exams 1 and 2 reflect the question styles and syllabus coverage of the exam; Mock exam 3 is the December 2014 paper. https://www.facebook.com/chiasetailieuACCA/ Helping you with your revision xi
https://www.facebook.com/chiasetailieuACCA/ Revising F9 Topics to revise The exam consists of 20 multiple choice questions and 5 longer form questions, all of which are compulsory. No one section in the syllabus is more important than another so there are no short-cuts. You will have to be able to answer questions on the entire syllabus. Question practice You need to practise exam standard and exam style questions on a regular basis. As you get closer to the exam, try to do complete questions to time so that you are able to work at an appropriate speed. Make sure you practise written sections as well as the calculations. https://www.facebook.com/chiasetailieuACCA/ xii Helping you with your revision
https://www.facebook.com/chiasetailieuACCA/ Passing the F9 exam Displaying the right qualities The aim of Paper F9 is to develop the knowledge and skills expected of a finance manager in relation to investment, financing and dividend decisions. You need to be able to communicate your understanding clearly in an exam context. Calculations and discussions are equally important so do not concentrate on the numbers and ignore the written parts. You need to be able to:  Discuss the role and purpose of the financial management function  Assess and discuss the impact of the economic environment on financial management  Discuss and apply working capital management techniques  Carry out effective investment appraisal  Identify and evaluate alternative sources of business finance  Explain and calculate cost of capital and the factors that affect it  Explain and apply risk management techniques in business Avoiding weaknesses  There is no choice in this paper, all questions have to be answered. You must therefore study the entire syllabus, there are no short-cuts.  Ability to answer multiple choice questions improves with practice. Try to get as much practice with these questions as you can.  The longer questions will be based on simple scenarios and answers must be focused and specific to the organisation.  Answer plans for the longer questions will help you to focus on the requirements of the question and enable you to manage your time effectively – but there will not be much time.  Answer all parts of the longer questions. Even if you cannot do all the calculation elements, you will still be able to gain marks in the discussion parts. Using the reading time  Speed read through the question paper, jotting down any ideas that come to you about any of the questions  Decide the order in which you are likely to tackle questions (possibly the multiple choice questions first, but possibly last). Decide the order in which you will tackle the longer questions (probably easiest questions first, most difficult questions last)  Spend the remainder of the reading time looking at the questions in detail analysing scenarios, jotting down answer plans to longer questions. (Any plans written on the question paper should be reproduced in the answer booklet)  When you can start writing get straight on with the questions you have planned to tackle first. One approach may be to answer first of all the multiple choice questions you think you can answer, and leave those you are less certain about until later. You can return to these after you have answered the longer questions in Section B of the paper https://www.facebook.com/chiasetailieuACCA/ Revising F9 xiii
https://www.facebook.com/chiasetailieuACCA/ Choosing which questions to answer first You can use the planning time in the exam to choose the order in which to attempt the questions for Section B. You may prefer to attempt the questions that you are more confident about first. However, make sure you watch the time carefully and do not spend too long on any one question. Alternatively, you could answer the questions in strict order. This will force you to spend an equal time on each question but make sure you leave plenty of space if you decide to move on and finish a question later. Tackling questions With the multiple choice questions in Section A, there are several techniques that may help you, for example:  A process of elimination – discount obviously incorrect answers to narrow down your options.  Working with the options – sometimes it's quicker to test out the options given to see which one works, rather than working out the correct answer from first principles. For example, rather than calculating the Internal Rate of Return, you could discount the cash flows in the question at the rates given to you in the alternative answers and see which gives you a zero net present value. The one that does is the/an internal rate of return. For Section B questions:  Write a short plan for each question containing bullet points per mark and use it to write your answer when the writing time begins.  If you get stuck, make an assumption, write it down and move on.  Make sure your answers are focused and specific to the organisation in the question. Show clear workings for your calculations and write full sentences in your explanations.  Never overrun on any question and once the time is up (1.8 minutes per mark), move on to the next. https://www.facebook.com/chiasetailieuACCA/ xiv Revising F9
https://www.facebook.com/chiasetailieuACCA/ Gaining the easy marks Easy marks in this paper tend to fall into three categories. Multiple choice questions Some MCQs are easier than others. Answer those that you feel fairly confident about as quickly as you can. Come back later to those you find more difficult. This could be a way of making use of the time in the examination most efficiently and effectively. Many MCQs will not involve calculations. Make sure that you understand the wording of 'written' MCQs before selecting your answer. Calculations in Section B questions The calculations within a question will get progressively harder and easy marks will be available in the easy stages. Set our your calculations clearly and show all your workings in a clear format. Use a proforma, for example in complex NPV questions and slot the simpler figures into the proforma straight away before you concentrate on the figures that need a lot of adjustment. Discussions in Section B questions A Section B question may separate discussion requirements from calculations, so that you do not need to do the calculations first in order to answer the discussion part. This means that you should be able to gain marks from making sensible, practical comments without having to complete the calculations. Discussions that are focused on the specific organisation in the question will gain more marks than regurgitation of knowledge. Read the question carefully and more than once, to ensure you are actually answering the specific requirements. Pick out key words such as 'describe', 'evaluate' and 'discuss'. These all mean something specific.  'Describe' means to communicate the key features of  'Evaluate' means to assess the value of  'Discuss' means to examine in detail by argument Clearly label the points you make in discussions so that the marker can identify them all rather than getting lost in the detail. Provide answers in the form requested. Use a report format if asked for and give recommendations if required. https://www.facebook.com/chiasetailieuACCA/ Revising F9 xv
https://www.facebook.com/chiasetailieuACCA/ Exam formulae Set out below are the formulae which you will be given in the exam, and formulae which you should learn. If you are not sure what the symbols mean, or how the formulae are used, you should refer to the appropriate chapter in this Study Text Exam formulae Chapter in Study Text Economic Order Quantity 5 = 2C 0 D Ch Miller-Orr Model 6 Return point = Lower limit + (1/3  spread) 1 é3 ù3 ê 4 × transaction cost × variance of cash flows ú Spread = 3 ê ú ê interest rate ú ëê ûú The Capital Asset Pricing Model 15 E(ri) = Rf + ßi (E (rm) – Rf) The Asset Beta Formula 16 é Ve ù é Vd (1- T) ù ßa = ê be ú + ê bd ú ë (Ve + Vd (1- T)) û ë (Ve + Vd (1- T)) û The Growth Model 17 D0 (1+ g) P0 = (re  g) Gordon's Growth Approximation 17 g = bre The weighted average cost of capital 15 é V ù é Vd ù WACC = ê e ú ke + ê ú kd (1–T) ë Ve + Vd û ë Ve + Vd û The Fisher formula 19 (1 + i) = (1 + r)(1 + h) Purchasing Power Parity and Interest Rate Parity (1+hc ) S1 = S0  19 (1+hb ) (1+ic ) F0 = S0  19 (1+ib ) https://www.facebook.com/chiasetailieuACCA/ xvi Revising F9
https://www.facebook.com/chiasetailieuACCA/ Formulae to learn Profitability ratios include: Profit before interest and tax (PBIT) ROCE = Capital employed PBIT Revenue ROCE =  Revenue Capital employed ROCE = Profit margin  asset turnover Debt ratios include: Debt Debt Gearing = or (and either book values or market values can be used) Equity Debt + Equity Prior charge capital Gearing = Equity capital (including reserves) PBIT Interest coverage = Interest Liquidity ratios include: Current ratio = Current assets : Current liabilities Acid Test ratio = Current assets less inventory : Current liabilities Shareholder investor ratios include: Dividend per share Dividend yield = × 100 Market price per share Profits distributable to ordinary shareholders Earnings per share = Number of ordinary shares issued Market price per share Price earnings (P/E) ratio = EPS Receivables Accounts receivable days =  365 days (credit) sales Inventory days Finished goods (a) Finished goods =  365 days Cost of sales Average WIP (b) WIP =  365 days Cost of sales Average raw material inventory (c) Raw material:  365 days Annual raw material purchases Payables Accounts payable period  365 days Credit purchases (or cost of sales if purchases unavailable) NPVa IRR = a + (b – a) NPVa - NPVb PV of cost over one replacement cycle Equivalent annual cost = Annuity factor for the number of years in the cycle https://www.facebook.com/chiasetailieuACCA/ Revising F9 xvii
https://www.facebook.com/chiasetailieuACCA/ D Cost of equity = Ke  1  g P 0 i(1  T) Cost of debt = Kd = P 0 Preference Dividend d Cost of preference shares = Kpref = = Market Value(ex div) P0 PV of cash flows (not including capital investment) Profitability index = Capital investment https://www.facebook.com/chiasetailieuACCA/ xviii Revising F9