ACCA

Financial Management(FM)
基础课
答案解析
ACCA- Financial Management (FM) Answers

目录
Chapter 1 ..................................................................................................................................................................................... 2
Example answer: ............................................................................................................................................................... 2
Activity answer .................................................................................................................................................................. 2
Chapter 2 ..................................................................................................................................................................................... 2
Activity answer: ................................................................................................................................................................. 2
Chapter 3 ..................................................................................................................................................................................... 3
Example answer: ............................................................................................................................................................... 3
Activity answer: ................................................................................................................................................................. 8
Chapter 4 ..................................................................................................................................................................................... 9
Example answer ................................................................................................................................................................ 9
Activity Answer:................................................................................................................................................................. 9
Chapter 5 ................................................................................................................................................................................... 10
Example answer .............................................................................................................................................................. 10
Activity answer ................................................................................................................................................................ 14
Chapter 6 ................................................................................................................................................................................... 15
Example answer .............................................................................................................................................................. 15
Activity answer ................................................................................................................................................................ 16
Chapter 7 ................................................................................................................................................................................... 17
Example answer .............................................................................................................................................................. 17
Activity answer ................................................................................................................................................................ 18
Chapter 8 ................................................................................................................................................................................... 20
Example answer .............................................................................................................................................................. 20
Activity answer ................................................................................................................................................................ 20
Chapter 9 ................................................................................................................................................................................... 21
Example answer .............................................................................................................................................................. 21
Activity answer ................................................................................................................................................................ 21

1
ACCA- Financial Management (FM) Answers

Chapter 1
Example answer:
Example 1:
S.P ↑ (Capital Gain）=$110- $100 = $10
Div $5
Total Income $15
Investment $100
T.S.R=(P1-P0)+D1/P0=$15/$100=15%

Activity answer
1 2 3 4 5 6
4.00 B D A B B

Chapter 2
Activity answer:
1 2 3 4 5 6 7 8 9 10 11
C C D C D D C A B D D

2
ACCA- Financial Management (FM) Answers

Chapter 3
Example answer:
Example 1:
20X5 20X4 Sector
Inventory days
360 x 2,500/8,550 105 days
360 x 2,100/7,500 101 days 65 days
Trade receivable days
360 x 2,000/17,100 42 days
360 x 1,000/12,000 30 days 30days
Trade payables days
360 x 1,900/8,550 80 days
360 x 1,250/7,500 60 days 50 days
Current ratio
4,500/4,300 1.05 times
3,100/2,100 1.5 times 1.7 times
Quick ratio
2,000/4,300 0.5 times
1,000/2,100 0.5 times 0.8 times
Sales income/net working capital
17,100/200 86 times
12,000/1,000 12 times
Short-term funding of current assets
20X5: 100 x 4,300/4,500 96%
20X4: 100 x 2,100/3,100 68%
Sales income growth: 17,100/12,000 = 42.5%
Inventory growth: 2,500/2,100 = 19%
Trade receivables growth: 2,000/1,000 = 100%
Trade payables growth: 1,900/1,250 = 52%
Overdraft growth: 2,400/850 = 182%
The question as to whether Crago Co can be considered to be overtrading (undercapitalised) calls for the evaluation
of a number of indicators of overtrading.
Rapid increase in sales revenue
Overtrading can arise as a result of a rapid increase in sales revenue which is not matched by a corresponding
increase in working capital investment. The sales revenue of Crago Co has increased by 42.5% over the year,
indicating a rapid increase in sales revenue, while the ratio of sales income/net working capital has increased from
12 times to 86 times, showing that working capital investment has not matched the increase in sales revenue.
Overtrading can also arise due to non-replacement of long-term debt which has been repaid (redeemed), but the
long-term debt of Crago Co has not changed. Overtrading can also arise due to inflation eroding the operating
capability of a company, however, information on inflation has not been provided.
Increased reliance on short-term finance
There is evidence of an increased reliance by Crago Co on short-term finance, since the overdraft has increased by

3
ACCA- Financial Management (FM) Answers

182% from $850,000 to $2,400,000, while trade payables have increased by 52% from $1,250,000 to
$1,900,000. In addition, the proportion of current assets financed from short-term sources has increased from 68%
to 96%. As noted earlier, there has been no increase in long-term debt.
Rapid increase in current assets
Current assets may increase rapidly in line with sales volume and sales revenue. Trade receivables have certainly
increased by $1,000,000 or 100% over the period. However, inventory has only increased by 19% from
$2,100,000 to $2,500,000, an increase which is much smaller than the increase in the sales revenue of Crago Co.
Decline in solvency and liquidity ratios
The current ratio of Crago Co has declined from 1.5 times to 1.05 times, while its quick ratio has remained
unchanged at 0.5 times. Both ratios are below their sector average values of 1.7 times and 0.8 times respectively,
however.
Overcoming overtrading
Overtrading or undercapitalisation can be overcome by increasing the long-term capital of a company. This could
be achieved by Crago Co raising either new debt finance or new equity finance. Alternatively, the balance between
the level of business activity and the amount of long-term finance could be restored, for example, by calling a halt
to the rapid expansion of sales until Crago Co has consolidated its financial position.

Example 2：
详情见视频讲解

Example 3:
Current (EOQ) Bulk
Holding cost (1,200/2+ 0) ∗ 0.5 = 300 (1,000+ 0) ∗ 2 = 10,000
Ordering cost 60,000/1,200 ∗ 6 = 300 60,000/10,000 ∗ 6 = 36
Purchasing cost 12*60,000 = 720,000 12*(1-1%)*60,000 = 712,836
Workings
1200

2 ∗ 6 ∗ 60,000
EOQ = √ = 1,200 units
0.5

Total cost of EOQ=720,600

Total cost of bulk purchase=722,836 Therefore, not accept the discount
Examle 4
Receivable days=4m*365days/20m=73 days
Annual cost of financing receivables=4m*12%=480,000

Example 5
Benefit
Finance cost on receivable ↓ Discount cost ↑
= Current T.R finance cost - New T.R finance cost = discount rate *base
= 480,000-314,301=165,699 =2%*(20m*40%) = 160,000

Net benefit = 165,699-160,000=5,699

Therefore, the accepet the discount.

4
ACCA- Financial Management (FM) Answers

Workings:
New average T.R days=40%*10+60%*73=47.8 days
New T.R balance =new credit sales * new average T.R days 20m/365=20m*47.8/365 = 2,619,178 Current T.R finance
cost = 4m*12%=480,000
New T.R finance cost = 2,619,178*12%=314,301
Discount cost = discount rate *base =2%*(20m*40%) =160,000
Example 6
Benefit Cost
Finance cost on T.R↓=151,233 Factor fee
Admin saving ↓ =150,000 =20m*1.5%
Total bentfit = 301,233 =300,000
Therefore, the company should use the factoring facility Workings:
Finance cost on T.R ↓
Current T.R * Finance cost=4m*12%=480,000
New T.R balance = 20m*50/365=2,739,726
New T.R * Finance cost=2,739,726*12%=328,768
Total change=480,000-328,768=151,233
The company should use the factoring facility.
Example 7
Benifit Cost
Admin saving=200,000 Fee=20m*1.5%=300,000
Finance cost decrease on T.R=151,233 Finance cost increase=43,836
Total benefit=351,233 Total cost=343,836

Threrefore total benefit=7,397

The company should use the factoring facility.
Workings:
New T.R balance = 20m*50/365=2,739,726
Advanced Funds=(2,739,726*80%)*(14%-12%)=43,836
Example 8
Annual credit purchases = 255,380 x 11 = £2,809,180
Current creditors = 2,809,180 x 60/365 = £461,783
Creditors if discount is taken = 2,809,180 x 20/365= £153,928
Reduction in creditors = 461,783 – 153,928= £307,855
Finance cost increase = 307855x 0.08 = £24,628
Discount gained = 2,809,180 x 0.01 = £28,091
Net benefit of taking discount = 28,091 – 24,628 = £3,463
The discount is financially acceptable.
An alternative approach is to calculate the annual percentage benefit of the discount.
This can be done on a simple interest basis: (1/(100 – 1)) x (365/40) = 9.2%
Alternatively, the equivalent annual rate can be calculated: (100/(100 – 1))365/40 – 1 = 9.6%
Both methods indicate that the annual percentage benefit is greater than the current cost of short-term debt (8%)
of TNG and hence can be recommended on financial grounds.

5
ACCA- Financial Management (FM) Answers

Example 9

2 ∗ 400 ∗ 150,000
EOQ = √ = 54,772
5% − 1%

Example 10
(a) When considering the financing of working capital, it is useful to divide current assets into fluctuating current
assets and permanent current assets. Fluctuating current assets represent changes in the level of current assets due
to the unpredictability of business activity. Permanent current assets represent the core level of investment in
current assets needed to support a given level of turnover or business activity. As turnover or level of business activity
increases, the level of permanent current assets will also increase. This relationship can be measured by the ratio
of turnover to net current assets.
The financing choice as far as working capital is concerned is between short-term and long-term finance. Short- term
finance is more flexible than long-term finance: an overdraft, for example, is used by a business organisation as
the need arises and variable interest is charged on the outstanding balance. Short-term finance is also more risky
than long-term finance: an overdraft facility may be withdrawn, or a short-term loan may be renewed on less
favourable terms. In terms of cost, the term structure of interest rates suggests that short- term debt finance
has a lower cost than long-term debt finance.
The matching principle suggests that long-term finance should be used for long-term investment. Applying this
principle to working capital financing, long-term finance should be matched with permanent current assets and non-
current assets. A financing policy with this objective is called a ‘matching policy’. HGR Co is not using this financing
policy, since of the $16,935,000 of current assets, $14,000,000 or 83% is financed from short-term sources
(overdraft and trade payables) and only $2,935,000 or 17% is financed from a long-term source, in this case equity
finance (shareholders’ funds) or traded bonds.
The financing policy or approach taken by HGR Co towards the financing of working capital, where short-term
finance is preferred, is called an aggressive policy. Reliance on short-term finance makes this riskier than a
matching approach, but also more profitable due to the lower cost of short-term finance. Following an aggressive
approach to financing can lead to overtrading (undercapitalisation) and the possibility of liquidity problems.

(b) Bank balance in three months’ time if no action is taken:

Month 1 2 3
$000 $000 $000
Receipts 4,220 4,350 3,808
Payments (3,950) (4,100) (3,750)
Interest on bonds (200)
Overdraft interest ( 19 ) (18) (18)
Capital investment (2,000)
Net cash flow 251 32 1,960
Opening balance (3,800) (3,549) (3,517)
Closing balance (3,549) (3,517) (5,477)

6
ACCA- Financial Management (FM) Answers

Bank balance in three month’s time if the finance director’s proposals are implemented:
Month 1 2 3
$000 $000 $000
Receipts 4,220 4,350 3,808
Payments (3,950) (4,100) (3,750)
Interest on bonds (200)
Overdraft interest (19) (15) (13)
Capital investment (2,000)
Accounts receivable 270 270 270
Inventory 204 204 204
Net cash flow 725 509 1481
Opening balance (3,800) (3,075) (2,566)
Closing balance (3,075) (2,566) (4,047)
Workings:
Reduction in accounts receivable days
Current accounts receivable days = ( 8,775 / 49,275 ) × 365 = 65 days
Reduction in days over six months = 65 – 53 = 12 days
Monthly reduction = 12 / 6 = 2 days
Each receivables day is equivalent to 8,755,000 / 65 = $135,000
(Alternatively, each receivables day is equivalent to 49,275,000 / 365 = $135,000)
Monthly reduction in accounts receivable = 2 × 135,000 = $270,000
Reduction in inventory days
Current inventory days = ( 8,160 / 37,230 ) × 365 = 80 days
Each inventory day is equivalent to 8,160,000 / 80 = $102,000
( Alternatively, each inventory day = 37,230,000 / 365 = $102,000)
Monthly reduction in inventory = 102,000 × 2 = $204,000 Overdraft interest calculations
Monthly overdraft interest rate = 1.0617 1/12 = 1.005 or 0.5%
If no action is taken :
Period 1 interest = 3,800,000 × 0.005 = $19,000
Period 2 interest = 3,549,000 × 0.005 = $17,745 or $18,000
Period 3 interest = 3,517,000 × 0.005 = $17,585 or $18,000
If action is taken:
Period 1 interest = 3,800,000 × 0.005 = $19,000
Period 2 interest = 3,075,000 × 0.005 = $15,375 or $15,000
Period 3 interest = 2,566,000 × 0.005 = $12,830 or $13,000
Discussion
If no action is taken, the cash flow forecast shows that HGR Co will exceed its overdraft limit of $4 million by
$1.48 million in three months’ time. If the finance director’s proposals are implemented, there is a positive
effect on the bank balance, but the overdraft limit is still exceeded in three months’ time, although only by
$47,000 rather than by $1.47 million.
In each of the three months following that, the continuing reduction in accounts receivable days will improve the
bank balance by $270,000 per month. Without further information on operating receipts and payments, it cannot
be forecast whether the bank balance will return to less than the limit, or even continue to improve.
The main reason for the problem with the bank balance is the $2 million capital expenditure. Purchase of non-

7
ACCA- Financial Management (FM) Answers

current assets should not be financed by an overdraft, but a long-term source of finance such as equity or bonds. If
the capital expenditure were removed from the area of working capital management, the overdraft balance at the
end of three months would be $3.48 million if no action were taken and $2.05 million if the finance director’s
proposals were implemented. Given that HGR Co has almost $50 million of non-current assets that could possibly
be used as security, raising long-term debt through either a bank loan or a bond issue appears to be sensible.
Assuming a bond interest rate of 10% per year, current long-term debt in the form of traded bonds is approximately
( $200m × 2 ) / 0.1 = $4m, which is much less than the amount of non-current assets.
A suitable course of action for HGR Co to follow would therefore be, firstly, to implement the finance director’s
proposals and, secondly, to finance the capital expenditure from a long-term source. Consideration could also be
given to using some long-term debt finance to reduce the overdraft and to reduce the level of accounts payable,
currently standing at 100 days.

Activity answer:
1 2 3 4 5 6 7 8 9 10 11
C D C A A&D D A A&C D D 13,757

12. The size of the overdraft of FLG Co is 567,500.

The net working capital of the company is 290,000

13. EOQ=11,300 units, TNG has a current order size of 50,000 units
Average number of orders per year = demand/order size = 255,380/50,000 = 5.11 orders
Annual ordering cost = 5.11 x 25 = £127.75
Buffer stock held = 255,380 x 28/365 = 19,591 units
Average stock held = 19,591 + (50,000/2) = 44,591 units
Annual holding cost = 44,591 x 0.1 = £4,459.10
Annual cost of current ordering policy = 4,459.10 + 127.75 = £4,587
We need to calculate the economic order quantity: EOQ = ((2 x 255,380 x 25)/0.1)0.5 = 11,300 units
Average number of orders per year = 255,380/11,300 = 22.6 orders
Annual ordering cost = 22.6 x 25 = £565.00
Average stock held = 19,591 + (11,300/2) = 25,241 units
Annual holding cost = 25,241 x 0.1 = £2,524.10
Annual cost of EOQ ordering policy = 2,524.10 + 565.00 = £3,089
Saving compared to current policy = 4,587 – 3,089 = £1,498

8
ACCA- Financial Management (FM) Answers

Chapter 4
Example answer
Example 1:

Project A:
Year 0 1 2 3 4 5
Initial cost (90)
Net.C.F 40 30 20 20 20
Residual value 4
Free.C.F (90) 40 30 20 20 24
Cumulative C.F. (90) (50) (20) 0
Payback period=3
Project B:

Year 0 1 2 3 4 5
Initial cost (20)
Net.C.F 10 8 6 4 4
Residual value 2
Free.C.F (20) 10 8 6 4 6
Cumulative C.F. (20) (10) (2) 4 8 14

Payback period=2+2/6=2.33

Example 2:
(1 )Average investment=(14m+2m)/2=8m

(2) sales S.U S.P S.R

Y1 2m 5 10m
Y2 1.8 4.5 8.1m
Y3 m
1.6 4 6.4m
Y4 m
1.6 3.5 5.6m
m 30.1m
(3) Expense= cash + non-cash - Depreciation=7m+5.4m+12m=24.4m
(4) Total operation profit=30.1m-24.4m=5.7m
(5) ARR=Average profit /Average investment=5.7m/4Y/8m=17.81% > ROCE 10%

Activity Answer:
1 2 3
D C D

9
ACCA- Financial Management (FM) Answers

Chapter 5
Example answer
Example 1
F =$38,000 x (1.05)7 = $53,470

Example 2
PV=10,000/(1+8%)4 = 7,350
PV = $10,000 x 0.735 = $7,350 (using tables)

Example 3
PV=100*AF(n=10, r=11%)=100*5.889=588.9

Example 4
Method 1:
PV=200*AF (n=6, r=5%)-200*AF(n=2,r=5%)=200*5.076-200*1.859=643.4
Method 2:
PV=200*AF (n=4, r=5%)*AF(n=2,r=5%)=200*3.546*0.907 =643.4

Example 5
PV=1000*AF (n=4, r=10%)+1000=1000*3.17=4,170

Example 6
PV=25,000/10%=250,000

Example 7
PV=4,000*AF (n=2, r=10%)/10%=40,000*0.826=33,040

Example 8
PV=25000/(10%-5%)=500,000

Example 9
Reducing balance:
Year C.F. $ Tax
0 I.C. 10,000 saving
30%
1 C.A.&25% (2,500) 750
7,500
2 C.A.&25% (1,875) 562.5
5,625
3 C.A.&25% (1,406) 422
4,219
4 B.A. (1,719) 516
2,500
Straight Line:
C.A: 10,000-2,500=1,875
Tax saving: 1,875*30%=562.5

10
ACCA- Financial Management (FM) Answers

Example 10 :
NPV (‘000)
Year 0 1 2 3 4 5
Sales 433 509 656 338
less:
Variable costs (284) (338) (439) (228)
Fixed costs (27) (28) (30) (32)

Taxable cash flow 122 143 187 78

tax @ 30% (37) (43) (56) (23)

+tax saving on CA 19 14 11 30
initial cost (250)
residual value 5
working capital (22) (4) (7) 16 17

Dr @cash
Free nomial rate 11%
flow (272)
1 118
0.901 118
0.812 174
0.731 54
0.659 0.59
7
PV -272 107 96 127 36 3 4
NPV=98

Comment: as NPV is postive, financially acceptable.

Workings sales
Year 0 1 2 3 4
Selling price (inflated) 12 12.36 12.73 13.11 4 13.51
Demand 35 40 50 25
Sales revenue 433 509 656 338
Variable cost
Year 0 1 2 3 4
V.c /unit 0 7.8 8.11 8.44 8.77 9.12
Demand 0 35 40 50 25
Total VC 284 337 439 228
CA
Year Cash flow 25% Tax saving
0 initial cost 250
1 CA @ 25% 62.5 19
187.5
2 CA @ 25% 46.875 14
141
3 CA @ 25% 35 11
106
4 101 30
RV 5

11
ACCA- Financial Management (FM) Answers

Working capital
Year 0 1 2 3 4
Total working capital required each 22 25 33 17
(Sales 5%)
Working capital change 22 4 7 (16) (17)

(b) IRR (use 2 DR; 2NPV)

Year 0 1 2 3 4 5
Free cash flow (250) (26) (20) (21) (18) (9)
Dr @ nomial rate 1 0.833 0.694 0.579 0.482 0.402
PV (250) (22) (14) (12) (8) 4
NPV (303)

IRR=334%
As IRR is greater than company 's cost of capital 11%, financially acceptable base on IRR.

(c) ARR (average before tax profit /average investment)

ARR= Average annual profit/Average investment*100%
Average investment 128
Total profit (360)
Average profit (90)
ARR -71%
Comment: as ARR is greater than target ROCE 20%, financially acceptable.
Example 11:
详情见视频讲解

Example 12:
详情见视频讲解

Example 13: B
Example 14:
Step 1: pv of costs of each machine
Machine R

Year 0 1 2 3
Initial cost 120
R.V -10
Running costs 20 20 20
Free cash flow 120 20 20 10

DR @ 10% 1 0.909 0.826 0.751

PV 120 18.18 16.52 7.51
Total pv of costs 162.21

12
ACCA- Financial Management (FM) Answers

Machine S

Year 0 1 2
Initial cost 60
R.V
Running costs 40 35

Free cash flow 60 40 35

DR @ 10% 1 0.909 0.826
PV 60 36.36 28.91
Total pv of costs 125.27
Step 2: EAC
Machine R=162.21*AF (n=3, i=10%)=65.22
Machine S=125.27*AF (n=2, i=10%)=72.16
Recommend use machine R to replace its current machine.
Example 15
(1) Divisible

Project Investment PV NPV PI Ranking NPV

C 40 60 20 1.5 1 20
D 100 135 35 1.35 3 3.5
E 50 74 24 1.48 2 24
F 60 78 18 1.3 4
G 50 40 -10 0.8 -
47.5

(2) Non-divisible(Trial & Error)

Project mix Investment NPV

C&E 90 44 Best mix
C&F 100 38
D 100 35

(3) Divisible, but C & E mutually exclusive

Project mix Investment NPV
C&D 100 41
C&F 100 38
E &D 100 41.5
E &F 100 39
D 100 35

PI of E rank 2nd, but investment amount is higher than C.

Example 14
Cost of borrowing=10%*(1-30%)=7%

13
ACCA- Financial Management (FM) Answers

Example 15
Lease:

Year Cash flow Discount PV

0-2 Rental -50000 2.808
@7% -140400
2-4 Tax saving on rental 15000 2.452 36780
-103620

buying:

year 0 1 2 3 4
Initial investment -150000
Tax saving on CA 12000 12000 1200
Maintenance -9000 -9000 -9000 0
Tax saving on maintenance 2700 2700 2700
Residual value 30000
Free cash flow -150000 -9000 5700 35700 1470
Discount rate @ 7% 1 0.935 0.873 0.816 0.763
0
Present value -150000 -8415 4976 29131 1121
Present value of costs -113092 6

The pv of leasing cost is cheaper than buying, so recommend leasing as a source of finance.
Workings:

1. Post tax interest rate 7.00%

2. Capital allowance 40000

3. Tax saving on capital allowance 12000

Activity answer

1 2 3 4 5 6
D C B 12.5% D C

14
ACCA- Financial Management (FM) Answers

Chapter 6
Example answer
Example 1:
Interest yield = 15 / 150 = 10%
= 15 / 120 = 12.5%
= 15 / 90 = 16.7%
Example 2
Redeemable:
Year Cash Flows Discount factors Present Value
@15%
1–5 Int 10 3.352 33.52
5 Capital 100 0.497 49.7
MV = 83.22

Irredeemable: MV = 10 /15% =$66.7

Example 3
a) Market value:
Capital repayment = higher of: Cash: 100
Share: 20*4.45*(1+6.5%)^5=122

Year Cash Flows Discount factors@10% Present value

1-5 coupon 9 3.791 34.12
5 capital 122 0.621 75.76
MV = 109.88
If convertible:
If the share price in five year is $4.9,
Capital repayment = higher of: Cash: 100
Share: 20*4.9 = 98
Floor value:
Year Cash Flows Discount factors@10% Present value
1–5 coupon 9 3.791 34.12
5 capital 100 0.621 62.1
MV = 96.2
Example 4
Conversion premium = market value of convertibles - market value of share today = 109.88-89=20.88

Example 5
(1) TERP=(2*2.7+1*2.1)/(2+1)=2.5
(2) Value of rights=2.5-2.1=0.4
(3) Funds raised=2m/1*2.1=2.1m
Example 6
详情见视频讲解

15
ACCA- Financial Management (FM) Answers

Example 7：
(1)
TERP=(5*€ 4.00+1*€ 3.4)/(5+1)= € 3.9
Value of rights/existing share=(€ 3.9-€ 3.4)/5=€ 0.5/5=€ 0.1
(2)
Current EPS = current S.price/current P/E=€ 4.00/15.24=26.25pense
Current O.S. No.= € 2m/€ 0.5=4m
Rights issued NO. =4m/5 = 0.8m
Total No. of O.S=4.8m
Current PAT = Current EPS × Current No. of O.S =26.25P ×4m = € 1.05m
Funds raised by Rights Issue = 0.8m× € 3.40= € 2.72m
Bonds Redeemed (Net funds Raised) = € 2.72m- € 220,000= € 2.5m
Interest saved = Bond Redeemed × Int%= € 2.5m×12%= € 300,000
(Revised PAT= Current PAT + Post – Tax interest saved = € 1.05m + € 300,000x (1-30%)= € 1.26m
Revised EPS = € 1.26m/4.8m = 26.25 Pence
(3)
Share price (after redeem) = 15.24*26.25p=€ 4.00
TERP=€ 3.9, share holder wealth increase10 pense
(4)
Gearing:
current: D/E=€4.5m/€3.5m*100%=129%
after redeem: D/E=(€4.5m-€2.5)/(€3.5m+€2.5)*100%=33%
substantively decrease gearing ratio
interest coverage: Current:
PBT = C PAT/(1-30%) = 1.05m/70%= 1.5m
INT =Debentrure + overdraft= 540,000+87,500=627,500
PBIT = PBT + Interest= 1.5m + 627,500= 2,127,500
PBIT/ INT=2,127,500/627,200=3.4times
after redeem:
PBIT/ INT=2,127,500/(627,200-300,000)=6.5times
substantively increase interest coverage

Activity answer

1 2 3 4 5 6 7
B A D B A A A

16
ACCA- Financial Management (FM) Answers

Chapter 7
Example answer
Example 1
P = 20p/10% =£2.00
Example 2
Ke = 30 / 150 = 20%
Example 3
P = 20p x (1 + 7%) /(12% - 7%) = £428
Example 4
Ke = [10p x (1+ 5%)/105p] + 5%= 15%
Example 5
a ) g= 8√9/5 ∗100% − 1 = 7.6%
b) P0=[9*(1+7.6%)]/12%-7.6%=220p
Example 6
ke =[D0*（1+g）/P0] + g =50P*(1+80%)/(700P-50P) + 8.4%=16.7%
Example 7
P0=100*8%/10% =80
Example 8
Kdat=(100*9%)*(1-30%)/90=7%
Example 9
Year C.F. DR@10% PV
1-5 Coupon 12 3.791 45.49
5 Repay of capital 100 0.621 62.1
NPV 107.59

Example 10
Year C.F. DR@5% PV DR@10% PV
0 (110) 1 (110) 1 (110)
1-5 Post-tax coupon 9 4.329 38.96 3.791 34.12
5 Repay of capital 100 0.784 78.4 0.621 62.1
NPV 7.36 (13.78)
Kdat (IRR) =5%+[7.36/(7.36+13.78)]*(10%-5%)=6.74%
Eaxmple 11
Year C.F. DR@5% PV DR@10% PV
0 (107.11) 1 (107.11) 1 (107.11)
1-5 post-tax coupon 4.9 5.076 24.87 4.355 21.34
5 Repay of capital 117 0.746 87.28 0.564 66
NPV 5.04 (19.77)
Kdat (IRR)=5%+[5.04/(5.04+19.77)]*(10%-5%)=6%
Higher of 100 or 5.5*1.06^6*15=117

17
ACCA- Financial Management (FM) Answers

Example 12
Kd=$1*8%/$1.2=6.67%
Example 13：
Step 1: Find all long-term finance: MV of O.S = 20m × 1.10 = 22m
Redeemable debt = 10m/100 = 9.4m; Total MV = 31.4m
Step 2: Cost model: Ke (O.S) --CAPM
Ke = Rf + (Rm – Rf) *β = 6% + (12%-6%)*1.1 = 12.6%
Redeemable--Kdat
Year C.F. DR@5% PV DR@10% PV
0 (94) 1 (94) 1 (94)
1-6 post-tax coupon 7 5.076 35.53 4.355 30.49
6 Repay of capital 100 0.746 74.6 0.564 56.4
NPV 16.13 (7.11)
Kdat (IRR) =5%+[16.13/(16.13+7.11)]*(10%-5%)=8.47%
Step 3: WACC = 12.6% ×(22/31.4)+ 8.47% ×(9.4/31.4)=11.36%
Example 14
Step 1: De gear (Find a proxy company, and then remove proxy company financial risk, finding its business risk)
βA = βE × E/[E+D(1-t)]= 1.59 × 2/[2+1×(1-31%)]=1.18
Step 2: Re-gear (add back own financial risk)
βE = βA ×[E+D(1-t)]/E= 1.18 ×[5+2×(1-31%)]/5=1.51
Step 3: Use CAPM to get Ke
Ke = Rf + (Rm – Rf )* βe= 11% + ( 16% - 11% ) . 1.51 = 18.55%
Step 4: Kdat = 11% ×（1 – 31%）= 7.59%
Step 5: Risk adjusted WACC= 18.55% × 5/(5+2)+ 7.59% ×5/(5+2)

Activity answer
1 2 3 4 5 6 7
A A B 9.0% 20m C 8%

8.(a) Step 1:
market value of O.S.=5m/1*4.5=22.5m
market value of P.S.=2.5m/1*0.762=1.905m
market value of loan notes=5m/100*105=5.25m
Cost of long-term finance=29.655
Step 2: model
Ke(O.S.)=D0*(1+g)/D0+g=35c*(1+4%)/450+4%=12.09%
Kd(P.S)=Div/P0=$1*9%/$0.762*100%=11.81%
Redeemable loan note
Year C.F. DR@5% PV DR@10% PV
0 (105) 1 (105) 1 (105)
1-8 post-tax coupon 7 6.463 45.24 5.335 37.34
8 Repay of capital 100 0.677 677 0.467 46.7
NPV 7.94 (20.96)

18
ACCA- Financial Management (FM) Answers

Kdat(IRR)=5%+[7.94/(7.94+20.96)]*(10%-5%)=6.37%
WACC=12.08%*22.5/29.655+11.81%*1.905/29.655+6.37%*5.25/29.655=11.06%
(b)
1) Interest coverage:
Current: PBIT/ INT=7,000k/500k=14times
Revised: PBIT=7,000k*(1+12%)=7,840k
Interest:9%*10m=0.9m
PBIT/ Int=7,840k/(900k+500k)=5.6times
2) Gearing:
Current: prior charge capital/E=(5m+2.5m)/27.5m*100% =27%
Revised: (5m+2.5m+10m)/(27.5m+2,463)*100% =58%
Revised PBIT 7,840
Revised interest (1,400)
Revsied PBT 6,440
Tax @30% (1,932)
Revsied PAT 4,508
Less: ps dividend (225)
o.s dividend (1,820)
Retained earning 2,463
3) EPS:
Current:(PAT-D.T.P.S)/No. of shares=(4,550-225)/5,000=86.5cent
Revised: (PAT-D.T.P.S)/No. of shares=(4,508-225)/5,000=85.7cent

19
ACCA- Financial Management (FM) Answers

Chapter 8
Example answer
Example 1
Net asset valuation=book value of equity-adjustments for land & building-adjustments for stock-irrecoverable
receivable-internally goodwill=688-(768-600)-(192*10%)-30-105=365.8
Example 2
Earning yield=1/12.5=8%
Equity value=PAT/earning yield=150m/8%=1,875m
Example 3
DVM growth
Step 1: DPS = EPS* Dividend payout ratio= 0.80*45% =0.36
Step 2: Growth rate: 4.5 %
(as dividend payout ratio is constant, and earning increasing by 4.5%, dividend increase is equal to 4.5%)
Step 3: Share price = 0.36*(1+4.5%)/(12%-4.5%) = 5.016
Step 4: No. of shares = 5million/0.5 = 10 million
Step 5 : equity value =5.016* 10million =50.16 million
Example 4
P3=D4/(Ke-g) =1000000*(1+3%) /(12%-3%)=11,444,444
P0=D3*Discount factor =11,444,444*0.712=8,148,444
P0=1000,000*0.712=712,000
P0=500000*0.797=398,500
Total current share price=9,258,944

Activity answer

1 2 3 4
C D A&B C

20
ACCA- Financial Management (FM) Answers

Chapter 9
Example answer
Example 1-7
详情见视频讲解
Example 8
Forward
Which currency is expense € is expense
Deal with bank high/low rate buy foreign currency from bank
$450,000/1.6902=€ 266.241
Money market hedge
Pay: $450,000/(1+5%*3/12) = $444,444
Buy from bank: $444,444/1.700 =€261,438
Borrow: €261,438*(1 +7.5%*3/12) = €266,340
Leading
$450,000/1.700*(1+7.5&*3/12)= €269,669
Example 8 Continued
Forward
which currency is expense € is expense
deal with bank high/low rate sell foreign currency to bank
$900,000/1.6809=€535,427
money market hedge
Borrow: $900,000/(1 +6.5%*6/12) = $871,671
Sell to bank: $871,671/1.7040 =€511,540
Deposit: €511,540*(1 +6 %*6/12) = €526,890

Activity answer
1 2 3 4 5 6 7
A 50,000 A B B&C B B

Peony Co
1 2 3 4 5
C C D C B

21