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Mock+ +Ans+J11%28with+Marks%29

Mock+ +Ans+J11%28with+Marks%29

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KAPLAN PUBLISHING 1
ACCAPaper F9Financial ManagementJune 2011Revision Mock – Answers
To gain maximum benefit, do not refer to theseanswers until you have completed the revisionmock questions and submitted them for marking.
 
ACCA F9 Financial Management2 KAPLAN PUBLISHING
© Kaplan Financial Limited, 2011The text in this material and any others made available by any Kaplan Group company does notamount to advice on a particular matter and should not be taken as such. No reliance should beplaced on the content as the basis for any investment or other decision or in connection with anyadvice given to third parties. Please consult your appropriate professional adviser as necessary.Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability toany person in respect of any losses or other claims, whether direct, indirect, incidental,consequential or otherwise arising in relation to the use of such materials.All rights reserved. No part of this examination may be reproduced or transmitted in any form orby any means, electronic or mechanical, including photocopying, recording, or by any informationstorage and retrieval system, without prior permission from Kaplan Publishing
.
 
Revision Mock AnswersKAPLAN PUBLISHING 3
1 SPIDER CO
Key answer tips
To successfully calculate the NPV of the proposed project, you must focus on the relevantcosts (i.e. those costs that will change as a direct result of the project). You can save sometime by structuring your answer to part (a) in a way that will give you some of the numbersyou’ll require to work out the sensitivities in part (b).Part (c) gives an opportunity to pick up some easy marks but don’t forget to tailor yourcomments to the scenario presented.The highlighted words in the written sections are key phrases that markers are looking for.(a) Annual cash savings$000Additional contribution (W1) 140Additional fixed costs (200)Reduction in variable cost for existing units (W2) 350
 –––––
 Additional annual cash flows 290
 –––––
 
Workings
(W1) New variable cost is $15 - $5 = $10Unit contribution will therefore be $30
$10 = $20Number of additional units is 7,000Total additional contribution from new units is 7,000
×
$20 = $140,000(W2) Reduction = $5 per unit
×
70,000 units = $350,000Capital allowance calculationsAnnual capital allowance = $800,000 / 4 = $200,000Cash flow effect = $200,000 × 30% = $60,000Net present value calculation
Year 0 1 2 3 4
$000 $000 $000 $000 $000Annual savings 290290290 290Tax payable (30%)(87)(87)(87) (87)Initial investment(800)Capital allowances606060 60 
 ––
 
 –––––––
Net cash flows (800)263263263 263Discount factor @ 10%1
 –––––––
0.9090.826 0.751 0.683 
 –––––––––––– ––––––
 
 –––––––
Present value (800)239217198 180 
 ––
 
 –––––––
NPV 34 
 –––––––
As the NPV is positive, the project should be undertaken.

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