INTERNATIONAL QUALIFYING

BOARD EXAMINATION
October 2012
Corporate Financial Management

Examiners Report

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GENERAL
There was a low pass rate in this subject.
Question 1: Compulsory question

The average for this question was 17/40 (43%). The reason for this low average is
attributable to the following factors:

1.2: The majority of the candidates did not know how to calculate a future value
correctly.

1.4: Many candidates did not know how to calculate net working capital.
1.5: Very few students know how to calculate the value of a debenture.
1.6: Even though every paper for the past two years included a capital budgeting
question, candidates still do not know how to do it.
1.8: A significant number of students have no idea how to calculate the EOQ even
though this also features in every exam.
1.9: Only two or three candidates were able to calculate a market-based WACC.
1.10: Most students know what foreign exchange exposure is, but very few know
what types of exposures there are.
Question 2: International finance

The average for this question was 42% and 46.75% of candidates attempted the
question. The reason for the low average is attributable to the following factors:

2.1: This part of the question was purely theoretical. Future candidates are really
encouraged to study the theory. The ability to answer theory questions has enabled
some students to pass whose calculation ability was not very strong. Mentioning the
three accounts that a balance of payments is divided into was a problem to most
candidates.

2.2: About half of the candidates were able to answer this question
2.3: Most students know what purchasing power parity is, but very few were able to
provide the formula and present an example.
CORPORATE FINANCIAL MANAGEMENT

October 2012 Examiners Report

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Question 3: Sustainable growth

The average for this question was 7%, with 21.5% of candidates attempting the
question. The question was very poorly answered by the candidates.

The examiner has no further comments apart from stating that students must not
overlook certain topics. It is also important to study the theory.
Question 4: Mergers and Acquisitions

The average for this question was 38% and 89% of candidates attempted the
question. The reason for the low average is attributable to the following:

4.1: The first part of the question was theory-based and asked for reasons why
companies enter into merger and acquisition agreements. This part of the question
was in some cases well-answered. It was. However, very clear to see which
candidates studied the theory. Those candidates that did not perform so well were
guessing and repeating themselves in their answers.

4.2. The second part of the question was a comprehensive case study on a merger.
Calculations were required and only very few students were able to provide the
correct answer even though most chose the correct formula.

Question 5: Financial statement analysis

The average for this question was 37% and 68.8% candidates attempted the
question. The reason for this low average is attributable to the following factors:

5.1: Few students are able to calculate a basic ratio such as the ROE from a given set of
information.

5.2: The same as for 5.1 applies to the inventory turnover that was to be calculated.
5.3: In this part of the question candidates had to make adjustments to data to re-calculate a
ratio. The examiner found that many students know what needs to be done, but that calculating
the first figure incorrectly makes the answers to the rest of the exercise wrong. Therefore marks
were given for correct procedures followed.

Question 6: Capital budgeting and decision-making

CORPORATE FINANCIAL MANAGEMENT

October 2012 Examiners Report

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The average for this question was 30% and 60.5% of candidates attempted the
question. The reason for this low average is attributable to the following factors:

6.2: Even though drawing a decision tree was clearly not a problem to the students, the
calculation of the NPV was. Only a selected few managed to answer correctly.

END OF REPORT

CORPORATE FINANCIAL MANAGEMENT

October 2012 Examiners Report

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