ACCA

Paper F9 Financial Managel11ent
Mock Examination June and December 2009
Question Paper
SECTIONA - Answer ALL twenty sub-question SECTION B - Answer ALL six sub-question SECTIONC - Answer ONE of the two questions

Time Allowed

20 minutes 3 hours

Reading Writing

Effective time management • • Watch the clock. criticism or opportunity? Give yourself plenty of space to add extra lines as necessary. it will also make it easier for the examiner to mark. Ensure that you explain the points you are making. Identify and make sure you pick up the easy marks available in each question. Show and reference you r workings clearly. Read the requirements carefully: focus on mark allocation. allow 1. Common terminology Analyse Calculate/co m pute Compare and contrast Define Describe Discuss Distinguish Evaluate Explain Identify Interpret Justify List Prepare Recommend Examine in detail the structure of Ascertain or reckon mathematically Show the similarities and/or differences Give the exact meaning of Commu nicate the key features of Examine in detail by argument Highlight the differences between Appraise or assess the value of Make clear or intelligible/state the meaning of Recognise. You should read through the paper and plan the order in which you will tackle the questions. ie why is the point a strength. Work out how long you can spend on each question and do not exceed that time. Take a few moments to think what the requirements are asking for and how you are going to answer them. Always start with the one you feel most confident about and take time to choose the questions you will answer in sections with choice. question words (see below) and potential overlap between requirements.8 minutes per mark. With written elements try and make a number of distinct points using headings and short paragraphs. establish or select after consideration Process information to explain its meaning Produce reasons in support of State short pieces of information on separate lines Make or get ready for use Advise on a course of action 2 . • • Effective layout • • • • Present your numerical solutions using the standard layouts you have seen. Effective planning • This paper is in exactly the same format as the real exam.Get into good exam habits now! Take a moment to focus on the right approach for this exam. You should aim to make a separate point for each mark.

923 0.935 0.907 0.942 0.314 0.711 0.681 0.482 0.257 0.261 0.614 0.896 0.160 14% 0.209 3 .104 0.862 0.718 0.093 0.833 0.870 0.837 0.650 0.429 0.296 0.125 0.317 0.784 0.557 0.204 0.826 0.596 0.601 0.558 0.582 0.885 0.108 17% 0.630 0.962 0.877 0.111 0.681 0.145 0.645 0.864 0.176 0.623 0.247 0.888 0.456 0.286 0.148 0.208 0.335 0.636 0.909 0.906 0.593 0.527 0.397 0.463 0.840 0.926 0.370 0.552 0.873 0.816 0.731 0.822 0.178 0.095 18% 0.572 0.481 6% 0.624 0.971 0.722 0.227 0.437 0.712 0.284 0.116 0.243 0.270 0.467 0.497 0.422 0.376 0.400 0.500 0.231 0.713 0.160 0.790 0.452 0.773 0.613 0.187 0.961 0.152 0.847 0.693 0.820 0.476 0.419 0.658 0.Formulae sheet Present value table Present value of 1 ie (1 +r)-n where r discount rate n number of periods until payment = = Discount rates (r) Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 15 0.788 0.621 0.971 0.182 0.743 2% 3% 0.890 0.783 0.308 0.279 0.943 0.233 0.675 0.980 0.735 0.099 0.497 0.772 0.290 0.943 0.322 0.065 1 3 4 5 6 7 8 9 10 11 12 13 14 15 0.951 0.205 0.390 0.857 0.641 0.352 0.326 0.888 0.315 9% 0.797 0.543 0.863 0.402 0.333 0.583 0.327 0.249 0.751 0.823 0.893 0.812 0.376 0.766 0.694 0.933 0.229 0.961 0.368 0.677 0.705 0.130 0.703 0.232 0.305 0.915 0.942 0.731 0.287 0.842 0.744 0.683 0.432 0.567 0.760 0.708 0.168 0.195 0.519 0.853 0.952 0.215 0.547 0.701 0.769 0.502 0.480 0.990 0.804 0.746 0.356 0.239 10% 11% 2 12% 0.444 0.352 0.837 0.456 0.084 19% 0.555 5% 0.162 0.513 0.123 16% 0.140 15% 0.889 0.263 0.792 0.901 0.350 0.362 8% 0.088 0.813 0.665 0.361 0.135 0.625 0.425 0.731 0.747 0.585 0.415 0.789 0.183 13% 0.209 0.666 0.404 0.460 0.794 0.593 0.285 0.295 0.540 0.516 0.194 0.354 0.482 0.676 0.592 0.475 0.914 0.507 0.162 0.642 4% 0.535 0.124 0.469 0.275 0.650 0.319 0.756 0.544 0.887 0.333 0.659 0.386 0.564 0.112 0.917 0.225 0.905 0.855 0.191 0.706 0.391 0.258 0.499 0.609 0.879 0.141 0.388 0.980 0.763 0.181 0.208 0.508 0.417 7% 0.266 0.840 0.434 0.861 1% 0.078 0.424 0.855 0.925 0.163 0.137 0.410 0.924 0.534 0.351 0.074 20% 0.237 0.579 0.743 0.871 0.592 0.530 0.627 0.

650 5.247 6.750 6.986 10.980 1.498 3.451 4.787 10.853 9.566 9.690 2.421 5.146 5.517 3.589 2.111 8.487 7.635 11.244 8.402 3.745 9.849 12% 0.161 7.605 2.877 1.355 4.606 20% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 0.728 7.061 19% 0.760 9.889 6.733 7.212 4.842 6.605 3.786 6.031 4.140 2.855 1.352 3.324 0.216 5.808 4.696 4.786 8.361 2.611 4.322 2.426 5.328 5.295 9.303 4.360 7.492 6.712 5.802 7.743 3.019 5.717 4.435 8.499 7.358 8.859 3.982 7.127 3.660 5.384 8.537 5.628 6.410 3.943 8.274 3.833 1.194 6.668 2.191 0.092 0.922 4.367 7.387 4.812 4.207 6.039 4.142 0.368 11.394 9.971 6.876 0.563 11.528 2.230 7.974 3.174 2.808 3.938 6.802 4.162 8.033 5.210 2.885 1.971 1.106 12.926 1.713 2.207 4.465 4.246 2.589 3.058 3.583 5.917 5.993 4.747 6.791 4.968 5.423 4.468 5.690 3.811 0.344 4.798 3.076 5.601 6.991 3.380 15% 0.783 3.106 2.935 1.024 7.706 3.799 5.847 0.255 12.759 3.647 2.990 1.675 4 .659 4.494 4.630 4.909 1.759 6.580 5.486 4.453 5.887 8.486 5.312 3.472 7.575 11.767 5.715 4.170 3.952 1.942 3.424 6.722 8.326 3.918 6.917 1.210 6.103 7.607 4.037 3.547 2.535 5.139 7.890 4.530 9.913 3.206 5.078 4.145 6.546 4.954 10.002 6.998 4.772 5.302 6.575 0.417 6.836 4.868 5.970 3.886 3.118 14% 0.439 4.639 4.118 5.904 8.327 4.385 9.865 11% 0.833 5.231 4.946 5.814 7.566 2.995 6.833 3.495 6.611 4.988 5.515 7.102 3.805 7.889 4.962 1.795 6.192 4.296 11.004 13.199 3.853 5.793 4.585 2.306 8.008 5.784 4.283 2.902 4.348 12.786 8.108 17% 0.160 4.163 4.837 4.855 3.122 6.433 3.134 13.623 5.(1 +r)-n r where r = discount rate n = number of periods Interest rates (r) (n) 1 2 4 5 6 7 8 9 10 11 12 13 14 15 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 0.954 4.870 1.132 5.626 2.983 9.197 5.914 3.242 6.111 4.389 5.559 18% 0.240 3.418 6.564 4.862 1.Annuity Table P If' resent va ue 0 an annuity 0 f l' te 1.687 5.893 1.463 7.710 7.020 7.533 4.840 1.325 8.736 3.943 1.288 4.444 3.863 9.724 5.471 10.335 5.938 13% 0.910 5.487 4.847 1.685 4.234 5.253 9.899 10.342 5.901 1.605 4.100 4.536 7.329 5.712 16% 0.656 4.713 5.652 8.639 3.452 5.229 5.108 7.582 6.339 4.462 0.029 5.002 6.

T)) The Growth Model Po = _o=----_ D (1 + g) (Ke -g) Gordon's Growth Approximation 9 = br The Weighted Average Cost of Capital WACC = [ Ve Ve + Vd 1 k.Orr Model Retu rn point Spread =3 [ ~i % x transaction 1X The Capital Asset Pricing Model E(n)= Rf+ (E (rm) . + [ Vd Ve + Vd 1 kd(1 .T) ----=-----~d (Ve + Vd(1 .Rf) The Asset Beta Formula Vd(1.Economic Order Quantity = t~:D = Lower limit + (Ys x spread) cost x variance of cash flows Interest rate Miller .T) The Fisher Formula (1 + i) = (1 + r)( 1 + h) Fo So x __ Purchasing Power Parity and Interest Rate Parity = (1 + i ) (1 + ib) c_ Sf 5 .

the cash operating cycle for Katie for 20X7 and 20X8.126 Sales for 20X8 were $4 million ($3 million in 20X7) and net profit was $197. Katie was established five years ago when the founder started selling a revolutionary product called the spife (a cross between a spoon and a knife which can be used to cut fruit and then scoop out the flesh). Calculate the sales I net working capital ratio in 20X8 (net working capital = inventory + receivables . The following information shows the recent performance of the organisation.1 Katie Katie is a med ium sized enterprise that manufactures high quality kitchen utensils. (6 marks) (Total: 25 marks) 6 . Gross profit margin on sales remained at a constant 25% over the two years. Balance sheet 30 Nov 20X8 $'000 Assets Non-current assets Current assets Inventory Receivables Bank 740 30 Nov 20X7 $'000 634 528 504 0 1. (7 marks) (b) (c) (d) Using your answer to (b) explain why it is not unusual for a manufactu ring company to face cash shortages when sales are expand ing very qu ickly. (6 marks) Calculate. It now sells a wide range of products both in its domestic market and throughout the world. It is now December 20X8.772 100 198 1.payables) and forecast the financing needs of the business in 20X9.772 228 259 5 1. despite being profitable (6 marks) Sales are forecast to grow by 40% in 20X9. to the nearest day.000 ($175.000 in 20X7) 2 The inventory value for 20X8 (and 20X7) are split as follows: Finished goods WIP Raw materials 3 4 30% 50% 20% Material costs represent 50% of the total costs of sales.126 Equity and Liabilities Shareholders' funds Non cu rrent liabilities Bank Payables Other information 900 828 680 192 1. Required (a) Explain the significance of the cash operating cycle in the management of profitability and liquidity. The company has grown rapidly.

The machinery will be accommodated in a presently empty building for which an offer of $2m has recently been received from another company. The company is moving towards a JIT stock management policy. it is expected that property price inflation will increase its value to $3m after five years. Oscar has made the following forecasts for the average annual rates of inflation relevant to the project: Chicken feeder prices Material prices Direct la bou r wage rates Variable overhead costs Other overhead costs Retail Price Index 6 7 pa pa pa pa 4% pa 9% pa 5% 3% 8% 6% 3 4 5 Market research suggests that at a price today of $60 Oscar will sell 100. Initial market research. given that Oscar's shareholders of 5. which cost Oscar $100. Corporation tax of 30% is payable. The cost structure of a feeder at current prices is as follows: $ Costs per unit of output Direct labour cost per unit Material cost per unit Variable overhead cost per unit Fixed overhead cost per unit Additional notes 2 15 2 16 35 The fixed overhead represents an apportionment of central administrative and marketing costs. This will allow smallholders to leave chickens for up to two days. Oscar's research and development department has just developed a new product which is an automatic feeder for chickens.2 Oscar Oscar pic is a manufacturing company that has made low technology products for the agricultural sector for many years. 2 New machinery will have to be bought. new machine attracts writing down allowances of 25% on the reducing balance basis. it is expected that this project will involve steadily reducing working capital needs.5% for projects of this degree of risk.000 of materials stocks. (4 marks) (Total: 25 marks) 7 . The Required (a) (b) (c) Assess the financial viability of this proposal. Oscar operates in a country where there is uncertainty over the precise rates of price and cost inflation. This figure includes $250. These are expected to rise in total by $50. expected to decline at about 3% pa by volume.000 pa (at today's prices) as a result of undertaking this project. Tax payments occur in the year following the transactions. It will cost $5m and is expected to operate for five years. If the building is retained. requ ire a real return (13 marks) Identify the limitations of NPV analysis for Oscar's decision and discuss which other investment appraisal techniques could be used to assist in this decision.000 and has not yet been paid for.000 units a year. suggests that demand will be high. The machinery will have a residual value of $2m. (8 marks) Discuss whether inflation could have been ignored in the above analysis.

Debt finance will be raised by a 7. (7 marks) (Total: 25 marks) 8 . Each debenture is redeemable at its par value of $100.5% per year and the market return is 11% per year.38 percentage points to the cost of equity. The company's current share price ex-dividend is 478 cents. The equity beta of Celia is 1. The corporate tax rate is 30%. and debenture price ex-interest is $107. The company's existing capital structu re is: $ Million Med ium-term floating rate loans 11 % debentures redeemable in 3 years Issued ordinary shares ( 50 cents par value) Reserves Notes (i) (ii) (iii) (iv) (v) (vi) Celia wishes to maintain its current capital structure (i.80.3 Celia Celia is a listed for-profits private sector organisation. 85 140 37.15.5% floating rate bank loan with negligible issue costs. Comment upon your findings and state clearly any assumptions that you make. gearing).e. The risk free rate is 3. Issue costs are expected to add 0. (13 marks) (ii) (b) (c) State the underlying assumptions when using the Weighted Average Cost of Capital (WACC) in investment appraisal (5 marks) Explain the argu ments against using the WACC as the cost of capital for investment appraisal. If external sources of debt (new debentures issued at par of $100) and equity are used. An investment of $100 million is being considered to finance a major new expansion of existing activities and is expected to last for five years.5 205 Required (a) Estimate the cost of capital of the new investment under each of the following scenarios: (i) If internal sources of equity are used the shareholders' expected retu rn (the cost of equity) will remain at its existing levels.

00 10.00 6. discuss the advantages and potential problems of using currency swaps. It is now 1 April. Briefly comment on your answer and discuss the advantages/d isadvantages of using forward rate agreements.0050 +/. (5 marks) Whaka also imports DVDs from Sweden.2504 7. What is the cost in NZ dollars with a money market hedge and what effective forward rate would this represent? (6 marks) A major export market for Whaka for both BBQs and DVDs is Australia. Whaka owes a Swedish supplier Kr 1.2145 +/. the balance is payable on the 1 July. One of its most popular products is disposable barbeques (BBQs) which are manufactured by a third party in China. One customer suggested that Whaka might use future contracts.400. (4 marks) You work in the finance department.0. The agreed price for the BBQs was 4. The Sales Director has recently been on an overseas trip to visit actual and potential customers.0075 Borrowing 8.000 payable in three months' time.55285 2.5m Australian dollars (A$) in three months' time by an Australian company.1610 2.0006 +/.4 Whaka Whaka Ltd is located in New Zealand.00195 +/.00 = = = Whaka imports products.000.000 Chinese Yuan.0. rebrands them and then resells them. Whaka has recently taken delivery of a container full of disposable BBQs. These are sold by Whaka in both in its domestic market and also exported overseas. 9 . (4 marks) (Total: 25 marks) Note: Exchange rates used throughout this question do not necessarily represent real world rates that you might be aware of! You should use the rates stated in the question.60 Deposit 8.0. Whaka is owed 2. Required (a) Compare the cost to Whaka if it buys Yuan at the spot rate or enters into a forward agreement.50 10040 7.0. Write a memo to the Sales Director which explains what a future contract is and the difference between a forward and a futures contract. Half of this has already been settled. What is the receipt in NZ dollars with a money market hedge and what effective forward rate would this represent? (b) (c) (6 marks) (d) (e) From the perspective of a corporate financial manager. The finance manager has collected the following information: Whaka has these money market rates available to it: 3 Months NZ$ 3 Months Kr 3 Months A$ Other information Spot rate (CNY to NZ$) Spot rate (A$ to NZ$) Spot rate (Kr to NZ$) Three month forward rate (CNY to NZ$) Where: NZ$ New Zealand Dollars A$ Australian Dollars Kr = Swedish Kronors CNY Chinese Yuan 2.

Focus your planning time on developing a logical structu re to your answer. Use this as a basis to focus your future study on effectively improving your performance. Quiz yourself constantly as you study. Give yourself time and space to make the marker's job easy. Show why the point identified answers the question set. Leave space between each point. Did you waffle? YIN Layout Was your answer difficult to follow? YIN Use headings and subheadings. Practise as many questions as possible.Student self assessment Having completed this paper take a few minutes to consider what you did well and what you found difficult. You need to develop your memory as well as your understanding of a subject. Focus on allocating your time better. Learn subject jargon (study text glossary). Use numbering sequences when identifying points. Practise questions under strict timed cond itions. Read questions carefully. Did you fail to explain each point? Were some of your workings unclear? YIN YIN Content Did you struggle with: Interpreting the questions? YIN Learn the meaning of question words (inside front cover). noting all the parts. Review your notesltext. Common problems Timing and planning Did you finish too early? Did you overrun? Future emphasis if you answer Yes YIN YIN Focus your planning time on generating more ideas. Contact a tutor for help. Work through easier examples first. If you get behind leave space and move on. Understanding the subject? YIN Remembering the notes/text? YIN 10 . Use models to help develop width to your thinking.

8-9 Holborn. EC1 N 2LL. London. _ Date returned _ Total 100 Markers feedback LSBF CAN NOT RESPONSIBILITY FOR SCRIPTS LOST IN THE POST AND THEREFORE ASK THAT STUDENTS TAKE A COPY OF THEIR SCRIPT BEFORE SENDING IT IN FOR MARKING.School of Busf ness MARKING FRONT SHEET Attach this sheet to the front of your script London &·Finance InterActive Name LSBF Ref PaperNo ___ Address Paper initials Circle as appropriate GBR INT Postcode Circle as appropriate Tuition Mock Revision Mock Return completed scri~ts to: Marking Co-ordinator (4 h floor). UK For office use only RESULTS Question Date received _ Marks available Marks achieved Marker's initials Invoice no. . London School of Business & Finance.

Marker's assessment Question number Need to improve Approach Need to improve DDDDD Good Questions correctly interpreted Need to improve Technical content Need to improve DDDDD Good Logical coherent answers DDDDD DDDDD Good Understanding of principles Good Theories applied well to specific problems Need to improve Computations I---- Need to improve DDDDD Good High standard of accuracy Need to improve Appearance Layout DDDDD Good Workings are easy to follow I Need to improve Need to improve Need to improve Need to improve DDDDD Good Text layout is clear and easy to follow DDDDD DDDDD DDDDD DDDDD Good Calculations are easy to follow Good Professional style Written style Good Answering the question set Good Handwriting clear .

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