DIPLOMA in ACCA Accounting & Finance FINANCIAL MANAGEMENT (F9) Specimen Exam Time allowed: 3 hours 15 minutes This question paper is divided into three sections: Section A – ALL 15 questions are compulsory and MUST be attempted Section B – ALL 15 questions are compulsory and MUST be attempted Section C – BOTH questions are compulsory and MUST be attempted Do NOT open this question paper until instructed by the supervisor. Do NOT record any of your answers on the question paper. This question paper must not be removed from the examination hall. Financial Management (ACCA F9)_Specimen Exam_QUESTIONS_22 March 2018.docx Page 1 Section A – ALL 15 questions are compulsory and MUST be attempted 1. The home currency of XYZ Sp. zo.o. is the zolty (zl) and it trades with a company in the Euro-zone whose home currency is the Euro (€). The following information is available: Poland Euro-zone Spot Rate: 4.1 zl/€ Interest rate 6% 2% Inflation Rate 4% 1% What is the six-month forward exchange rate? A. 4.18 Zl/€ B. 4.09 Zl/€ C. 3.02 Zl/€ D. 4.15 Zl/€ 2. The following financial information relates to an investment project: PLN ‘000 Present value of sales revenue 65,067 Present value of variable costs 31,768 Present value of contribution 33,299 Present value of fixed costs 17,875 Present value of operating income 15,434 Initial investment 10,656 Net present value 4,768 What is the sensitivity of the net present value of the investment to a change in sales volume? A. 5.9% B. 8.2% C. 12.7% D. 14.3% Financial Management (ACCA F9)_Specimen Exam_QUESTIONS_22 March 2018.docx Page 2 3. Bargiel plots the historic movements of share prices and uses this analysis to make his investment decisions. To what extent does Bargiel believe capital markets to be efficient? A. Strong form efficient B. Semi-strong form efficient C. Weak form efficient D. Inefficient 4. Which of the following statements concerning capital structure theory is incorrect? A. Business risk is assumed to be constant as the capital structure changes B. Pecking Order Theory says that new, externally raised equity is a better source of fresh capital than debt C. Modigliani & Miller say that capital structure doesn’t affect the cost of equity D. In the traditional view there is a linear relationship between the cost of equity and risk 5. Which of the following will be the MOST likely to increase shareholder wealth? A. The supervisory board recruits a ACCA to head up the audit committee B. Management focuses on investing in projects with high NPVs C. A management board bonus programme is created to boost earnings per share (EPS) D. Surplus cash is used in a share buy-back programme reducing float by 15% 6. The demand for widgets brought into the warehouse at a cost of PLN 300/unit is expected to be 250 units per month. The cost of processing each purchase order is estimated to be PLN 125. The most significant holding cost is financing. The firm’s WACC is 15% The optimum amount of each order is: A. 250 units B. 198 units C. 129 units D. 98 units Financial Management (ACCA F9)_Specimen Exam_QUESTIONS_22 March 2018.docx Page 3 7. The following are extracts from the income statement of RST SA: Sales revenue 72,000 Direct, variable Costs 40,000 Contribution 32,000 Fixed Cost Production Overheads 20,000 Operating profit 12,000 Interest expense 3,000 Profit before taxes 9,000 Incomes taxes 3,000 Net profit after tax 6,000 What is the total leverage effect (operational & financial) of RST SA? A. 2.3 times B. 3.4 times C. 4.5 times D. 5.0 times 8. Polmark SA has annual credit sales of PLN 60 million with days sales outstanding (DSO) of 60 days. Accounts receivable are financed by a combination of bank debt (67% at 9%) and the firm’s own working capital (WACC at 12%). What would be the annual interest saving (PLN ‘000) if DSO could be reduced by 15 days? A. 189 B. 413 C. 246 D. 125 9. Which of the following statements about shareholder wealth maximization are correct? (1) Managers should maximize earnings per share (2) Reducing the WACC to its minimum will tend to maximize the firm’s value (3) In efficient markets, cumulative NPVs will tend to be reflected in share prices A. 1 and 3 B. 1 only C. 2 and 3 D. None Financial Management (ACCA F9)_Specimen Exam_QUESTIONS_22 March 2018.docx Page 4 10. Motoparts SA has EPS of PLN 25, net book value per share (average for the yr.) of PLN 200 and pays out 40% of NPAT in dividends. Risk-free treasury bonds yield 4% and the stock market returns are 9%. Motoparts’ beta is calculated to be 1.2. Using the dividend growth model (DGM) valuation what is the likely market price of Motopart’s shares on an ex-dividend basis? A. PLN 220 B. PLN 167 C. PLN 430 D. PLN 657 11. A Boeing aircraft executive said: “The strengthening USD is having an adverse impact on the company’s competitiveness in the commercial jet liner market.” What risk is the executive referring to? A. Interest rate risk B. Transaction risk C. Economic risk D. Translation risk 12. The following information has been calculated for Polflex Sp.zo.o.: Cash balances – PLN million 13 A/R: Days sales outstanding 65 Inventory: Days COGS outstanding 30 Current portion LTD – PLN million 7.5 A/P: Days purchases outstanding 25 What is the length of the cash cycle of net trading investment? A. 64 days B. 70 days C. 53 days D. 100 days Financial Management (ACCA F9)_Specimen Exam_QUESTIONS_22 March 2018.docx Page 5 13. Commercial banks are exposed to which of the following risks: (1) Credit risk (2) Liquidity Risks (3) Operating risk (4) Regulatory risk A. 1 & 2 B. All C. 1 & 3 D. 1 only 14. Which of the following statements about working capital management (WCM) is incorrect? (1) WCM involves a risk reward trade-off between profitability and liquidity (2) During periods of rapid sales growth, WCM is secondary compared to market share (3) Poor WCM can result in cash shortages and the threat of insolvency A. 2 only B. All C. 1 & 3 D. 1 & 2 15. Quantitative easing by central banks has become a popular monetary policy in order to: (1) Inject liquidity into the financial system after a credit crisis panic (2) Help governments to stimulate economies by deficit spending (3) Kick-start low growth economies with lower borrowing costs (4) Used in lieu of austerity constrained fiscal policies of excessively indebted governments A. 1 only B. 1, 3 & 4 C. 3 D. 2 (30 marks) Financial Management (ACCA F9)_Specimen Exam_QUESTIONS_22 March 2018.docx Page 6 Section B – ALL 15 questions are compulsory and MUST be attempted Each question is worth 2 marks. The following scenario relates to questions 16-20. Slavmax SA currently has the following long-term capital structure: PLN millions PLN millions Long Term Debt: Mortgage Bonds – 20 yrs 24 Senior unsecured debt 15 Subordinated debt 10 Deferred Tax Liability 7 Equity: 56 Preferred shares – 5% 10 Capital reserves 7 Ordinary shares 25 Retained earnings 27 69 Total equity and liabilities 125 The subordinated debt earns interest at 9% per year and matures in 5 years time. It has a convertibility feature allowing creditors the right to receive 10 common shares at maturity for every 1,000 PLN nominal value of debt. Slavmax’s cost of subordinated debt is 11%. The ordinary shares of Slavmax have a nominal value of 25 PLN per share. The current ex- dividend share price on the Warsaw Stock Exchange is PLN 95/share which the company expects to grow at 5% per year for the foreseeable future. Polish treasury bills currently pay 3%. Total shareholder returns (dividends and price appreciation) on the WSE WIG-30 index have averaged 14% over the last 5 years. The equity beta of Slavmax is .95. 16. What is the conversion value of the subordinated debt after 5 years? A. 1,342 PLN B. 1,212.50 PLN C. 121.25 PLN D. 987.56 PLN Financial Management (ACCA F9)_Specimen Exam_QUESTIONS_22 March 2018.docx Page 7 17. The market consensus is that Slavmax’s earnings will grow at 4%/yr. Based on this, what is the market value of the subordinated debt of Slavmax? A. 897.56 PLN B. 1,000.00 PLN C. 1,213.77 PLN D. 1,018.04 PLN 18. What is Slavmax’s cost of equity capital as implied by the Capital Asset Pricing Model? A. 13.5% B. 15.1% C. 9.0% D. 17.3% 19. Which of the following statements are advantages of using the price/earnings ratio to value a company? (1) It is a commonly accepted methodology in the stock market (2) It is based on reliable audited financial reporting numbers (3) It capitalizes on stock market efficiency (4) It allows comparisons to comparable investments A. 1 B. 1 & 2 C. 1, 2 & 3 D. 1, 2,3 & 4 20. Which of the following statements about the Capital Asset Pricing Model (CAPM) is wrong? A. CAPM assumes stock market efficiency B. Betas for publically listed firms are difficult to identify C. CAPM reflects both a firm’s systematic and unsystematic risk D. While CAPM is popular it is not universally accepted Financial Management (ACCA F9)_Specimen Exam_QUESTIONS_22 March 2018.docx Page 8 The following scenario relates to questions 21-25 Tecmate Sp.zo.o. has the following financial profile: PLN ‘000 Balance Sheet Income Statement Cash 11 70 ST Bank debt Sales 530 Receivables 108 105 Trade debt COGS 245 Inventory 120 20 CPLTD Gross Profit 285 Prepaids 21 120 LT Debt Overheads 145 P & E 250 31 Capital Reserve Interest 68 Real Estate 50 100 Share Capital Net Profit 72 Intangibles 14 128 Retained Earnings Income Taxes 18 TOTAL 574 574 TOTAL Net Profit AT 54 Other selected information: Purchases in COGS = 200 Dividend Payout Ratio = 40% Prior 3 year’s sales growth = 18%/yr Peer sector ratios (average): current ratio of 1.57 & debt-to-equity ratio of .85:1 Annual depreciation expense: 25 Estimated mandatory capex: 21 21. What is the length of the firm’s cash cycle for its net trading investment? A. 34 days B. 60 days C. 95 days D. 41 days 22. Suppliers have offered an early payment discount terms of 3% 15/net 60. What would be the equivalent annual interest rate if Tecmate paid at 60 days instead of 15 days? A. 14% B. 32% C. 9% D. 28% Financial Management (ACCA F9)_Specimen Exam_QUESTIONS_22 March 2018.docx Page 9 23. What is the sustainable growth rate for the firm? A. 13% B. 19% C. 8% D. 4% 24. Based on the sustainable growth rate compared to previous growth rates and financial condition, is the firm over-trading? A. Not over-trading at all B. On the threshold of over-trading C. Aggressively over-trading D. Under-trading 25. The free cash flow available for debt service is: A. 51 B. 58 C. (5) D. 31 Financial Management (ACCA F9)_Specimen Exam_QUESTIONS_22 March 2018.docx Page 10