课程管理串讲

ACCA-F9-FinancialManagement-Revision

PartA

PARTA——FinancialManagementandFinancialObjectivesRevisionExercise

客观题

1.(SpecimenExamapplicablefromDecember2014)

TKQCohasjustpaidadividendof21cpershareanditssharepriceis$3.50pershare.Oneyearagoitssharepricewas$3.10pershare.

Workingtoonedecimalplace,whatisthetotalshareholderreturnovertheperiod?(

)

A.17.4%

B.18.2%

C.18.9%

D.19.7%

2.(Friday5December2014)

TKQCohasjustpaidadividendof21centspershareanditssharepriceoneyearagowas$3.10pershare.Thetotalshareholderreturnfortheyearwas19.7%.

Whatisthecurrentshareprice?(

A.$3.50

B.$3.71

C.$3.31

D.$3.35

)

3.(Friday5December2014)

Whichofthefollowingstatementsarecorrect?(

)

Maximisingmarketshareisanexampleofafinancialobjective

Shareholderwealthmaximisationistheprimaryfinancialobjectiveforacompanylistedonastockexchange

Financialobjectivesshouldbequantitativesothattheirachievementcanbemeasured

(1)and(2)only

(1)and(3)only

(2)and(3)only

D.(1),(2)and(3)

(Friday5December2014)

WhichofthefollowingisLEASTlikelytofallwithinfinancialmanagement?(

Thedividendpaymenttoshareholdersisincreased

Fundsareraisedtofinanceaninvestmentproject

Surplusassetsaresoldoff

Non-executivedirectorsareappointedtotheremunerationcommittee

)

2

ACCA-F9-FinancialManagement-Revision

PartA

(Friday5December2014)

Whichofthefollowingstatementsconcerningprofitarecorrect?(

Accountingprofitisnotthesameaseconomicprofit

Profittakesaccountofrisk

Accountingprofitcanbemanipulatedbymanagers

1and3only

1and2only

2and3only

1,2and3

)

6.(Friday5June2015)

Whichofthefollowingstatementsiscorrect?(

)

Oneoftheproblemswithmaximisingaccountingprofitasafinancialobjectiveisthataccountingprofitcanbe

manipulated

Atargetforaminimumlevelofdividendcoverisatargetforaminimumdividendpayoutratio

Thewelfareofemployeesisafinancialobjective

Onereasonshareholdersareinterestedinearningspershareisthataccountingprofittakesaccountofrisk

7.(Friday5June2015)

Whichofthefollowingstatementsarecorrect?(

)

Shareoptionschemesalwaysrewardgoodperformancebymanagers

Performance-relatedpaycanencouragedysfunctionalbehaviour

Valueformoneyasanobjectiveinnot-for-profitorganisationsrequiresthepursuitofeconomy,efficiencyandeffectiveness

1and2only

1and3only

2and3only

1,2and3

3

ACCA-F9-FinancialManagement-Revision

PartB

PARTB——FinancialManagementEnvironmentRevisionExerciseExercise

客观题

1.(Friday5June2015)

Whichofthefollowingstatementsarecorrect?(

)

Acertificateofdepositisanexampleofamoneymarketinstrument

Moneymarketdepositsareshort-termloansbetweenorganisationssuchasbanks

Treasurybillsareboughtandsoldonadiscountbasis

1and2only

1and3only

2and3only

1,2and3

2.(Friday5June2015)

Whichofthefollowingstatementsis/arecorrect?(

)

Monetarypolicyseekstoinfluenceaggregatedemandbyincreasingordecreasingthemoneyraisedthrough

taxation

Whengovernmentsadoptafloatingexchangeratesystem,theexchangerateisanequilibriumbetweendemandandsupplyintheforeignexchangemarket

Fiscalpolicyseekstoinfluencetheeconomyandeconomicgrowthbyincreasingordecreasinginterestrates

2only

1and2only

1and3only

1,2and3

4

ACCA-F9-FinancialManagement-Revision

PartC

PARTC——WorkingCapitalManagementRevisionExerciseExercise

客观题

1.(SpecimenExamapplicablefromDecember2014)

ThemanagementofXYZCohasannualcreditsalesof$20millionandaccountsreceivableof$4million.Workingcapitalisfinancedbyanoverdraftat12%interestperyear.Assume365daysinayear.

Whatistheannualfinancecostsavingifthemanagementreducesthecollectionperiodto60days?(

A.$85,479

B.$394,521

C.$78,904

D.$68,384

)

(SpecimenExamapplicablefromDecember2014)

Whichofthefollowingstatementsconcerningworkingcapitalmanagementarecorrect?(

Thetwinobjectivesofworkingcapitalmanagementareprofitabilityandliquidity

Aconservativeapproachtoworkingcapitalinvestmentwillincreaseprofitability

Workingcapitalmanagementisakeyfactorinacompany’slong-termsuccess

1and2only

1and3only

2and3only

1,2and3

)

(Friday5December2014)

Whichofthefollowingstatementsconcerningworkingcapitalmanagementarecorrect?(

Workingcapitalshouldincreaseassalesincrease

Anincreaseinthecashoperatingcyclewilldecreaseprofitability

Overtradingisalsoknownasunder-capitalisation

1and2only

1and3only

2and3only

1,2and3

)

4.(Friday5December2014)

Acompanyhasannualcreditsalesof$27millionandrelatedcostofsalesof$15million.Thecompanyhasthefollowingtargetsforthenextyear:

Tradereceivablesdays

InventorydaysTradepayables

50days

60days

45days

5

ACCA-F9-FinancialManagement-Revision

PartC

Assumethereare360daysintheyear.

Whatisthenetinvestmentinworkingcapitalrequiredforthenextyear?(

A.$8,125,000

B.$4,375,000

C.$2,875,000

D.$6,375,000

)

5.(Friday5June2015)

Acompanyneeds$150,000eachyearforregularpayments.Convertingthecompany’sshort-terminvestmentsintocashtomeettheseregularpaymentsincursafixedcostof$400pertransaction.Theseshort-terminvestmentspayinterestof5%peryear,whilethecompanyearnsinterestofonly1%peryearoncashdeposits.

AccordingtotheBaumolModel,whatistheoptimumamountofshort-terminvestmentstoconvertintocashin

eachtransaction?(

A.$38,730

B.$48,990

C.$54,772

D.$63,246

)

6.(Friday5June2015)

Whichofthefollowingstatementsis/arecorrect?(

)

Factoringwithrecourseprovidesinsuranceagainstbaddebts

Theexperiseofafactorcanincreasetheefficiencyoftradereceivablesmanagementforacompany.

2only

1only

Neither1nor2

1and2

6

ACCA-F9-FinancialManagement-Revision

PartC

主观题

1.(Dec2010)

WQZCoisconsideringmakingthefollowingchangesintheareaofworkingcapitalmanagement:Inventorymanagement

IthasbeensuggestedthattheordersizeforProductKN5shouldbedeterminedusingtheeconomicorderquantity

model(EOQ).

WQZCoforecaststhatdemandforProductKN5willbe160,000unitsinthecomingyearandithastraditionally

ordered10%ofannualdemandperorder.Theorderingcostisexpectedtobe$400perorderwhiletheholdingcostisexpectedtobe$5·12perunitperyear.Abufferinventoryof5,000unitsofProductKN5willbemaintained,whether

ordersaremadebythetraditionalmethodorusingtheeconomicorderingquantitymodel.

Receivablesmanagement

WQZCocouldintroduceanearlysettlementdiscountof1%forcustomerswhopaywithin30daysandatthesametime,throughimprovedoperationalprocedures,maintainamaximumaveragepaymentperiodof60daysforcreditcustomerswhodonottakethediscount.Itisexpectedthat25%ofcreditcustomerswilltakethediscountifitwere

offered.

Itisexpectedthatadministrationandoperatingcostsavingsof$753,000peryearwillbemadeafterimproving

operationalproceduresandintroducingtheearlysettlementdiscount.

CreditsalesofWQZCoarecurrently$87·6millionperyearandtradereceivablesarecurrently$18million.Credit

salesarenotexpectedtochangeasaresultofthechangesinreceivablesmanagement.Thecompanyhasacostofshort-termfinanceof5·5%peryear.

Required:

CalculatethecostofthecurrentorderingpolicyandthechangeinthecostsofinventorymanagementthatwillariseiftheeconomicorderquantityisusedtodeterminetheoptimumordersizeforProductKN5.

(5marks)

Calculateandcommentonwhethertheproposedchangesinreceivablesmanagementwillbeacceptable.Assumingthatonly25%ofcustomerstaketheearlysettlementdiscount,whatisthemaximumearlysettlement

discountthatcouldbeoffered?

(5marks)

(10marks)

7

ACCA-F9-FinancialManagement-Revision

PartC

2.(June2011)

ZPSCoplacesmonthlyorderswithasupplierfor10,000componentsthatareusedinitsmanufacturingprocesses.

Annualdemandis120,000components.Thecurrenttermsarepaymentinfullwithin90days,whichZPSComeets,andthecostpercomponentis$7·50.Thecostoforderingis$200perorder,whilethecostofholdingcomponentsin

inventoryis$1·00percomponentperyear.

Thesupplierhasofferedeitheradiscountof0·5%forpaymentinfullwithin30days,oradiscountof3·6%onorders

of30,000ormorecomponents.Ifthebulkpurchasediscountistaken,thecostofholdingcomponentsininventorywouldincreaseto$2·20percomponentperyearduetotheneedforalargerstoragefacility.

Assumethatthereare365daysintheyearandthatZPSCocanborrowshort-termat4·5%peryear.

Required:

(a)CalculateifZPSCowillbenefitfinanciallybyacceptingtheofferof:theearlysettlementdiscount;

thebulkpurchasediscount.

(8marks)

8

ACCA-F9-FinancialManagement-Revision

PartC

3.(Dec2011)

ExtractsfromtherecentfinancialstatementsofBoldCoaregivenbelow.

AfactorhasofferedtomanagethetradereceivablesofBoldCoinaservicingandfactor-financingagreement.The

factorexpectstoreducetheaveragetradereceivablesperiodofBoldCofromitscurrentlevelto35days;toreducebaddebtsfrom0·9%ofturnoverto0·6%ofturnover;andtosaveBoldCo$40,000peryearinadministrationcosts.ThefactorwouldalsomakeanadvancetoBoldCoof80%oftherevisedbookvalueoftradereceivables.Theinterestrateontheadvancewouldbe2%higherthanthe7%thatBoldCocurrentlypaysonitsoverdraft.Thefactorwouldchargeafeeof0·75%ofturnoveronawith-recoursebasis,orafeeof1·25%ofturnoveronanon-recoursebasis.

Assumethatthereare365workingdaysineachyearandthatallsalesandsuppliesareoncredit.

Required:

(a)Decidewhetherfactor’sofferacceptablebasedonwithrecoursesbasisandwithoutrecoursebasis

(7marks)

9

$000

$000

Turnover

21,300

Costofsales

(16,400)

Grossprofit

4,900

$000

$000

Non-currentassets

3,000

Currentassets

Inventory

4,500

Tradereceivables

3,500

8,000

Totalassets

11,000

Currentliabilities

Tradepayables

3,000

Overdraft

3,000

6,000

Equity

Ordinaryshares

1,000

Reserves

1,000

2,000

Non-currentliabilities

Bonds

3,000

11,000

ACCA-F9-FinancialManagement-Revision

PartC

4.(June2013)

TGACo,amultinationalcompany,hasannualcreditsalesof$5·4millionandrelatedcostofsalesare$2·16million.

ApproximatelyhalfofallcreditsalesareexportstoaEuropeancountry,whichareinvoicedineuros.FinancialinformationrelatingtoTGACoisasfollows:

$000

$000

Inventory

Tradereceivables

473.4

1,331.5

1,804.9

Tradepayables

Overdraft

177.5

1,326.6

(1,504.1)

Networkingcapital

300.8

TGACoplanstochangeworkingcapitalpolicyinordertoimproveitsprofitability.Thispolicychangewillnotaffect

thecurrentlevelsofcreditsales,costofsalesornetworkingcapital.Asaresultofthepolicychange,thefollowingworkingcapitalratiovaluesareexpected:

Inventorydays50days

Tradereceivablesdays62daysTradepayablesdays45days

Otherrelevantfinancialinformationisasfollows:Short-termdollarborrowingrate5%peryearShort-termdollardepositrate4%peryear

Assumethereare365daysineachyear.

Required:

(a)Forthechangeinworkingcapitalpolicy,calculatethechangeintheoperatingcycle,theeffectonthecurrentratioandthefinancecostsaving.Commentonyourfindings.

10

ACCA-F9-FinancialManagement-Revision

PartC

5.(Dec2008)

ThefollowingfinancialinformationrelatedtoGorwaCo:

ExtractfromthefinancialstatementofprofitorlossofGorwaCofortheyears:

ExtractfromthefinancialstatementoffinancialpositionofGorwaCofortheyears:

11

2007

2006

$000

$000

$000

$000

Non-currentassets

13,632

12,750

Currentassets

Inventory

4,600

2,400

Tradereceivables

4,600

2,200

9,200

4,600

Currentliabilities

Tradepayables

4,750

2,000

Overdraft

3,225

1,600

7,975

3,600

Netcurrentassets

1,225

1,000

14,857

13,750

8%Bonds

2,425

2,425

12,432

11,325

Capitalandreserves

Sharecapital

6,000

6,000

Reserves

6,432

5,325

12,432

11,325

Year

2007

2006

$000

$000

Sales(alloncredit)

37,400

26,720

Costofsales

(34,408)

(23,781)

Operatingprofit

2,992

2,939

Financecosts(interestpayments)

(355)

(274)

Profitbeforetaxation

2,637

2,665

ACCA-F9-FinancialManagement-Revision

PartC

Theaveragevariableoverdraftinterestrateineachyearwas5%.The8%bondsareredeemableintenyears’time.

Afactorhasofferedtotakeovertheadministrationoftradereceivablesonanon-recoursebasisforanannualfeeof

3%ofcreditsales.Thefactorwillmaintainatradereceivablescollectionperiodof30daysandGorwaCowillsave

$100,000peryearinadministrationcostsand$350,000peryearinbaddebts.Aconditionofthefactoringagreementisthatthefactorwouldadvance80%ofthefacevalueofreceivablesatanannualinterestrateof7%.

Required:

Usetheabovefinancialinformationtodiscuss,withsupportingcalculations,whetherornotGorwaCoisovertrading.

(10marks)

12

ACCA-F9-FinancialManagement-Revision

PartC

6.Cashbudget(dec2014)

FlitCoispreparingacashflowforecastforthethree-monthperiodfromJanuarytotheendofMarch.Thefollowing

salesvolumeshavebeenforecast:

December

1,200

January

1,250

February

1,300

March

1,400

April

Sales(units)

1,500

Notes:

Thesellingpriceperunitis$800andasellingpriceincreaseof5%willoccurinFebruary.Salesareallonone

month’scredit.

Productionofgoodsforsaletakesplaceonemonthbeforesales.

Eachunitproducedrequirestwounitsofrawmaterials,costing$200perunit.Norawmaterialsinventoryisheld.

Rawmaterialpurchasesareononemonths’credit.

Variableoverheadsandwagesequalto$100perunitareincurredduringproduction,andpaidinthemonthofproduction.

Theopeningcashbalanceat1Januaryisexpectedtobe$40,000.

Along-termloanof$300,000willbereceivedatthebeginningofMarch.

Amachinecosting$400,000willbepurchasedforcashinMarch.

Required:

Calculatethecashbalanceattheendofeachmonthinthethree-monthperiod.

(5marks)

13

ACCA-F9-FinancialManagement-Revision

PartD

PARTD——InvestmentAppraisalRevisionExercise

客观题

1.(2015.June)

Acompanyisevaluatinganinvestmentprojectwiththefollowingforecastcashflows:

Year

Cashflow($m)

0

(6.5)

1

2.4

2

3.1

3

2.1

4

1.8

Usingdiscountratesof15%and20%,whatistheinternalrateofreturnoftheinvestmentproject?（

）

A.15.8%

B.17.2%

C.17.8%

D.19.4%

2.(SpecimenExamapplicablefromDecember2014)

Thefollowingfinancialinformationrelatestoaninvestmentproject:

$000

50,025

25,475

24,550

Presentvalueofsalesrevenue

PresentvalueofvariablecostsPresentvalueofcontributionPresentvalueoffixedcostsPresentvalueofoperatingincomeInitialinvestment

Netpresentvalue

18,250

6,300

5,000

1,300

Whatisthesensitivityofthenetpresentvalueoftheinvestmentprojecttoachangeinsalesvolume?(

A.7.1%

B.2.6%

C.5.1%

D.5.3%

)

3.(Friday5December2014)

Aninvestmentprojecthasacostof$12,000,payableatthestartofthefirstyearofoperation.Thepossiblefuturecashflowsarisingfromtheinvestmentprojecthavethefollowingpresentvaluesandassociatedprobabilities:

PVof

Year1cashflow($)16,000

12,000

(4,000)

PVof

Year2cashflow($)20,000

(2,000)

Probability

0.15

0.60

0.25

Probability

0.75

0.25

14

ACCA-F9-FinancialManagement-Revision

PartD

Whatistheexpectedvalueofthenetpresentvalueoftheinvestmentproject?(

A.$11,850

B.$28,700

C.$11,100

D.$76,300

)

4.(Friday5June2015)

Whichofthefollowingstatementsarecorrect?(

)

Thesensitivityofaprojectvariablecanbecalculatedbydividingtheprojectnetpresentvaluebythepresentvalue

ofthecashflowsrelatingtothatprojectvariable

Theexpectednetpresentvalueisthevalueexpectedtooccurifaninvestmentprojectwithseveralpossibleoutcomesisundertakenonce

Thediscountedpaybackperiodisthetimetakenforthecumulativenetpresentvaluetochangefromnegativetopositive

1and2only

1and3only

2and3only

1,2and3

5.(Friday5December2014)

Whichofthefollowingstatementsiscorrect?(

)

Taxallowabledepreciationisarelevantcashflowwhenevaluatingborrowingtobuycomparedtoleasingasa

financingchoice

Assetreplacementdecisionsrequirerelevantcashflowstobediscountedbytheafter-taxcostofdebt

Ifcapitalisrationed,divisibleinvestmentprojectscanberankedbytheprofitabilityindexwhendeterminingtheoptimuminvestmentschedule

1,2and3Governmentrestrictionsonbanklendingareassociatedwithsoftcapitalrationing

15

ACCA-F9-FinancialManagement-Revision

PartD

客观案例题

Thefollowingscenariorelatestoquestions1–5

RidagCooperatesinanindustrywhichhasrecentlybeenderegulatedasthegovernmentseekstoincreasecompetition

intheindustry.

RidagCoplanstoreplaceanexistingmachineandmustchoosebetweentwomachines.Machine1hasaninitialcostof

$200,000andwillhaveascrapvalueof$25,000afterfouryears.Machine2hasaninitialcostof$225,000andwillhaveascrapvalueof$50,000afterthreeyears.Annualmaintenancecostsofthetwomachinesareasfollows:

Year

Machine1($peryear)Machine2($peryear)

1

25,000

15,000

2

29,000

20,000

3

32,000

25,000

4

35,000

Whererelevant,allinformationrelatingtothisprojecthasalreadybeenadjustedtoincludeexpectedfutureinflation.

TaxationandtaxallowabledepreciationmustbeignoredinrelationtoMachine1andMachine2.

RidagCohasanominalbefore-taxweightedaveragecostofcapitalof12%andanominalafter-taxweightedaveragecostofcapitalof7%.

1.(2016.Specimen)

InrelationtoRidagCo,whichofthefollowingstatementsaboutcompetitionandderegulationaretrue?

IncreasedcompetitionshouldencourageRidagCotoreducecosts

DeregulationwillleadtoanincreaseinadministrativeandcompliancecostsforRidagCo

DeregulationshouldmeananincreaseineconomiesofscaleforRidagCo

DeregulationcouldleadtoadecreaseinthequalityofRidagCo’sproducts

(

)

1and4

2and3

1and3

2and4

2.(2016.Specimen)

WhatistheequivalentannualcostofMachine1?(A.$90,412

B.$68,646

C.$83,388

D.$70,609

)

3.(2016.Specimen)

WhichofthefollowingstatementsaboutRidagCousingtheequivalentannualcostmethodaretrue?(

)

RidagCocannotusetheequivalentannualcostmethodtocompareMachine1andMachine2becausetheyhave

differentusefullives

ThemachinewhichhasthelowesttotalpresentvalueofcostsshouldbeselectedbyRidagCo

1only

Both1and2

2only

Neither1nor2

16

ACCA-F9-FinancialManagement-Revision

PartD

4.(2016.Specimen)

Doubthasbeencastovertheaccuracyoftheyear2andyear3maintenancecostsforMachine2.Onfurtherinvestigation

itwasfoundthatthefollowingpotentialcashflowsarenowpredicted:

Year

Cashflow

($)18,000

25,000

23,000

24,000

30,000

Probability

2

2

3

3

3

0.3

0.7

0.2

0.35

0.45

Whatistheexpectedpresentvalueofthemaintenancecostsforyear3?

A.$26,500

B.$18,868

C.$21,624

D.$35,173

(

)

5.(2016.Specimen)

RidagCoisappraisingadifferentproject,withapositiveNPV.Itisconcernedabouttheriskanduncertaintyassociated

withthisotherproject.

Whichofthefollowingstatementsaboutrisk,uncertaintyandtheprojectistrue?(

Sensitivityanalysistakesintoaccounttheinterrelationshipbetweenprojectvariables

Probabilityanalysiscanbeusedtoassesstheuncertaintyassociatedwiththeproject

)

C.Uncertaintycanbesaidtoincreasewithprojectlife,whileriskincreaseswiththevariabilityofreturns

D.Adiscountrateof5%couldbeusedtolessentheeffectoflatercashflowsonthedecision

(30marks)

17

ACCA-F9-FinancialManagement-Revision

PartD

主观题

1.(2008June)

SCCoisevaluatingthepurchaseofanewmachinetoproduceproductP,whichhasashortproductlife-cycledueto

rapidlychangingtechnology.Themachineisexpectedtocost$1million.ProductionandsalesofproductPareforecasttobeasfollows:

Year

Productionandsales(units/year)

1

35,000

2

53,000

3

75,000

4

36,000

ThesellingpriceofproductP(incurrentpriceterms)willbe$20perunit,whilethevariablecostoftheproduct(in

currentpriceterms)willbe$12perunit.Sellingpriceinflationisexpectedtobe4%peryearandvariablecostinflationisexpectedtobe5%peryear.NoincreaseinexistingfixedcostsisexpectedsinceSCCohassparecapacityinbothspaceandlabourterms.

ProducingandsellingproductPwillcallforincreasedinvestmentinworkingcapital.AnalysisofhistoricallevelsofworkingcapitalwithinSCCoindicatesthatatthestartofeachyear,investmentinworkingcapitalforproductPwill

needtobe7%ofsalesrevenueforthatyear.

SCCopaystaxof30%peryearintheyearinwhichthetaxableprofitoccurs.Liabilitytotaxisreducedbycapital

allowancesonmachinery(tax-allowabledepreciation),whichSCCocanclaimonastraight-linebasisoverthefour-yearlifeoftheproposedinvestment.Thenewmachineisexpectedtohavenoscrapvalueattheendofthefour-year

period.SCCousesanominal(moneyterms)after-taxcostofcapitalof12%forinvestmentappraisalpurposes.

Required:

(a)CalculatethenetpresentvalueoftheproposedinvestmentinproductP.

(9marks)

(b)CalculatetheinternalrateofreturnoftheproposedinvestmentinproductP.

(2marks)

(c)AdviseontheacceptabilityoftheproposedinvestmentinproductPanddiscussthelimitationsoftheevaluations

youhavecarriedout.

(4marks)

(15marks)

18

ACCA-F9-FinancialManagement-Revision

PartD

2.(June2010)(2014DecQ4)

ThefollowingdraftappraisalofaproposedinvestmentprojecthasbeenpreparedforthefinancedirectorofOKMCo

byatraineeaccountant.TheprojectisconsistentwiththecurrentbusinessoperationsofOKMCo.

Year

1

2

3

4

5

Demand(units)

250,000

400,000

500,000

250,000

$000

$000

$000

$000

$000

Contribution

Fixedcosts

DepreciationInterestpayments

1,330

(530)

(438)

(200)

2,128

(562)

(438)

(200)

2,660

(596)

(437)

(200)

1,330

(631)

(437)

(200)

162

Taxableprofit

Taxation

928

(49)

1,427

(278)

62

(428)

(19)

Profitaftertax

Scrapvalue

162

879

1,149

(366)

250

(19)

After–taxcashflows

162

879

1,149

(116)

(19)

Discountat10%

0.909

0.826

0.751

0.683

0.621

Presentvalues

147

726

863

(79)

(12)

Netpresentvalue=1,645,000–2,000,000=($355,000)sorejecttheproject.

Thefollowinginformationwasincludedwiththedraftinvestmentappraisal:

Theinitialinvestmentis$2million

Sellingprice:$12/unit(currentpriceterms),sellingpriceinflationis5%peryear

Variablecost:$7/unit(currentpriceterms),variablecostinflationis4%peryear

Fixedoverheadcosts:$500,000/year(currentpriceterms),fixedcostinflationis6%peryear

$200,000/yearofthefixedcostsaredevelopmentcoststhathavealreadybeenincurredandarebeingrecoveredbyanannualchargetotheproject

Investmentfinancingisbya$2millionloanatafixedinterestrateof10%peryear

OKMCocanclaim25%reducingbalancecapitalallowancesonthisinvestmentandpaystaxationoneyearinarrearsatarateof30%peryear

Thescrapvalueofmachineryattheendofthefour-yearprojectis$250,000

TherealweightedaveragecostofcapitalofOKMCois7%peryear

Thegeneralrateofinflationisexpectedtobe4.7%peryear

Required:

(a)Identifyandcommentonanyerrorsintheinvestmentappraisalpreparedbythetraineeaccountant.

(5marks)

19

ACCA-F9-FinancialManagement-Revision

PartD

(b)Preparearevisedcalculationofthenetpresentvalueoftheproposedinvestmentprojectandcommentonthe

project’sacceptability.

(10marks)

(15marks)

20

ACCA-F9-FinancialManagement-Revision

PartD

3.(2010Dec)

CJCoisaprofitablecompanywhichisconsideringaninvestmentproject.Thisprojectisanexpansionofexisting

businesscosting$3.5million,payableatthestartoftheproject,whichwillincreaseannualsalesby750,000units.Informationonunitsellingpriceandcostsisasfollows:

Sellingprice:$2.00perunit(currentpriceterms)

Sellingcosts:$0.04perunit(currentpriceterms)Variablecosts:$0.80perunit(currentpriceterms)

Sellingpriceinflationandsellingcostinflationareexpectedtobe5%peryearandvariablecostinflationisexpected

tobe4%peryear.Additionalinitialinvestmentinworkingcapitalof$250,000willalsobeneededandthisisexpectedtoincreaseinlinewithgeneralinflation.

Otherinformation

CJCohasanominalweightedaverageafter-taxcostofcapitalof10%andpaysprofittaxoneyearinarrearsatanannualrateof30%.Thecompanycanclaimcapitalallowances(tax-allowabledepreciation)ona25%reducingbalance

basisontheinitialinvestmentinbothprojects.Thegeneralinflationrateis4.5%.

Directors’viewsoninvestmentappraisal

ThedirectorsofCJCorequirethatallinvestmentprojectsshouldbeevaluatedusingeitherpaybackperiodorreturnoncapitalemployed(accountingrateofreturn).Thetargetpaybackperiodofthecompanyistwoyearsandthetargetreturnoncapitalemployedis20%,whichisthecurrentreturnoncapitalemployedofCJCo.Aprojectisacceptedif

itsatisfieseitheroftheseinvestmentcriteria.

Thedirectorsalsorequireallinvestmentprojectstobeevaluatedoverafour-yearplanningperiod,ignoringanyscrap

valueorworkingcapitalrecovery,withabalancingallowance(ifany)beingclaimedattheendofthefourthyearofoperation.

Required:

(a)CalculatethenetpresentvalueofProjectAandadviseonitsacceptabilityiftheprojectweretobeappraisedusingthismethod.

(10marks)

(b)Criticallydiscussthedirectors’viewsoninvestmentappraisal.

(5marks)

(15marks)

21

ACCA-F9-FinancialManagement-Revision

PartD

4.(2016Mar/Junesample)

DegnisCoisacompanywhichinstallskitchensandbathroomstocustomerspecifications.Itisplanningtoinvest

$4,000,000inanewfacilitytoconvertvansandtrucksintomotorhomes.

Eachmotorhomewillbedesignedandbuiltaccordingtocustomerrequirements.

DegnisCoexpectsmotorhomeproductionandsalesinthefirstfouryearsofoperationtobeasfollows.

Year

Motorhomesproducedandsold

1

250

2

300

3

450

4

450

Thesellingpriceforamotorhomedependsonthevanortruckwhichisconverted,thequalityoftheunitsinstalled

andtheextentofconversionworkrequired.

DegnisCohasundertakenresearchintolikelysalesandcostsofdiffere