FM*** ACCA Paper FM December 2019 Exam was.. Instant Poll and comments ***

Did that WACC question have a share choice redemption question ?

My WACC question had a second part on benefits to company of redemption loan notes and link between marginal cost of capital and WACC

@tyjac said: I had same as you. A lot of forward contract, foreign exchange. Full of theoretical questions, had no WACC, only appeared once in section A Mcq, remember answer came to 16%. Section c questions was full of theory, had cash flow which totalled 10 marks, which I believe I scored full marks on. I skipped the NPV question, had no time. Instead I focused on theory questions. Had working capital management, cash cycle management, merits between NPV vs IRR for the two directors choices. I had a damn mcq question on the steps for the bankers bill or whatever it’s called, total guest. Does anyone know whether this is correct or not, had a mcq on it, I chose it. ‘Translation risk on financial statements cannot be hedged.’

i had the same paper as you Translation risk can be hedged but it is deemed unnecessary

I also had the NPV 4 vs 10 years. And nominal cost calculation then real cost. I calculated my NPV workings based on 4 years due to the director comment at the bottom saying that they are appraised over 4 years. I used a depreciation value of 10 years. Not saying whether this is right or wrong, it was a little confusing. With regards to the wrong question Paris Co, some people in my room were not even aware. We were not told before exam started, or even early on. A lady just randomly slid a peice of paper on our desks part way through the exam which I assumed was scrap and ignored initially. Fortunately I did not have the question containing the error.

The exam seemed pretty easy. Not as easy as PM but I was able to finish. We had notes on the table that the Paris Co question had an error and to seek help if we had the question but I don't think anyone had it. Sections A and B seemed to revolve around very few topics. it was also pretty tricky at times. Got a basic NPV question and WACC in Section C. Just hope I did enough to pass this time.

@avbosip said: Hello. I have got approximately about the same around 11% Hope that’s correct.

I hope so too. Did you get Paris Co ? How did you tackle the NPV question ? It consumed too much of my time and I still couldn't figure out what to do with the little information that was provided.

I had this question WACC was 12.7 Cost of equity was 14.7 Cost of convertible loan was 6.8 Cost of bank loan was 6.5 something

I had these question, I agree to your point . I had read this in kaplan material were it said If machine is not used for entire life still we have to depreciation over its life time. But in my question NPV was asked for both nominal and real rate I had a huge variance between both methods ?

I too had the same question but I did not inflate cash for my real rate wacc , Hope you also dis the same , But theory wise we should get same NPV which i did not get it had variance of 100k between both methods

Bank loan you could have used same as loan notes ??? I think the WACC could have variances so long as you explained yourself

Hi Anyone got the question relating to conservative and aggressive working capital assessment under section C?

A & B had quite a few questions testing theory rather than calculations so i’m not sure how that went. C I got the NPV nominal and real then the WACC question. I calculated the NPV over 4 years based on the directors policy with no tax allowable depreciation balancing figure. WACC I got 12.5%.

@leandraac said: A & B had quite a few questions testing theory rather than calculations so i’m not sure how that went. C I got the NPV nominal and real then the WACC question. I calculated the NPV over 4 years based on the directors policy with no tax allowable depreciation balancing figure. WACC I got 12.5%.

Did you use the general inflation rate for the real rate NPV 5 marker?

@db91 said: Yes. But I don’t think i laid it out correctly unfortunately. Anyone remember roughly what their closing balance was?

The cash budget was a give away marks question. Was straight forward, but just got a bit tedious and time consuming just for 10 marks. I adopted a three column approach for jan, feb and March, with income and expenses for the rows. The opening cash balance was £1m, first two months was cash flow positive, but in March it was negative by approx £137k due to the dividends and the £400k quarterly interests payment on the loan notes. For the comments part, I suggested either to borrow a loan in March to cover for the cash deficit or delay or reduce the payment of dividends, baring in mind that there will be a signalling effect to the shareholders. For me, I think this will be a hit or miss, can’t really tell how well I scored overall due to how they give the marks for the theory questions.

@tyjac said: The cash budget was a give away marks question. Was straight forward, but just got a bit tedious and time consuming just for 10 marks. I adopted a three column approach for jan, feb and March, with income and expenses for the rows. The opening cash balance was £1m, first two months was cash flow positive, but in March it was negative by approx £137k due to the dividends and the £400k quarterly interests payment on the loan notes. For the comments part, I suggested either to borrow a loan in March to cover for the cash deficit or delay or reduce the payment of dividends, baring in mind that there will be a signalling effect to the shareholders. For me, I think this will be a hit or miss, can’t really tell how well I scored overall due to how they give the marks for the theory questions.

Hi how did you manage your time and how were parts A and B for you?

@goodvibes said: I got very confused with Paris Co question. The details were something like, project Z will cause a 27% reduction in energy consumption. And then the annual cost of electricity was given which was 30m and 2% increase in it each year. Tax rate was given and it was mentioned that TAD wasn't allowed. Also the cost of project was given which was 20m or 25m maybe. We had to calculate NPV and at first I thought 27% should be taken out of 30m as cash inflow but then I realised I was doing something wrong and then after that I couldn't figure out what to do and I messed it up badly. Does anyone know how this question was to be tackled ?

Yeah i got the same question for 10 marks. Question was like... there were 6 projects, U, V, W, X, Y, Z. Capital fund available was 70m with hard rationing (due to government imposed regulation - Project Z). Project Z had NPV ZERO and investment requirement 25m. now Project has to be undertaken irrespective of positive/negative NPV and Profitability index. so you to take decision on remaining projects with leftover capital fund (70m-25m=45m) (75m was a mistake mentioned in requirement....where as in question data, only 70m was mentioned) For 27% reduction on electricity, this means that the net profit will increase by 27% reduction amount with tax increase by 25% on that increase as well and DONE.... I did the above way. Hope get pass

It said clearly that for 5th year production and sale will be in full capacity, so it must be NPV for 5 years or more. Now real question is, how much mark will be lost for choosing the wrong way between 5/10? (for both nominal and real rate)

@tyjac said: The cash budget was a give away marks question. Was straight forward, but just got a bit tedious and time consuming just for 10 marks. I adopted a three column approach for jan, feb and March, with income and expenses for the rows. The opening cash balance was £1m, first two months was cash flow positive, but in March it was negative by approx £137k due to the dividends and the £400k quarterly interests payment on the loan notes. For the comments part, I suggested either to borrow a loan in March to cover for the cash deficit or delay or reduce the payment of dividends, baring in mind that there will be a signalling effect to the shareholders. For me, I think this will be a hit or miss, can’t really tell how well I scored overall due to how they give the marks for the theory questions.

I thought so too, and i had the same comments. Hope i'll pass

It was quite difficult compared to what I expected. The wacc question in part C was not easy for the part related to convertible debt. Also, the NPV of the project 4 vs. 10 years was also challenging. Hopefully was able to score some marks. Quite tough indeed, way more than expected!

Agreed, But it also said in last part that directors are not considering after 4 years sales As they are uncertain about the income.

@anazoric said: Hi how did you manage your time and how were parts A and B for you?

A lot of forward contracts, foreign exchange and theory based questions. I think I made the mistake of not practicing more questions on foreign exchange topics, as I neglected on certain area where the scenarios combined the two together and was loss on how to do the calculations. I didn’t find the exam too hard, expected more calculations, but had a lot of theory based questions overall and for part C. Time management wise, I always start of with part A flowing to part C. Some people I know start from section c first, but I don’t like that approach, as you could end up spending too much time knocking down one big scenario. MCQ questions are easier and faster to get the marks, as you will know whether you know it or not, if, just move on and don’t faff around on one question. For the theory questions I tend to hit a few points and move on to the next question as it is easier to score first few marks for each questions than trying to hit full marks for each, if you are running out of time.

There was this NPV question in section C where we had to inflate the flows: revenue(6%) ,variable costs(6%)and fixed costs(10%). The revenue and other costs were given in year 1 price terms, so we had to inflate from year (t)2 onwards ??

it was not that bad, but i had challenges using spread sheet to answer calculating questions, i was practicing on excel, which took me a lot of time to complete section C and had no enough time for section A and B. I hope i answered it right.

@kb15520 said: There was this NPV question in section C where we had to inflate the flows: revenue(6%) ,variable costs(6%)and fixed costs(10%). The revenue and other costs were given in year 1 price terms, so we had to inflate from year (t)2 onwards ??

Correct, I believe they will give you full marks if you inflated the 'per item' cost/price rather than the total for each year but it sounds like you did the right thing.

Thank you friend.

Guys, if you feel that something has gone wrong - do the complaint to acca.

HI, ACCORDING TO THE BPP PRACTICE KIT QUESTIONS,IF THEY GIVE BOTH RATES , NOMINAL AS WELL AS REAL RATE FOR WACC, AND NOTHING IS MENTIONED IN THE QUESTION AS WELL, WE SHOULD TAKE NOMINAL RATE FOR WACC CALCULATION. IT'S ONLY MY EXPERIENCE THAT I GAINED FROM THE PRACTICE QSTS OF BPP. MAY BE YOU DID RIGHT SOLUTION. ALL THE BEST THOUGH!

Yes, you are correct either we can inflate from 2nd year if 1st year's amount is given (included inflation rate) or we can convert 1st year amount into 0 period. as 1st year amount is 3.12 $ ( inflated @ 4%) 2nd year amount would be 3.12*1.04 = 3.24 $. OR we can convert 1st year amount in zero period as well. like 3.12/1.04 = 3 $ 1st year amount will be = 3 *1.04= 3.12 $ 2nd year = (3*1.04)*1.04= 3.24 $

Overall the paper was okay for me. Section A and B was a little bit straightforward with few complicated calculations. As for section C, the NPV question was okay with inflation, tax, capital allowances and working capital and then the merits of NPV and IRR. The other part of it was the cash budget which again was not that difficult but time consuming. I did nothing on the cash budget going for say 8-10 marks. The other areas of this question was all written on the objectives of working capital and the cash operating cycle. As a whole, I answered all the questions with the exception of the cash budget on question 32. I hope for a pass. Many Thanks to Opentuition and my able tutor Mr John Mofatt. Blessings