FMACCA Paper FM exam was - March 2021 Exam - Instant Poll and comments

Question 1 was on what topic ?

Section b was my worst section. Did anybody get the section c 5 mark additional working capital question (1,000,000 extra)? I wasn’t sure whether to discount as it did not mention.

I got that 5 marker on working capital nicko09. I discounted it as it asked for the present value but not sure if that’s correct. Also thought there would have to be a little bit more in it for 5 marks. Was quite a lot for 5 marks. I probably messed it up though ?

I discounted for 3 years then had a positive number in yr 4 so it came to zero i.e paying the money back

I must of missed the PV requirement in the question, thanks for confirming.

Investment appraisal section c question - was it correct to use the WACC at 13% to discount?

Yeah because there was specific inflation rates for each project variable. You could have used the real rate with the Fischer Equation but if they give nominal rate it’s easier to use WACC. I inflated for 3 years and recovered the remaining in year 4 with a nil balance at the end of year 4 and then discounted to PV but again could be wrong, only thing I could think of at the time!

I used 13% wacc but still unsure. We could have used loan interest rate as the project was solely financed with that?? Doubting...

My worst part was section C 10 points on working capital. What was that? What did you advise on the strategy? Aggressive or conservative and why?

It’s just that because it said WACC 13 percent so when the WACC was calculated the 6% would have been factored in. That was my conclusion anyway

I also used 13% i think the nominal is always preferable over the real or thats what i had in my notes lol

Exactly hiphop! I remember I specifically asked John Moffett this question and he said if they give you nominal WACC use it especially when they give specific inflation rates. The other way is long winded, same answer but more calculations. That 10 maker on WC on aggressive or conservative was a disaster for me. I just didn’t know where to start.

And what was that on relative risk in section C? Have not seen in practice kit or study material...

Unfortunately I was stuck in Conservative and Aggressive Approach. But over all FM exam was so good.

Do you mean the risks and costs of short and long term finance? That threw me off a bit too but I said short term debt is usually cheaper than long term, it’s more riskier for example an overdraft is repayable on demand etc Then for long term I split it between equity and debt finance and just talked about the pros and cons of both, equity is higher cost due to return required from shareholders due to being last on liquidation and debt is cheaper due to tax shield but also lower distributable profits. Honestly that could be all wrong hahaha

Same here, absolutely terrible on the working capital question

hhw93 wrote:Really disappointed to not get a proper investment appraisal in section C. Instead got a WACC question which was pretty good and equivalent annual cost of two machines, which was ok just not what I was hoping for.

That's the paper I got too. Not sure how I did to be honest.

My section C was WACC with capital structure and EAC with why discounted investment appraisal is better. Anyone else? Wasn’t sure about my answers for these. And was disappointed to not get a normal NPV

@mobrien I got this paper too! How did you find it? Do you remember the section B Questions? I found them difficult

Net Cost of finance in FRA question of part B was tough, i just had to guess...

Rishi11 wrote: @mobrien I got this paper too! How did you find it? Do you remember the section B Questions? I found them difficult

I had an interest/fx rate risk, one about business valuations and one about maybe receivables days. If anyone did the business valuation one where it asked for share price based on the yield being 6%, what did you get? Wasn’t sure about my calcs

I got these Section B questions too. If possible, please could you let me know what you answered for the Forex/Interest Risk questions? I had to guess on most of those, as I hadn't done enough revision and found the question wording very confusing... I'm hoping one of my guesses were correct!

For people who did the Section C EAC question; which replacement interval was better? 3 or 4 years? And the other WACC question, what was the WACC you got? I think I got like 6.8% or sth but not sure how right that is lol.

Mee too

Larisa12 wrote:Net Cost of finance in FRA question of part B was tough, i just had to guess…

I had to guess on this too! I found the question wording really confusing.. so many different interest rates..

Nikko wrote:For people who did the Section C EAC question; which replacement interval was better?

I calculated that the 4 year replacement cycle was better, as it had a lower cost by about $8.5K. Not sure if I was right though.. Also, did you calculate the Initial Investment in Year 0 or Year 1? I thought I should put it in year 1, as the machinery wasn't paid for until a year after delivery...

Great, I also wrote year 4 is better. :) The initial investment said it was paid after the first year right, so I wrote the purchase in year 1 as well. But I started calculating the resale value from year 0, if that makes sense. Honestly I’m not sure how right or wrong that will be but fingers crossed haha

In the WACC question, there was a 9 marker which asked whether WACC would increase or decrease after the investors converted the loan notes into shares. Anyone else got that? And what did you write?

Nikko wrote:In the WACC question, there was a 9 marker which asked whether WACC would increase or decrease after the investors converted the loan notes into shares.

I got this as well! I spoke about the equity of the company increasing once the loan notes were converted. And that this would increase the WACC as Cost of Equity is more expensive than Cost of Debt due to debt having tax relief... I talked about the Gearing ratio decreasing due to the rise in Equity compared to Debt. I wasn't sure if we had to mention the Capital Structure theories (M&M, Traditional) so I briefly talked about these. I hope I wrote enough as it was a 9 mark question!

Nikko wrote:For people who did the Section C EAC question; which replacement interval was better?

Just realising I don’t think I said one was better than the other (but did say so in section B) FML! For Forex I can’t remember what I did! For the S2 rate I did purchasing power parity twice. And for the FRA it was 12-18 at the higher rate.