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

Me three took a guess the wording was unlike anything I’ve seen in any past papers or study text!

I also wrote about this increasing WACC because of the equity. I wrote about the theories and tied them into the question

I got that one. I calculated that since Ke was higher..converting loans into shares was going to increase wacc more

Looking good guys. Also wrote WACC would increase because of the more expensive equity bla bla. Hoping for some good marks on that question, what WACC did you guys arrive at?

Does anyone remember for Eac did it say to discuss which was better in part a?

For me there was a 4 mark written question asking to discuss the reasons that EAC should be used when appraising Replacement Cycles. I explained how EAC works, that it helps you to compare two investments of different lifetimes by calculating the Annual Cost.

Do you remember the third requirement of NPV question I kinda have a hard time remembering it

@bobbysinger12 for me I think it was to discuss the profitability index in relation to investment appraisal. Bit of a strange one as I’ve never come across benefits/disadvantages of PI alone!

Section B FRA ques absolutely terrible- no options matched an answer. I am convinced everyone did guess work in it. Section C theory part ? Discuss Relative Risk ? Short term long term finance Ratio Ques weirddd Comment on what approach they should adopt- where tf were we taught to distinguish and elect that on calculation basis

It asked for the NPV, so I discounted at 6%.

It asked for the NPV on WC, so I discounted at 6%. They had mentioned that they were taking a loan at 6% specifically for the project, so i used 6%. Gave me a negative NPV on both a) and b).

I found section A generally okay, with the odd difficult question. Section B was a disaster for me with a tough FRA/Exchange rates question, a confusing Business Valuation scenario and a difficult working capital/payables days question - all 3 were confusing and had different scenarios to the ‘normal’ for those areas and with so many ‘choose 2 answers’ questions I really struggled. Section C was average - I thought the EAC question was fine however the 2 wordy questions after were strange about DCF methods and why EAC should be used. I found the WACC question pretty tough as the amount of information provided I thought was minimal and the 9 mark question afterwards was super difficult - I discussed the movement in total Equity and Debt shifting the gearing etc, traditional and M&M theories but struggled with numerical examples. All in all - hope to scrape through, but will be close

Yeah Section B (especially Interest rates) disaster with a capital D! None of my tries seem to get one of the answers so I guessed and moved on and the same for the theory parts. It’s a full fat zero out of 10 on that section for me anyway haha Those chose 2 questions are just horrible.

On the loan I used the Interest*(1-tax rate) to get post tax rate and then used that as cost of debt %.

ampash wrote:On the loan I used the Interest*(1-tax rate) to get post tax rate and then used that as cost of debt %.

yeah this is what i did as well. Used 100m as Market value but deducted tax from the 8% (I think) Fixed Loan interest

For Section C WACC question, what was the WACC you guys got?

Hi there yes I had same question. There was one Eoq question in section C to calculate about the cost in part b there were ratios to calculate and WC policies aggressive and conservative. Don’t know if you remember there was one Npv question in section A my answer was negative npv Also Fra question in sectionA I choose the answer 30k something Section B question 16-20 were okay There was question in section B in relation MM theory about WACC or so Another question in part A was about what is financial management

Are you taking about section C Npv question I did the same 13% Npv was positive something 182.....

I think I missed a question in section C. I've been wracking my brain trying to remember doing 5 questions but I only can remember 4. . Calculate WACC 2. an EAC 3. Something about whether issuing shares will cause WACC to fall 4. Something about replacing asset at same time? but I cannot recall any other in Section. It really is bothering me that I might have missed a question. Can anybody help fill in this gap in my brain?

The wording in these exams gets me every time. By the time I figure out what they are really asking time is up. I too was confused with the foreign exchange section B q's

@kaadence Section B was pretty awful - definitely a few questions that I spent too much time on then guessed anyway as nothing was matching. I believe you had the same section c as me. 1a) Wacc (11 marks) 1b) Discuss whether Wacc would increase or decrease after conversion of loan notes (9 marks) 2a) EAC 2b) Discuss why EAC should be used (not sure if it was the exact wording) 2c) Discuss advantages of discounted cash flows (something like that - easy to miss if not reached the end of exam - it was only worth 4/5 marks so not the end of the world if missed).

@firefly777 How did you find the last written question, 2c? I wrote about how Discounted Cash Flows take the Time Value of money into account. I tried to expand on this as much as I could, but couldn't think of much more to say!

What did people do for the scrap proceeds in the section C EAC question?

@Rishi11 I think I used the original Cost as Year 0 then I calculated each year's depreciation as laid out in the question. Then the balance for years 3 and 4 I used in each of the EAC calculations, as these were the resale values. So I calculated it like this (although the figures are probably different to the exam): Year 0 800,000 Depn 25% -200,000 Year 1 600,000 Depn 25% -150,000 etc.

I had a different questions for section c: calculate NPV for the project and decide on its acceptability; divisible projects appraisal; working capital calculating ratios and comparing to industry averages, advising on working capital policy.

@hopeful I know I didn't write much (I quickly put an answer for all discussion parts - I would have gone back if I hadn't ran out of time)... Same as you really, time value of money over length of project. I hadn't practiced section c questions in revision enough (apart from NPV ones).

Section A: I found section A very theory heavy. Something I am never quite comfortable with especially that the questions and answers are often unclear. Section B: Was generally ok for me, I managed to match most of my answers to the suggested multiple choices but I wouldn't say I am 100% confident Section C: Absolute disaster. NPV question was ok however when calculating the PV of working capital investment I forgot it was going to be released in the final year! Silly mistake really as I knew it had to be done. I might have used the wrong discount rate on that too as I used 13% WACC. My reasoning for using WACC in the first part of NPV was that the project was an extension to existing business therefore the financial and business risk remained unchanged. Profitability Index question was odd. I answered by saying what PI was and that it can be used for divisible projects. The ratio question was very confusing. I wrote few sentences which I might score marks for but I realised later on that the ratios given at the bottom of the scenario were for the industry and not present ratios and I was referring to them as present ratios instead. I really hope that won't take a lot of marks away. I just went into autopilot as I was running out of time... Oh well, good luck with the results everyone x

I had the NPV calculation for C section. Section A: was mostly theoretical Section B: The question about FRA was very difficult for me, the style of the question was also not familiar. Section C: I used 13% WACC and believe it is true. 6% was not right because it was only for debt and also we shouldn't consider these costs because WACC also contains it. We had to use nominal WACC because there were different inflation rates. If there was one general inflation we could calculate the nominal WACC with fisher formula (1+i)=(1+r)(1+h) I got positive NPV question b was about working capital and there was an inflation rate we had to calculate the inflated numbers for each year, we had to consider that working capital would be positive in the last year and as I remember we had to discount it. the third question was about the profitability index and I think most of you will get some of the marks from 5. Unfortunately, I don't remember the second C section question if anybody does we can discuss it.

Yes the FM paper is 50% theory, a lot of people don't do well because they neglect this fact!

What did you get for the theory questions in section C