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

did anyone get npv for a machine which showed negative cash flow in first year i see now one talking about that and wacc and to find out cost of eq using divident growth model and capm

@aliansari14 said:
For the cost of equity using the DGM
I got 25. % Something also I think, don’t remember the one with asset beta oh wait I think 8.something

For section B , the working capital question went bad for me couldn’t find the cash operating cycle days and quick ratio so I guessed,the other risk management and market value business valuations were simple but the thoery was abit tricky.

That working capital question screwed me too! I read it and thought ah nice easy marks, but couldnt get the quick ratio at all

I had section c, EOQ then aggressive vs conservative, hard capital rationing, long term vs short term debt, npv, ratios, explain roce and then projects to maximise npv that were divisible
Hated most of a and b tho!

@tonim said:
I also got the working capital which initially baffled me.

When I reached the quick ratio question I couldn’t get an answer that was there, but then I re-read the question. It was asking for the quick ratio of the NEXT year, which included an additional debt of some sort.

Using this information I got an answer.

I got section C questions on CAMP and DGM which asked only for Merits and was worth 6 marks. I said that CAPM was universal for new project that companies are unfamiliar with because it looks at the current market and what the risk for a similar project it, which gives a good indication of how much the funding of such a project is currently costing. I went on the day that DGM was not as good as CAPM for the validation of projects, but it considered growth which should enable companies to consider future dividends for equity. I don’t know if I got any marks here.

I also got the question on Islamic Financing and I panicked so listed 4 with explanations – Sukuk- debt finance (irrelevant but oh well), Mudaraba (shareholders and agents), Musharaka (joint venture) and Ijara (lease finance) I also explained the concept of Islamic financing and probably spent too much time on this question (but I was pretty proud as I’d been studying Islamic financing that morning).

I also got the NPV question. I got a positive NPV. Depreciation calculation on a reducing balance at 25% works as follows:
Y1) 1,000,000 * 25% = 250,000 allowance.
Y2) (1,000,000 – 250,000) * 25% = X (don’t have a calculator).

Your final allowance is calculated by deducting the scrap value from the remaining balance in Year 4 (from the question). This is your remaining WDA allowance, this is multiplied by the tax rate to give you the final benefit. The amount I got was significantly high. I also put the allowances in the years that they corresponded to, rather than the next year as it was in arrears… was this correct?

I got a payback period of 3.25 years. I got this by doing a cumulative income chart and dividing the remaining negative balance by the total balance in year four.

I said that the project should be accepted purely from a financial perspective, however as the directors had a two year maximum payback period and would automatically reject this project.

On the next page I had to explain what they could do to improve their investment appraisal approach and I gave quite wishy washy answers on how they hadn’t considered new inflation rates and are likely to be outdate, that they shouldn’t just be considering the payback period and that they may want to consider other methods such as IRR, RI, or ROCE.

Please let me know if you disagree with my answers. It would be nice to know where I’m at. I got an awful section B foreign payments question which I pretty much just guessed!

I was diagnosed with tendinitis is my writing arm on Monday and sat two exams. I’ll be so happy if I pass them given my amount of effort ?

Section C DVM vs CAPM: I said how dvm considered growth and dividend and CAPM considered systematic and unsystematic risk, portfolio diversification, beta risk. Think the business in question went from one to to another, music player so CAPM was more relevant for specific cost rather then cost of capital.

Islamic finance I wrote ljara (lease) that benefits eg no initial cost, repair cost to lease etc. And musharak, sure I spelt this wrong but explained venture capitalist and how they help with finance and received percentage of profit.

Was payback not first converting profit into cf by dividing the depreciation each year and then doing cum cf? I got something like 3 year 8 month or 9 months. I was confused if I had to divide the .88 by 12 months to get the months.

Project should be accepted from npv point and reject from payback point as over 2 year target but npv superior.

They could improve their investment descion by using other investment appraisal methods irr, intergrating risk and uncertainty eg sentativity analysis. I also got the inflation rate out of date as historic average.

The Npv question I didn’t understand the residual value was not discounted by 5% what did this mean? I put the tax and depreciation but one year in arrears. I inflated up the cf from year 1, should it have been year 2? Used money cost of capital.

Section a and b was really hard so just guessed most of them. Hope to achieve a few good marks section C and section a and b to just bump be to 50!

@ajaved5 said:

On NPV cash flow, you inflate by the 4%. E.g
£100 sales inflated at 4% would be
Y2: 100 * 1.04
Y3: 100 * 1.04 * 1.04
Y4: 100 * 1.04 * 1.04 * 1.04 etc.

You do not inflate year 1 as this is your base figure.

Pls what was npv value
I got about 3m
Did u add scrap value to d npv calculation

I got 2yr 7month for payback cal.

Pls what was NPV for that question

@xanpech said:
I also inflated from year 1, I think this is correct though? As the cash flows represent the end of each year and no inflation had been applied to any of the figures.

I thought the same but I could be wrong, what would current/real terms mean?

Perhaps I was incorrect then.

I’ve always considered the Y1 to be absolute and the inflation rates a forecast for the future.

My NPV question said that tax is paid “at the end of the year it relates to” – is that the same thing as tax is paid in arrears?

hmmmmmm

@liamb said:
I think the 100% allowance in first year just means you just calc whatever the tax rate was of the investment (like 15% of £600k) and use that as a positive cash flow in year one – which made my NPV positive

hmmm I did opposite.

I actually thought that the R&D and depreciation was mentioned just to fool you because the question gave profits/(loss) and said that they were already included in the profit/(loss) calculation so I just accounted for the 100% allowances in the first year ($600/4yrs *80%).

I then tax the figures and discount them to get a negative NPV.
I advice against the investment.

@liamb said:
That working capital question screwed me too! I read it and thought ah nice easy marks, but couldnt get the quick ratio at all

I know how to work the quick ratio out and still wasn’t getting the same answer as what they gave to work from :/
Baffling!