*** June 2023 ACCA FM exam – Instant Poll and comments ***

Pecking Order Theory. I believe –

1) Retained earnings
2 Bank Loan
3) Stock Loans
4) Equity

I was surprised by the presence of Bank Loans but decided that Bank Loans are shorter than Bonds and cheaper which will reduce the WACC.

Am I right?

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Yeah, I had the same question and this is the exact order I put so hopefully it’s right! pretty sure equity is the lowest in terms of financing while retained earnings & loans were further up the chain due to their lower costs.

Feeling grateful I missed that sensitivity analysis 20-mark question some people had. sounds ridiculously tricky. For section C I got a mixture of working capital management (Cash Operating cycle/Miller Orr & Discussion on trade receivables & NPV/investment apprasial+capital rationing.

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Regarding Section C – Cash Operating cycle, I used the cost of sales to calculate WIP and Finished goods, but I think should have used the cost of goods. Can you remind me if it was mentioned that the Material purchased on credit was 90% of the production costs?

Regarding Section C NPV calculation for a project (not the PI) – It was said to ignore the tax (corporate tax and tax allowable deprecation)?

Thank you Kish for the NPV not tax answer – makes me happy.

What about the Cash Operating Cycle – Do you remember WIP and Finished Goods? How did you calculate them?

It has been helpful reading everyone’s comments as I also found the exam so hard. I had the sensitivity question on sales volume, discount rate and how much the tax would need to increase. I used IRR and also got 18.5%.
I got the section B question about the start up with the sisters and the brother investing it was so tricky!!
I found the section A questions hard too.
I’ve never flagged so many questions in an exam before and I felt some of the questions didn’t make sense!!!
Did anyone get the section A question about cost of equity and were given the beta from the proxy company and it gave their asset beta? I calculated the equity beta of the proxy company and used that but none of the figures matched and now I’m thinking should I have used the asset beta.

Similar to the Q above, does anyone study whilst waiting for results as I’m sure I will need to resist?

Regarding Section C – Cash Operating cycle, I used the cost of sales to calculate WIP and Finished goods, but I think should have used the cost of goods. Can you remind me if it was mentioned that the Material purchased on credit was 90% of the production costs?

Regarding Section C NPV calculation for a project (not the PI) – It was said to ignore the tax (corporate tax and tax allowable deprecation)?

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Additionally, what do you think about the inflated fixed costs of 35,000 in Section C (NPV calculation)? Was it for the project life or should be taken per year (5 * 35,000).

Wow, I feel incredibly lucky to have had the Working Capital Cycle / NPV calc in Section C – Sensitivity analysis sounds terrible! I’m a bit worried that I missed something in Section C though, because it did seem a little (dare I say it) easy…? Compared to past section C questions I’d studied… ?

Hope you all get good news in July! ?

You were supposed to use “Cost of Goods sold” or Cost of Sales(For WIP and Finished) in other words for the Working Capital Question.

I had the same section C question, found it OK hope I did enough. section A was a disaster and section B was hard.

Hey, has anyone got the question about the effective annual rate in section A?

Question:
A company wants to invest the surplus funds. The nominal value of the loan note/ bond is $10000 and the current market value is $9938. The maturity date will be 45 days later. Assume 360 days per year.

Options given are 8.05%, 4.99%… (I could not remember the remaining two options given)

I have no idea about this question. Anyone could guide me on this?

The answer of the working capital cycle is indeed 73 days and the purchases wasn’t a distraction it had to be used for calculating the payable days and also for the 6 marker analysis question that followed it.

What was the outcome of Section C – Factor question (Working Capital)?
Was it beneficial for the company to accept factoring offer?

Does anyone remember what they put for the futures contract? I think the option I selected was a 20k receipt from the bank

This is my second sitting of FM, I had put in a lot of work to revision as I got 47 last sitting and really wanted to pass this time around. I found the paper a lot tougher than last time, some of the questions I had never seen the topics being asked in that way. I thought Section C was ok, sensitivity was tough and factoring/working capital was doable.

Second B was a disaster, really tough questions and took a guess at a lot of them. I really struggled with Section B at the last sitting and put a lot of work into revising it, but don’t think I did any better this time around.

Section A was ok, a lot of theory questions, and felt like large sections of the course didn’t even feature. Some really tricky calculations too, don’t think I have ever flagged as many questions as I did this time around.

I really really hope to pass, but Im not sure I answered enough correctly. The 6 week wait is a killer, wish they could get the results back quicker so that you could make a plan for the next exam. I find it really hard to get stuck into a new subject while waiting for results.

For Section C I got the Sensitivity Analysis question and Factoring Question.

Sensitivity Analysis

2a & 2b: For Sensitivity Analysis I wasn’t sure on how to calculate the sensitivity of tax, so using the NPV I adjusted the rate until I got a NPV = 0 results.

I used contribution/NPV to calculate sensitivity but I didn’t remove tax so likely have done it wrong, but I didn’t get the IRR bit so will get minimal marks in this section I fear.

2c. For the theory on the thoughts of the CEO, I tried to explain that S.A. used in conjunction with NPV can give the company a better understanding of the project etc, and tried to outline the pros of S.A. and then mentioned a few of the weakness too that its variables in isolation etc.

2d. For the limitations on accessing finance I outlined generic comments on this as there as very little information in the question, I tried to build on the fact that the market was volatile, hard to price future interest rate hikes etc, and the company could be highly geared etc, and SH might not want additional equity raised, that kind of thing. It was very generic, but there was so little to work off! I also commented on hard and soft rationing, in a general way.

Factoring

For the second question in Factoring, I worked out that the factoring would be more costing than the current situation with bad debts so not to go with the factoring company (question stated non-recourse). Given the sales amount and the 1.5% fee from the factor, it was more costly that the bad debts calculated at 0.5%. As part of this section I worked out the actual receivables days, and also the WACC for the factoring company cost of capital.

For second section I worked out the actual days and then the days saved. Then using the difference in days worked out the cost saving in terms of finance costs. I think I got 73 days like some others here.

Then the theory section of working capital financing and investing (cant remember exactly), I pointed out the difference between financing and investing, the use of LT and ST funding, and aggressive and conservative policy.

Section B
No. 1
Sisters owing an unlisted company -Brother wanted to invest and difference scenarios

For 1st question on preference shares, I just answered 8%, really not sure if that is right but I couldn’t figure it out. Pref shares are non tax deductible, and it was the only answer there that made any sense to me.

No. 2
Fx question. Found this incredibly tough, might have got first one right and maybe theory at end, but was really unsure about the others. Esp the difference in Monkey market v forward.

Section A
Cant remember all the questions but ones of note:

Re-Gearing
They gave the asset beta of a proxy company, so there was no need to de-gear, just re-gear using the proxy asset beta and our companies debt (less tax) and equity. I must have spend 10 minutes on this question as I had really revised it as its my second sitting and I didn’t know it at all the first time around. But that answer I got just wasn’t listed, and I was sure I was applying the formula correctly. I must have missed something. I took a guess at the end but was gutted as I spend a long time revising this topic.

Effective Exchange rate
Compare costs between forward and money market hedge. I did the calculation and was surprised that what I got was on the drop down list, but really unsure if I calculated it correctly. I thought it was a lot of work for a 2 marker

Fintech
Options were that it uses AI, big data and something else, cant quite remember.

Stakeholders
Was confused by this, it said bankers and if they were connected, internal or external. I thought connected, but the word bankers rather than banks confused me and I wonder if it was a distractor.

You were supposed to use “Cost of Goods sold” or Cost of Sales(For WIP and Finished) in —other words for the Working Capital Question.

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So, do you mean “Cost of goods Sold” and ” Cost of Sales” is the same figure for the question?

This does not help me a lot, because I have calculated 60% markup instead of margin and used the wrong base for Finished goods and WIP days. Probably, this stupid mistake will cost my head on that exam.