*** March 2023 ACCA AFM exam – Instant Poll and comments ***

Found it better than the December paper, still realized I made some dumb mistakes after the exam and didn’t identify the multi-period capital rationing properly but overall much better than December.

I got
Q1 aquisition and disposal and big theory part
Q2 was international investment with some tricky parts
Q3 was FX hedging

Paper was a bit tricky.. Had lost time trying to understand the scenario..

I am in the same boat as you @marcoven…..I love AFM and quite comfortable in all areas….its just the time that messes me up……i start rushing and missing out on reading things properly and then too cannot attempt it all……second time today. Last time was at 49.

I’m exactly the same as you. Passed all other exams first time and have this and SBL left to do.
I couldn’t understand how to value the acquisition in the first question. It gave all this information about P/E ratios but no actual ratio was given and no quantity of shares so I couldn’t figure out how to do anything with this part.
Did anyone else have this same problem?

Better exam than December but there was much more theory I think. I preferred Q1 on hedging than acquisition today. To calculate the wacc post acquisition I couldn’t find the debts value!

I had rationing but I didn’t have time to finish question 3.

Question 2 on hedging was ok, interest FRA, future, collars but again lots of theory.

I think was duable if you studied hard (I had AAA too so didn’t have time for preparing AFM).

I would say for AFM the secret is to repeat the same question lots of time and time management, flying through the paper even if the numbers are wrong.

At least I like the paper….

The first question, The one on how an anlayst said the Parent company’s equity value was low because of the subsidiary and asked for reasons that was so. Anybody with ideas on how to answer that?

Overall a fair exam compared to Dec one which was horrific and very skewed towards Risk Management – I just realised my question practice was not up to scratch as struggled time wise

I had the following questions…

Q1 Exitis BoD wanted to sell Altus due to last 2 years market felt Altus was weighing overall group equity value down – part a was to suggest why this was (one obvious one given from Q info was Director left 3 years ago who advised on buying Altus and was closely monitoring the acquisition made 6 years ago…I also mentioned synergies not being realised compared to market expectations on the initial acquisition and different types of manufacrtuing companies (one machinery equipment with AI and the other small medical supplies… differing business risk and financial possibly so affected differently with market risk etc) – the rest of the 5 marks could be open to any plausible explanation I felt so decent opening question.

Q1 then asked to compute equity value for Altus – took me while to decipher from info but I used FCF method to get market valuation – cost of capital was given as 9% and had to work out PAT as % of sales (growth rate of sales had to be worked out also) then few adjustments such as additional investment changes then discount and delayed perpetuity valuation in Year 4-5 ..I think I had market valuation of £319m but can’t remember exactly.

Q1 then asked to work out market valuation of suggested new acquisition Probart and if selling Altus would raise enough funds and whether that was good for existing shareholders then asked about bonds or rights issue as method of financing, any assumptions/weaknesses in method of valuation and finally some comments the government made about asking for political party financial support – appeared like ethical dilemma.
The MV of Probart could be worked out using P/E ratio from the data given and had to add synergies amount also to get value of new group before applying P/E ratio of group to new PAT (inc synergy given in q). I worked out that Altus funds from sale would cover acquisition of Probart (assuming correct with that part).

Q2 was fairly standard net payment for ForEx covering Forward rate agreement, Futures and Options – unfortunately I did this question last and suffered time wise as spent too long on Q3 and Q1 in that order.

Q3 was investment appraisal – FCFs company beginning with Y (can’t remember name) and owned 100% subsidiary in one country and was thinking of buying another subsidiary in another country but this country government was not permitting remittance of dividends for first 4 years. The parent company had option to further invest if subsidiary was profitable in first 4 years – I thought this sounded a little like a ‘real’ call option so mentioned that. – anyone else think that or not?

The second part of the question asked about the implications/risk of having foreign subsidiary if I remember right but seems distant memory now ..if anyone remembers better would be good to know.

Overall I thought paper was a fair one – just annoyed I didn’t pick out the relevant bits from scenario quick enough

This paper was fair as compared to December 2022.
I really struggled with time management.

To read the case scenarios takes some time and I did not get to calculating the gain/value part of the first question,
Could not recall linear programming for the multi year rationing, applied normal rationing.
Hedging question was good.

Do you remember the mark allocation?

The best way I found to manage time is by doing the following (only works for center based exams though which I always write)

Assume 15min as reading and question setup time(just for the sake of making the number easy to work with, any time gained here will be available elsewhere)

Use 2min per mark as a base (80 technical x 2min = 160min)

Wait for working paper to be handed out before starting the exam (stay on instruction screen until you get the working paper)

Once you get the working paper set up the following columns

Question Marks Time End time

Start the exam and quickly check the requirement section for each question part. On the table you just created put down the question number, the number of marks, the time available for that question part and the time you need to move on from it by deducting that time from 3 hours (you’ve assumed that 15min is for reading and question setup as stated above).

It on average about 2-3min to do this. It’s simple to do it in your head coz the numbers are all round numbers. You’ll end with 20min available at the end of the exam if you stick to the “End time” for every question but more importantly you will have a target time to end every question, which makes it easy to decide if you want to overrun the time a little for a question you know you’re doing well on or to abandon something you’re battling with so you don’t waste time on it. If you still have time at the end you can go back and try the ones you moved on from

last questions about SWAPS what was the final outcome??

Q1 was about Joshua Co acquiring Fraser Co. Huge chunk of theory including agency issue, concerns and assumptions of management and share buyback in the context of liquidity issues, potential covenant breach and so on.

Q2 was about Numium Co regarding the NPV with positive 1.4 million result. Capital rationing (totally forgot about multi period capital rationing) and imposing soft capital rationing as the company was not using hard capital rationing.

Q3 Interest rate hedge of USD 96 million. FRA, Interest rate future, Collar and Swap. It was quite a disaster for me(((

Couldn’t put it any better. That’s a fair snapshot of the paper. I too thought it a fair paper, more or less equally balanced between numerical and discursive questions.

If you remember in the Exitus Co question we were to find the Equity Vale of Acta. After the FCF you would end up with the value of the entire firm inclusive of debt but they asked for the equity value. A pointer to the fact that we will arrived at the overall value would be that we discounted with the Cost of Capital. But we were given a debt to equity ratio of Exitus Co as 30:70. For me I stated in my excel sheet that “assume the debt to equity ratio of Acta Co is same as Exitus Co”. I then multiplied my FCF by 70% to arrive at my Equity value of Acta Co. Anyone with an alternative approach at arriving at the Equity value of Acta Co?

same question here. not sure on how I should have answered to this