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ACCA历年考题之f9


Fundamentals Level – Skills Module

Financial Management
Thursday 10 December 2009

Time allowed Reading and planning: Writing:

15 minutes 3 hours

ALL FOUR questions are compulsory and MUST be attempted. Formulae Sheet, Present Value and Annuity Tables are on pages 6, 7 and 8. Do NOT open this paper until instructed by the supervisor. During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor. This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

Paper F9

ALL FOUR questions are compulsory and MUST be attempted 1 ASOP Co is considering an investment in new technology that will reduce operating costs through increasing energy efficiency and decreasing pollution. The new technology will cost $1 million and have a four-year life, at the end of which it will have a scrap value of $100,000. A licence fee of $104,000 is payable at the end of the first year. This licence fee will increase by 4% per year in each subsequent year. The new technology is expected to reduce operating costs by $580 per unit in current price terms. This reduction in operating costs is before taking account of expected inflation of 5% per year. Forecast production volumes over the life of the new technology are expected to be as follows: Year Production (units per year) 1 60,000 2 75,000 3 95,000 4 80,000

If ASOP Co bought the new technology, it would finance the purchase through a four-year loan paying interest at an annual before-tax rate of 86% per year. Alternatively, ASOP Co could lease the new technology. The company would pay four annual lease rentals of $380,000 per year, payable in advance at the start of each year. The annual lease rentals include the cost of the licence fee. If ASOP Co buys the new technology it can claim capital allowances on the investment on a 25% reducing balance basis. The company pays taxation one year in arrears at an annual rate of 30%. ASOP Co has an after-tax weighted average cost of capital of 11% per year. Required: (a) Based on financing cash flows only, calculate and determine whether ASOP Co should lease or buy the new technology. (11 marks) (b) Using a nominal terms approach, calculate the net present value of buying the new technology and advise whether ASOP Co should undertake the proposed investment. (6 marks) (c) Discuss and illustrate how ASOP Co can use equivalent annual cost or equivalent annual benefit to choose between new technologies with different expected lives. (3 marks) (d) Discuss how an optimal investment schedule can be formulated when capital is rationed and investment projects are either: (i) divisible; or (ii) non-divisible. (5 marks) (25 marks)

2

2

DD Co has a dividend payout ratio of 40% and has maintained this payout ratio for several years. The current dividend per share of the company is 50c per share and it expects that its next dividend per share, payable in one year’s time, will be 52c per share. The capital structure of the company is as follows: $m Equity Ordinary shares (par value $1 per share) Reserves Debt Bond A (par value $100) Bond B (par value $100) 25 35 ––– 60 20 10 ––– 30 ––– 90 ––– Bond A will be redeemed at par in ten years’ time and pays annual interest of 9%. The current ex interest market price of the bond is $9508. Bond B will be redeemed at par in four years’ time and pays annual interest of 8%. The cost of debt of this bond is 782% per year. The current ex interest market price of the bond is $10201. Bond A and Bond B were issued at the same time. DD Co has an equity beta of 12. The risk-free rate of return is 4% per year and the average return on the market of 11% per year. Ignore taxation. Required: (a) Calculate the cost of debt of Bond A. (b) Discuss the reasons why different bonds of the same company might have different costs of debt. (6 marks) (c) Calculate the following values for DD Co: (i) cost of equity, using the capital asset pricing model; (2 marks) (3 marks) (2 marks) (2 marks) (7 marks) (25 marks) (3 marks) $m

(ii) ex dividend share price, using the dividend growth model; (iii) capital gearing (debt divided by debt plus equity) using market values; and (iv) market value weighted average cost of capital. (d) Discuss whether a change in dividend policy will affect the share price of DD Co.

3

[P.T.O.

3

NG Co has exported products to Europe for several years and has an established market presence there. It now plans to increase its market share through investing in a storage, packing and distribution network. The investment will cost 13 million and is to be financed by equal amounts of equity and debt. The return in euros before interest and taxation on the total amount invested is forecast to be 20% per year. The debt finance will be provided by a 65 million bond issue on a large European stock market. The interest rate on the bond issue is 8% per year, with interest being payable in euros on a six-monthly basis. The equity finance will be raised in dollars by a rights issue in the home country of NG Co. Issue costs for the rights issue will be $312,000. The rights issue price will be at a 17% discount to the current share price. The current share price of NG Co is $400 per share and the market capitalisation of the company is $100 million. NG Co pays taxation in its home country at a rate of 30% per year. The currency of its home country is the dollar. The current price/earnings ratio of the company, which is not expected to change as a result of the proposed investment, is 10 times. The spot exchange rate is 13000 /$. All European customers pay on a credit basis in euros. Required: (a) Calculate the theoretical ex rights price per share after the rights issue. (b) Evaluate the effect of the European investment on: (i) the earnings per share of NG Co; and (ii) the wealth of the shareholders of NG Co. Assume that the current spot rate and earnings from existing operations are both constant. (9 marks) (4 marks)

(c) Explain the difference between transaction risk and translation risk, illustrating your answer using the information provided. (4 marks) (d) The six-month forward rate is 12876 /$ and the twelve-month forward rate is 12752 /$. NG Co can earn 28% per year on short-term euro deposits and can borrow short-term in dollars at 53% per year. Identify and briefly discuss exchange rate hedging methods that could be used by NG Co. Provide calculations that illustrate TWO of the hedging methods that you have identified. (8 marks) (25 marks)

4

4

APX Co achieved a turnover of $16 million in the year that has just ended and expects turnover growth of 84% in the next year. Cost of sales in the year that has just ended was $1088 million and other expenses were $144 million. The financial statements of APX Co for the year that has just ended contain the following statement of financial position: $m Non-current assets Current assets Inventory Trade receivables $m 220

24 22 ––– 46 –––– 266 –––– $m 50 75 ––– $m

Total assets Equity finance: Ordinary shares Reserves Long-term bank loan Current liabilities Trade payables Overdraft

125 100 –––– 225 19 22 ––– 41 –––– 266 ––––

Total liabilities

The long-term bank loan has a fixed annual interest rate of 8% per year. APX Co pays taxation at an annual rate of 30% per year. The following accounting ratios have been forecast for the next year: Gross profit margin: Operating profit margin: Dividend payout ratio: Inventory turnover period: Trade receivables period: Trade payables period: 30% 20% 50% 110 days 65 days 75 days

Overdraft interest in the next year is forecast to be $140,000. No change is expected in the level of non-current assets and depreciation should be ignored. Required: (a) Discuss the role of financial intermediaries in providing short-term finance for use by business organisations. (4 marks) (b) Prepare the following forecast financial statements for APX Co using the information provided: (i) an income statement for the next year; and (ii) a statement of financial position at the end of the next year. (c) Analyse and discuss the working capital financing policy of APX Co. (9 marks) (6 marks)

(d) Analyse and discuss the forecast financial performance of APX Co in terms of working capital management. (6 marks) (25 marks) 5 [P.T.O.

Formulae Sheet Economic order quantity 2C0D CH

=

Miller–Orr Model Return point = Lower limit + ( 1 × spread) 3
1

3 × transaction cost × variance of cash flows 3 Spread = 3 4 interest rate The Capital Asset Pricing Model E ri = Rf + βi E rm – Rf

()

(( ) )
(

The asset beta formula Vd 1 – T Ve + βa = βe βd Ve + Vd 1 – T Ve + Vd 1 – T

(

(

))

(

(

)

))

The Growth Model D0 1 + g

Po =

(r

(

e

–g

)

)

Gordon’s growth approximation g = bre The weighted average cost of capital V V e d k 1 – T ke + WACC = Ve + Vd d Ve + Vd

(

)

The Fisher formula

(1 + i) = (1 + r ) (1 + h)
Purchasing power parity and interest rate parity S1 = S0 ×

(1 + h ) (1 + h )
c b

F0 = S0 ×

(1 + i ) (1 + i )
c b

6

Present Value Table Present value of 1 i.e. (1 + r)–n Where r = discount rate n = number of periods until payment Discount rate (r) Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1% 0990 0980 0971 0961 0951 0942 0933 0923 0941 0905 0896 0887 0879 0870 0861 2% 0980 0961 0942 0924 0906 0888 0871 0853 0837 0820 0804 0788 0773 0758 0743 3% 0971 0943 0915 0888 0863 0837 0813 0789 0766 0744 0722 0701 0681 0661 0642 4% 0962 0925 0889 0855 0822 0790 0760 0731 0703 0676 0650 0625 0601 0577 0555 5% 0952 0907 0864 0823 0784 0746 0711 0677 0645 0614 0585 0557 0530 0505 0481 6% 0943 0890 0840 0792 0747 0705 0665 0627 0592 0558 0527 0497 0469 0442 0417 7% 0935 0873 0816 0763 0713 0666 0623 0582 0544 0508 0475 0444 0415 0388 0362 8% 0926 0857 0794 0735 0681 0630 0583 0540 0500 0463 0429 0397 0368 0340 0315 9% 0917 0842 0772 0708 0650 0596 0547 0502 0460 0422 0388 0356 0326 0299 0275 10% 0909 0826 0751 0683 0621 0564 0513 0467 0424 0386 0305 0319 0290 0263 0239 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

(n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

11% 0901 0812 0731 0659 0593 0535 0482 0434 0391 0352 0317 0286 0258 0232 0209

12% 0893 0797 0712 0636 0567 0507 0452 0404 0361 0322 0287 0257 0229 0205 0183

13% 0885 0783 0693 0613 0543 0480 0425 0376 0333 0295 0261 0231 0204 0181 0160

14% 0877 0769 0675 0592 0519 0456 0400 0351 0308 0270 0237 0208 0182 0160 0140

15% 0870 0756 0658 0572 0497 0432 0376 0327 0284 0247 0215 0187 0163 0141 0123

16% 0862 0743 0641 0552 0476 0410 0354 0305 0263 0227 0195 0168 0145 0125 0108

17% 0855 0731 0624 0534 0456 0390 0333 0285 0243 0208 0178 0152 0130 0111 0095

18% 0847 0718 0609 0516 0437 0370 0314 0266 0225 0191 0162 0137 0116 0099 0084

19% 0840 0706 0593 0499 0419 0352 0296 0249 0209 0176 0148 0124 0104 0088 0074

20% 0833 0694 0579 0482 0402 0335 0279 0233 0194 0162 0135 0112 0093 0078 0065 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

7

[P.T.O.

Annuity Table
–n Present value of an annuity of 1 i.e. 1 – (1 + r) ————–– r

Where

r = discount rate n = number of periods Discount rate (r)

Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

1% 0990 1970 2941 3902 4853 5795 6728 7652 8566 9471 1037 1126 1213 1300 1387 11% 0901 1713 2444 3102 3696 4231 4712 5146 5537 5889 6207 6492 6750 6982 7191

2% 0980 1942 2884 3808 4713 5601 6472 7325 8162 8983 9787 1058 1135 1211 1285 12% 0893 1690 2402 3037 3605 4111 4564 4968 5328 5650 5938 6194 6424 6628 6811

3% 0971 1913 2829 3717 4580 5417 6230 7020 7786 8530 9253 9954 1063 1130 1194 13% 0885 1668 2361 2974 3517 3998 4423 4799 5132 5426 5687 5918 6122 6302 6462

4% 0962 1886 2775 3630 4452 5242 6002 6733 7435 8111 8760 9385 9986 1056 1112 14% 0877 1647 2322 2914 3433 3889 4288 4639 4946 5216 5453 5660 5842 6002 6142

5% 0952 1859 2723 3546 4329 5076 5786 6463 7108 7722 8306 8863 9394 9899 1038 15% 0870 1626 2283 2855 3352 3784 4160 4487 4772 5019 5234 5421 5583 5724 5847

6% 0943 1833 2673 3465 4212 4917 5582 6210 6802 7360 7887 8384 8853 9295 9712 16% 0862 1605 2246 2798 3274 3685 4039 4344 4607 4833 5029 5197 5342 5468 5575

7% 0935 1808 2624 3387 4100 4767 5389 5971 6515 7024 7499 7943 8358 8745 9108 17% 0855 1585 2210 2743 3199 3589 3922 4207 4451 4659 4836 4988 5118 5229 5324

8% 0926 1783 2577 3312 3993 4623 5206 5747 6247 6710 7139 7536 7904 8244 8559 18% 0847 1566 2174 2690 3127 3498 3812 4078 4303 4494 4656 4793 4910 5008 5092

9% 0917 1759 2531 3240 3890 4486 5033 5535 5995 6418 6805 7161 7487 7786 8061 19% 0840 1547 2140 2639 3058 3410 3706 3954 4163 4339 4486 4611 4715 4802 4876

10% 0909 1736 2487 3170 3791 4355 4868 5335 5759 6145 6495 6814 7103 7367 7606 20% 0833 1528 2106 2589 2991 3326 3605 3837 4031 4192 4327 4439 4533 4611 4675 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

End of Question Paper

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