ACCA AS Financial Management (FM)

Question 1

A project requires an initial investment of £100,000 and generates equal annual cash inflows of £30,000 for 5 years.
The cost of capital is 10%.
The cumulative discount factor for 5 years at 10% is 3.791.
What is the Net Present Value (NPV)?

Accepted Answer

£13,730

Answer

£50,000

Answer

−£86,270

Answer

£30,000

Question 2

Which of the following statements about the weighted average cost of capital (WACC) is correct?

Accepted Answer

WACC should use market values of debt and equity as weights

Answer

WACC uses the book value of debt and equity as weights

Answer

WACC is always equal to the cost of equity

Answer

WACC increases as the proportion of debt increases (ignoring tax)

Question 3

A company has annual credit sales of £1,200,000 and average trade receivables of £200,000. What is the receivables collection period?

Accepted Answer

60.8 days

Answer

30.4 days

Answer

6 days

Answer

12 days

Question 4

What does the 'pecking order theory' of capital structure suggest?

Accepted Answer

Companies prefer internal financing first, then debt, and equity as a last resort

Answer

Companies should always maximise debt to benefit from the tax shield

Answer

Companies should maintain a fixed debt-to-equity ratio at all times

Answer

Equity financing is always preferred because it does not require fixed payments

Question 5

A company is considering offering a 2% early settlement discount to customers who pay within 10 days instead of the normal 30 days. What is the approximate annualised cost of this discount?

Accepted Answer

36.7%

Answer

2%

Answer

24%

Answer

73.4%

Question 6

Which of the following is a systematic risk that cannot be diversified away?

Accepted Answer

A change in interest rates by the Bank of England

Answer

A fire destroying a company's main warehouse

Answer

The CEO of a company unexpectedly resigning

Answer

A product recall affecting a single manufacturer