ACCA - Association of Chartered Certified Accountants Financial Management and Investment Questions and Answers

Question 1

A company has an inventory holding period of 45 days, a receivables collection period of 60 days, and a payables payment period of 30 days. What is the length of the company's cash operating cycle?

Accepted Answer

75 days

Answer

135 days

Answer

105 days

Answer

15 days

Question 2

When evaluating mutually exclusive projects, which of the following statements best describes a key advantage of using the Net Present Value (NPV) method over the Internal Rate of Return (IRR) method?

Accepted Answer

NPV directly measures the absolute increase in shareholder wealth.

Answer

NPV is a percentage measure, making it easier to compare projects of different sizes.

Answer

IRR always provides a single, unambiguous decision rule, unlike NPV.

Answer

NPV is easier to calculate as it does not require the company's cost of capital.

Question 3

A company announces a 1-for-4 rights issue at a subscription price of $2.50 per share. The current market price of the company's shares is $3.10. What is the theoretical ex-rights price per share?

Accepted Answer

$2.98

Answer

$2.65

Answer

$2.80

Answer

$3.00

Question 4

Which of the following is a critical underlying assumption when using a company's existing Weighted Average Cost of Capital (WACC) to evaluate a new investment project?

Accepted Answer

The business risk of the new project is similar to the company's existing operations.

Answer

The project will be financed entirely by new equity.

Answer

The project is expected to have a higher Internal Rate of Return (IRR) than existing projects.

Answer

The company's tax rate is expected to decrease as a result of the new project.

Question 5

A private company has reported post-tax earnings of $5 million. A comparable publicly listed company has a P/E ratio of 12. Analysts suggest that a 20% discount should be applied to the P/E ratio to reflect the lower marketability and higher risk of the private company's shares. Using the P/E ratio method, what is the estimated value of the private company?

Accepted Answer

$48 million

Answer

$60 million

Answer

$12 million

Answer

$50 million

Question 6

A UK company has recently made a large sale to a customer in the United States, with payment of $1.5 million due in 90 days. The company is concerned that the GBP/USD exchange rate may move unfavourably before the payment is received. What type of foreign exchange risk is the company primarily exposed to?

Accepted Answer

Transaction risk

Answer

Translation risk

Answer

Economic risk

Answer

Liquidity risk

A company has an inventory holding period of 45 days, a receivables collection period of 60 days, and a payables payment period of 30 days.What is the length of the company's cash operating cycle?

A company has an inventory holding period of 45 days, a receivables collection period of 60 days, and a payables payment period of 30 days.
What is the length of the company's cash operating cycle?