F9 (FM) – PART F – Section B – CBE MCQs – ACCA

These are ACCA F9 (FM) Financial Management MCQs for Part-G of the Syllabus “Risk management”.

These multiple-choice questions (MCQs) are designed to help ACCA F9 students to better understand the exam format. We aim to instill in students the habit of practicing online for their CBE exams. By doing so, students can reduce exam stress and prepare more effectively.

Please note:

  • Students should not attempt these MCQs until they have finished the entire chapter.
  • All questions are compulsory, so please do not skip any.

We hope that these MCQs will be a valuable resource for students preparing for the ACCA F9 (FM) exam.

INFORMATION ABOUT THESE CBE MCQs Test/Quiz

Course:ACCG – Association of Chartered Certified Accountants
Fundamental Level:Applied Skills
Subject:Financial Management
Paper:F9 – FR
Chapter and Topic
  • The nature and types of risk and approaches to risk management,
  • Causes of exchange rate differences and interest rate fluctuations,
  • Hedging techniques for foreign currency risk,
  • Hedging techniques for interest rate risk
Questions:
  1. Bluebell Co
  2. GWW Co
  3. Corhig Co
  4. Close Co
  5. WAW Co
  6. DFE Co
Syllabus Area:G – “Risk management”
Questions Type:CBE MCQs
Exam Section:Section A

Syllabus Area

These Multiple Choice Questions (MCQs) cover the Syllabus Area Part G of the Syllabus; “Risk management” of ACCA F9 (FM) Financial Management Module.

Time

These MCQs are not time-bound. Take your time and solve them without stress. Pay proper attention and focus. Do not rush or hesitate

Result

Students will get their F9 CBE MCQs Test results after they finish the entire test. They will also be able to see the correct and incorrect answers, as well as explanations for the incorrect questions.

Types of Questions

MCQs: Choose one from the given options.
Multiple choice: Choose all those answers which seem correct/ or incorrect to you, as per the requirement of the question. Keep your eye on the wording “(select all those which are correct/ or incorrect)“.
Drop-down: Select from the list provided.
Type numbers: Type your answer in numbers as per the requirement of the question.

QUESTION – Bluebell Co(01/06)

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F9 (FM) - Part F - MCQs - Bluebell Co

Course: ACCA - Association of Chartered Certified Accountants
Subject:
F9 (FM) - Financial Management
Syllabus Area: F - Business valuations
Chapter: 17 Business valuations, 18 Market efficiency
Exam Section: Section B
Question Name: Bluebell Co
Questions type: MCQs
Time: No Time Limit

INSTRUCTIONS

  1. If you are using mobile, turn on the mobile rotation and solve the MCQs on wide screen for better experience.

REQUEST

  1. Please rate the quiz and give us feedback once you completed the quiz.
  2. Share with ACCA students on social media such as, Facebook Groups, Whatsapp, Telegram, etc.

1 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

Extracts from the financial statements of Bluebell Co, a listed company, are as follows:

$m
Profit before interest and tax 238
Finance costs  (24)
Profit before tax 214
Corporation tax  (64)
Profit after tax   150
$m
Assets
Non-current assets
Property, plant and equipment 768
Goodwill (internally generated)  105
 873
Current assets 285
Inventories  192
Trade receivables  477
 1,350
Total assets
Equity and liabilities
Total equity 688
Non-current liabilities
Long-term borrowings 250
Current liabilities
Trade payables 312
Short-term borrowings  100
Total current liabilities  412
Total liabilities  662
Total equity and liabilities  1,350

A similar size competitor company has a price/earnings ratio of 12.5 times.

This competitor believes that if Bluebell Co were liquidated, property, plant and equipment would only realise $600 million, while 10% of trade receivables would be irrecoverable and inventory would be sold at $30 million less than its book value.

Separately, Bluebell Co is considering the acquisition of Dandelion Co, an unlisted company which is a supplier of Bluebell Co.

REQUIREMENT

Which of the following statements is correct?

2 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

Extracts from the financial statements of Bluebell Co, a listed company, are as follows:

$m
Profit before interest and tax 238
Finance costs  (24)
Profit before tax 214
Corporation tax  (64)
Profit after tax   150
$m
Assets
Non-current assets
Property, plant and equipment 768
Goodwill (internally generated)  105
 873
Current assets 285
Inventories  192
Trade receivables  477
 1,350
Total assets
Equity and liabilities
Total equity 688
Non-current liabilities
Long-term borrowings 250
Current liabilities
Trade payables 312
Short-term borrowings  100
Total current liabilities  412
Total liabilities  662
Total equity and liabilities  1,350

A similar size competitor company has a price/earnings ratio of 12.5 times.

This competitor believes that if Bluebell Co were liquidated, property, plant and equipment would only realise $600 million, while 10% of trade receivables would be irrecoverable and inventory would be sold at $30 million less than its book value.

Separately, Bluebell Co is considering the acquisition of Dandelion Co, an unlisted company which is a supplier of Bluebell Co.

REQUIREMENT

Which of the following is/are indicators of market imperfections?

  1. Low volume of trading in shares of smaller companies
  2. Overreaction to unexpected news

3 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

Extracts from the financial statements of Bluebell Co, a listed company, are as follows:

$m
Profit before interest and tax 238
Finance costs  (24)
Profit before tax 214
Corporation tax  (64)
Profit after tax   150
$m
Assets
Non-current assets
Property, plant and equipment 768
Goodwill (internally generated)  105
 873
Current assets 285
Inventories  192
Trade receivables  477
 1,350
Total assets
Equity and liabilities
Total equity 688
Non-current liabilities
Long-term borrowings 250
Current liabilities
Trade payables 312
Short-term borrowings  100
Total current liabilities  412
Total liabilities  662
Total equity and liabilities  1,350

A similar size competitor company has a price/earnings ratio of 12.5 times.

This competitor believes that if Bluebell Co were liquidated, property, plant and equipment would only realise $600 million, while 10% of trade receivables would be irrecoverable and inventory would be sold at $30 million less than its book value.

Separately, Bluebell Co is considering the acquisition of Dandelion Co, an unlisted company which is a supplier of Bluebell Co.

REQUIREMENT

When valuing Bluebell Co using asset-based valuations, which of the following statements is correct?

4 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

Extracts from the financial statements of Bluebell Co, a listed company, are as follows:

$m
Profit before interest and tax 238
Finance costs  (24)
Profit before tax 214
Corporation tax  (64)
Profit after tax   150
$m
Assets
Non-current assets
Property, plant and equipment 768
Goodwill (internally generated)  105
 873
Current assets 285
Inventories  192
Trade receivables  477
 1,350
Total assets
Equity and liabilities
Total equity 688
Non-current liabilities
Long-term borrowings 250
Current liabilities
Trade payables 312
Short-term borrowings  100
Total current liabilities  412
Total liabilities  662
Total equity and liabilities  1,350

A similar size competitor company has a price/earnings ratio of 12.5 times.

This competitor believes that if Bluebell Co were liquidated, property, plant and equipment would only realise $600 million, while 10% of trade receivables would be irrecoverable and inventory would be sold at $30 million less than its book value.

Separately, Bluebell Co is considering the acquisition of Dandelion Co, an unlisted company which is a supplier of Bluebell Co.

REQUIREMENT

What is the value of Bluebell Co using the earnings yield method?

5 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

Extracts from the financial statements of Bluebell Co, a listed company, are as follows:

$m
Profit before interest and tax 238
Finance costs  (24)
Profit before tax 214
Corporation tax  (64)
Profit after tax   150
$m
Assets
Non-current assets
Property, plant and equipment 768
Goodwill (internally generated)  105
 873
Current assets 285
Inventories  192
Trade receivables  477
 1,350
Total assets
Equity and liabilities
Total equity 688
Non-current liabilities
Long-term borrowings 250
Current liabilities
Trade payables 312
Short-term borrowings  100
Total current liabilities  412
Total liabilities  662
Total equity and liabilities  1,350

A similar size competitor company has a price/earnings ratio of 12.5 times.

This competitor believes that if Bluebell Co were liquidated, property, plant and equipment would only realise $600 million, while 10% of trade receivables would be irrecoverable and inventory would be sold at $30 million less than its book value.

Separately, Bluebell Co is considering the acquisition of Dandelion Co, an unlisted company which is a supplier of Bluebell Co.

REQUIREMENT

What is the value of Bluebell Co on a net realisable value basis?

QUESTION – GWW Co(02/06)

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F9 (FM) - Part F - MCQs - GWW Co

Course: ACCA - Association of Chartered Certified Accountants
Subject:
F9 (FM) - Financial Management
Syllabus Area: F - Business valuations
Chapter: 17 Business valuations, 18 Market efficiency
Exam Section: Section B
Question Name: GWW Co
Questions type: MCQs
Time: No Time Limit

INSTRUCTIONS

  1. If you are using mobile, turn on the mobile rotation and solve the MCQs on wide screen for better experience.

REQUEST

  1. Please rate the quiz and give us feedback once you completed the quiz.
  2. Share with ACCA students on social media such as, Facebook Groups, Whatsapp, Telegram, etc.

1 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

GWW Co is a listed company which is seen as a potential target for acquisition by financial analysts. The value of the company has therefore been a matter of public debate in recent weeks and the following financial information is available:

Year 20Y2 20Y1 20Y0 20X9
Profit after tax ($m) 10.1 9.7 8.9 8.5
Total dividends ($m) 6.0 5.6 5.2 5.0

STATEMENT OF FINANCIAL POSITION INFORMATION FOR 20Y2

$m $m
Non-current assets 91.0
Current assets
Inventory 3.8
Trade receivables  4.5    8.3
Total assets  99.3
Equity finance
Ordinary shares 20.0
Reserves  47.2 67.2
Non-current liabilities
8% bonds 25.0
Current liabilities   7.1
Total liabilities  99.3

The shares of GWW Co have a nominal (par) value of 50c per share and a market value of $4.00 per share. The business sector of GWW Co has an average price/earnings ratio of 17 times.

The expected net realisable values of the non-current assets and the inventory are $86.0m and $4.2m respectively. In the event of liquidation, only 80% of the trade receivables are expected to be collectible.

REQUIREMENT

Assume that GWW Co's P/E ratio is 15. Its competitor's earnings yield is 6.25%.

When comparing GWW Co to its competitor, which of the following is correct?

2 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

GWW Co is a listed company which is seen as a potential target for acquisition by financial analysts. The value of the company has therefore been a matter of public debate in recent weeks and the following financial information is available:

Year 20Y2 20Y1 20Y0 20X9
Profit after tax ($m) 10.1 9.7 8.9 8.5
Total dividends ($m) 6.0 5.6 5.2 5.0

STATEMENT OF FINANCIAL POSITION INFORMATION FOR 20Y2

$m $m
Non-current assets 91.0
Current assets
Inventory 3.8
Trade receivables  4.5    8.3
Total assets  99.3
Equity finance
Ordinary shares 20.0
Reserves  47.2 67.2
Non-current liabilities
8% bonds 25.0
Current liabilities   7.1
Total liabilities  99.3

The shares of GWW Co have a nominal (par) value of 50c per share and a market value of $4.00 per share. The business sector of GWW Co has an average price/earnings ratio of 17 times.

The expected net realisable values of the non-current assets and the inventory are $86.0m and $4.2m respectively. In the event of liquidation, only 80% of the trade receivables are expected to be collectible.

REQUIREMENT

An investor believes that they can make abnormal returns by studying past share price movements.

In terms of capital market efficiency, to which of the following does the investor's belief relate?

3 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

GWW Co is a listed company which is seen as a potential target for acquisition by financial analysts. The value of the company has therefore been a matter of public debate in recent weeks and the following financial information is available:

Year 20Y2 20Y1 20Y0 20X9
Profit after tax ($m) 10.1 9.7 8.9 8.5
Total dividends ($m) 6.0 5.6 5.2 5.0

STATEMENT OF FINANCIAL POSITION INFORMATION FOR 20Y2

$m $m
Non-current assets 91.0
Current assets
Inventory 3.8
Trade receivables  4.5    8.3
Total assets  99.3
Equity finance
Ordinary shares 20.0
Reserves  47.2 67.2
Non-current liabilities
8% bonds 25.0
Current liabilities   7.1
Total liabilities  99.3

The shares of GWW Co have a nominal (par) value of 50c per share and a market value of $4.00 per share. The business sector of GWW Co has an average price/earnings ratio of 17 times.

The expected net realisable values of the non-current assets and the inventory are $86.0m and $4.2m respectively. In the event of liquidation, only 80% of the trade receivables are expected to be collectible.

REQUIREMENT

What is the value of GWW Co using the price/earnings ratio method (business sector average price/earnings ratio)?

4 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

GWW Co is a listed company which is seen as a potential target for acquisition by financial analysts. The value of the company has therefore been a matter of public debate in recent weeks and the following financial information is available:

Year 20Y2 20Y1 20Y0 20X9
Profit after tax ($m) 10.1 9.7 8.9 8.5
Total dividends ($m) 6.0 5.6 5.2 5.0

STATEMENT OF FINANCIAL POSITION INFORMATION FOR 20Y2

$m $m
Non-current assets 91.0
Current assets
Inventory 3.8
Trade receivables  4.5    8.3
Total assets  99.3
Equity finance
Ordinary shares 20.0
Reserves  47.2 67.2
Non-current liabilities
8% bonds 25.0
Current liabilities   7.1
Total liabilities  99.3

The shares of GWW Co have a nominal (par) value of 50c per share and a market value of $4.00 per share. The business sector of GWW Co has an average price/earnings ratio of 17 times.

The expected net realisable values of the non-current assets and the inventory are $86.0m and $4.2m respectively. In the event of liquidation, only 80% of the trade receivables are expected to be collectible.

REQUIREMENT

What is the value of GWW Co using the net asset value (liquidation basis)? (in $m to the nearest whole million

5 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

GWW Co is a listed company which is seen as a potential target for acquisition by financial analysts. The value of the company has therefore been a matter of public debate in recent weeks and the following financial information is available:

Year 20Y2 20Y1 20Y0 20X9
Profit after tax ($m) 10.1 9.7 8.9 8.5
Total dividends ($m) 6.0 5.6 5.2 5.0

STATEMENT OF FINANCIAL POSITION INFORMATION FOR 20Y2

$m $m
Non-current assets 91.0
Current assets
Inventory 3.8
Trade receivables  4.5    8.3
Total assets  99.3
Equity finance
Ordinary shares 20.0
Reserves  47.2 67.2
Non-current liabilities
8% bonds 25.0
Current liabilities   7.1
Total liabilities  99.3

The shares of GWW Co have a nominal (par) value of 50c per share and a market value of $4.00 per share. The business sector of GWW Co has an average price/earnings ratio of 17 times.

The expected net realisable values of the non-current assets and the inventory are $86.0m and $4.2m respectively. In the event of liquidation, only 80% of the trade receivables are expected to be collectible.

REQUIREMENT

What is the value of GWW Co using market capitalisation (equity market value)? (in $m to the nearest whole million)

Your score is

QUESTION – Corhig Co(03/06)

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F9 (FM) - Part F - MCQs - Corhig Co

Course: ACCA - Association of Chartered Certified Accountants
Subject:
F9 (FM) - Financial Management
Syllabus Area: F - Business valuations
Chapter: 17 Business valuations, 18 Market efficiency
Exam Section: Section B
Question Name: Corhig Co
Questions type: MCQs
Time: No Time Limit

INSTRUCTIONS

  1. If you are using mobile, turn on the mobile rotation and solve the MCQs on wide screen for better experience.

REQUEST

  1. Please rate the quiz and give us feedback once you completed the quiz.
  2. Share with ACCA students on social media such as, Facebook Groups, Whatsapp, Telegram, etc.

1 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

Corhig Co is a company that is listed on a major stock exchange. The company has struggled to maintain profitability in the last two years due to poor economic conditions in its home country and as a consequence it has decided not to pay a dividend in the current year. However, there are now clear signs of economic recovery and Corhig Co is optimistic that payment of dividends can be resumed in the future. Forecast financial information relating to the company is as follows:

Year 1 2 3
Earnings ($'000) 3,000 3,600 4,300
Dividends ($'000) nil 500 1,000

The current average price/earnings ratio of listed companies similar to Corhig Co is five times.

The company is optimistic that earnings and dividends will increase after Year 3 at a constant annual rate of 3% per year.

REQUIREMENT

Which of the following options correctly matches the type of risk to its corresponding statement?

  1. Risk linked to the extent to which the company's profits depend  on fixed, rather than variable, costs
  2. Risk that shareholder cannot mitigate by holding a diversified investment portfolio
  3. Risk that shareholder return fluctuates as a result of the level of debt the company undertakes

2 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

Corhig Co is a company that is listed on a major stock exchange. The company has struggled to maintain profitability in the last two years due to poor economic conditions in its home country and as a consequence it has decided not to pay a dividend in the current year. However, there are now clear signs of economic recovery and Corhig Co is optimistic that payment of dividends can be resumed in the future. Forecast financial information relating to the company is as follows:

Year 1 2 3
Earnings ($'000) 3,000 3,600 4,300
Dividends ($'000) nil 500 1,000

The current average price/earnings ratio of listed companies similar to Corhig Co is five times.

The company is optimistic that earnings and dividends will increase after Year 3 at a constant annual rate of 3% per year.

REQUIREMENT

Corhig Co plans to raise debt in order to modernise some of its non-current assets and to support the expected growth in earnings. This additional debt would mean that the capital structure of the company would change and it would be financed 60% by equity and 40% by debt on a market value The before-tax cost of debt of Corhig Co would increase to 6% per year. In order to stimulate economic activity the Government has reduced the tax rate for all large companies to 20% per year.

Assuming that the revised cost of equity is 14%, what is the revised weighted average after- tax cost of capital of Corhig Co following the new debt issue? (give your answer to 2 decimal places)

______%

3 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

Corhig Co is a company that is listed on a major stock exchange. The company has struggled to maintain profitability in the last two years due to poor economic conditions in its home country and as a consequence it has decided not to pay a dividend in the current year. However, there are now clear signs of economic recovery and Corhig Co is optimistic that payment of dividends can be resumed in the future. Forecast financial information relating to the company is as follows:

Year 1 2 3
Earnings ($'000) 3,000 3,600 4,300
Dividends ($'000) nil 500 1,000

The current average price/earnings ratio of listed companies similar to Corhig Co is five times.

The company is optimistic that earnings and dividends will increase after Year 3 at a constant annual rate of 3% per year.

REQUIREMENT

Assuming that the cost of equity is 12%, what is the present value of Corhig Co's Year 2 dividend?

4 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

Corhig Co is a company that is listed on a major stock exchange. The company has struggled to maintain profitability in the last two years due to poor economic conditions in its home country and as a consequence it has decided not to pay a dividend in the current year. However, there are now clear signs of economic recovery and Corhig Co is optimistic that payment of dividends can be resumed in the future. Forecast financial information relating to the company is as follows:

Year 1 2 3
Earnings ($'000) 3,000 3,600 4,300
Dividends ($'000) nil 500 1,000

The current average price/earnings ratio of listed companies similar to Corhig Co is five times.

The company is optimistic that earnings and dividends will increase after Year 3 at a constant annual rate of 3% per year.

REQUIREMENT

Which of the following statement is True?

  1. A P/E valuation using average earnings of $3.63m would be more realistic than the P/E ratio method calculated above.
  2. Using the average P/E ratio of similar companies is appropriate in this situation.

5 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

Corhig Co is a company that is listed on a major stock exchange. The company has struggled to maintain profitability in the last two years due to poor economic conditions in its home country and as a consequence it has decided not to pay a dividend in the current year. However, there are now clear signs of economic recovery and Corhig Co is optimistic that payment of dividends can be resumed in the future. Forecast financial information relating to the company is as follows:

Year 1 2 3
Earnings ($'000) 3,000 3,600 4,300
Dividends ($'000) nil 500 1,000

The current average price/earnings ratio of listed companies similar to Corhig Co is five times.

The company is optimistic that earnings and dividends will increase after Year 3 at a constant annual rate of 3% per year.

REQUIREMENT

Using Corhig Co's forecast earnings for Year 1 and the average P/E ratio of similar companies, what is the value of Corhig Co using the price/earnings ratio method?

$____ millions.

Your score is

QUESTION – Close Co(04/06)

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F9 (FM) - Part F - MCQs - Close Co

Course: ACCA - Association of Chartered Certified Accountants
Subject:
F9 (FM) - Financial Management
Syllabus Area: F - Business valuations
Chapter: 17 Business valuations, 18 Market efficiency
Exam Section: Section B
Question Name: Close Co
Questions type: MCQs
Time: No Time Limit

INSTRUCTIONS

  1. If you are using mobile, turn on the mobile rotation and solve the MCQs on wide screen for better experience.

REQUEST

  1. Please rate the quiz and give us feedback once you completed the quiz.
  2. Share with ACCA students on social media such as, Facebook Groups, Whatsapp, Telegram, etc.

1 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

Recent financial information relating to Close Co, a stock market listed company, is as follows.

$m
Profit after tax (earnings) 66.6
Dividends 40.0
STATEMENT OF FINANCIAL POSITION INFORMATION
Non-current assets $m $m
Current assets 595
Total assets 125
 720
Equity
Ordinary shares ($1 nominal) 80
Retained earnings  410
 490
Non-current liabilities
6% bank loan 40
8% bonds ($100 nominal)  120
 160
Current liabilities 70
Total equity and liabilities  720

Financial analysts have forecast that the dividends of Close Co will grow in the future at a rate of 4% per year. This is slightly less than the forecast growth rate of the profit after tax (earnings) of the company, which is 5% per year. The finance director of Close Co thinks that, considering the risk associated with expected earnings growth, an earnings yield of 11% per year can be used for valuation purposes.

Close Co has a cost of equity of 10% per year.

REQUIREMENT

Close Co is considering raising finance via convertible bonds.

Which of the following statements is correct about the current market value of a convertible bond where conversion is expected?

2 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

Recent financial information relating to Close Co, a stock market listed company, is as follows.

$m
Profit after tax (earnings) 66.6
Dividends 40.0
STATEMENT OF FINANCIAL POSITION INFORMATION
Non-current assets $m $m
Current assets 595
Total assets 125
 720
Equity
Ordinary shares ($1 nominal) 80
Retained earnings  410
 490
Non-current liabilities
6% bank loan 40
8% bonds ($100 nominal)  120
 160
Current liabilities 70
Total equity and liabilities  720

Financial analysts have forecast that the dividends of Close Co will grow in the future at a rate of 4% per year. This is slightly less than the forecast growth rate of the profit after tax (earnings) of the company, which is 5% per year. The finance director of Close Co thinks that, considering the risk associated with expected earnings growth, an earnings yield of 11% per year can be used for valuation purposes.

Close Co has a cost of equity of 10% per year.

REQUIREMENT

The DGM has been used by financial analysts to value Close Co.

Which of the following statements about the DGM True?

  1. It is very sensitive to changes in the growth rate.
  2. It can only be used if dividends have been paid or are expected to be paid.

3 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

Recent financial information relating to Close Co, a stock market listed company, is as follows.

$m
Profit after tax (earnings) 66.6
Dividends 40.0
STATEMENT OF FINANCIAL POSITION INFORMATION
Non-current assets $m $m
Current assets 595
Total assets 125
 720
Equity
Ordinary shares ($1 nominal) 80
Retained earnings  410
 490
Non-current liabilities
6% bank loan 40
8% bonds ($100 nominal)  120
 160
Current liabilities 70
Total equity and liabilities  720

Financial analysts have forecast that the dividends of Close Co will grow in the future at a rate of 4% per year. This is slightly less than the forecast growth rate of the profit after tax (earnings) of the company, which is 5% per year. The finance director of Close Co thinks that, considering the risk associated with expected earnings growth, an earnings yield of 11% per year can be used for valuation purposes.

Close Co has a cost of equity of 10% per year.

REQUIREMENT

Calculate the value of Close Co using the earnings yield method. (in millions to 1 decimal places)

$_____ million.

4 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

Recent financial information relating to Close Co, a stock market listed company, is as follows.

$m
Profit after tax (earnings) 66.6
Dividends 40.0
STATEMENT OF FINANCIAL POSITION INFORMATION
Non-current assets $m $m
Current assets 595
Total assets 125
 720
Equity
Ordinary shares ($1 nominal) 80
Retained earnings  410
 490
Non-current liabilities
6% bank loan 40
8% bonds ($100 nominal)  120
 160
Current liabilities 70
Total equity and liabilities  720

Financial analysts have forecast that the dividends of Close Co will grow in the future at a rate of 4% per year. This is slightly less than the forecast growth rate of the profit after tax (earnings) of the company, which is 5% per year. The finance director of Close Co thinks that, considering the risk associated with expected earnings growth, an earnings yield of 11% per year can be used for valuation purposes.

Close Co has a cost of equity of 10% per year.

REQUIREMENT

Calculate the value of Close Co using the dividend growth model (DGM).

$_____ million.

5 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

Recent financial information relating to Close Co, a stock market listed company, is as follows.

$m
Profit after tax (earnings) 66.6
Dividends 40.0
STATEMENT OF FINANCIAL POSITION INFORMATION
Non-current assets $m $m
Current assets 595
Total assets 125
 720
Equity
Ordinary shares ($1 nominal) 80
Retained earnings  410
 490
Non-current liabilities
6% bank loan 40
8% bonds ($100 nominal)  120
 160
Current liabilities 70
Total equity and liabilities  720

Financial analysts have forecast that the dividends of Close Co will grow in the future at a rate of 4% per year. This is slightly less than the forecast growth rate of the profit after tax (earnings) of the company, which is 5% per year. The finance director of Close Co thinks that, considering the risk associated with expected earnings growth, an earnings yield of 11% per year can be used for valuation purposes.

Close Co has a cost of equity of 10% per year.

REQUIREMENT

Calculate the value of Close Co using the net asset value method.

$_____ million.

Your score is

QUESTION – WAW Co(05/06)

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F9 (FM) - Part F - MCQs - WAW Co

Course: ACCA - Association of Chartered Certified Accountants
Subject:
F9 (FM) - Financial Management
Syllabus Area: F - Business valuations
Chapter: 17 Business valuations, 18 Market efficiency
Exam Section: Section B
Question Name: WAW Co
Questions type: MCQs
Time: No Time Limit

INSTRUCTIONS

  1. If you are using mobile, turn on the mobile rotation and solve the MCQs on wide screen for better experience.

REQUEST

  1. Please rate the quiz and give us feedback once you completed the quiz.
  2. Share with ACCA students on social media such as, Facebook Groups, Whatsapp, Telegram, etc.

1 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

WAW Co is an unlisted company that has performed well recently. It has been approached by a number of companies in the industry as a potential acquisition target.

The directors of WAW Co are looking to establish an approximate valuation of the company.

Recent information on the earnings per share and dividend per share of WAW Co is as follows:

Year to September 20X3 20X4 20X5 20X6
Earnings $m 6 6.5 7.0 7.5
Dividends $m 2.4 2.6 2.8 3.0

WAW Co has an estimated cost of equity of 12% and $5m ordinary shares in issue with a par value of $0.50.

There has been no change in the number of ordinary shares in issue over this period.

WAW Co pays corporation tax at a rate of 20%.

Listed companies similar to WAW Co have a price/earnings ratio of 15.

REQUIREMENT

Which of the following statements are true about WAW Co's dividend policy?

  1. Shareholders achieve steady dividend growth.
  2. The dividend payout ratio is constant.
  3. The dividend cover is 2.5.
  4. Shareholders are indifferent between reinvesting in the business and the payment of a dividend.

2 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

WAW Co is an unlisted company that has performed well recently. It has been approached by a number of companies in the industry as a potential acquisition target.

The directors of WAW Co are looking to establish an approximate valuation of the company.

Recent information on the earnings per share and dividend per share of WAW Co is as follows:

Year to September 20X3 20X4 20X5 20X6
Earnings $m 6 6.5 7.0 7.5
Dividends $m 2.4 2.6 2.8 3.0

WAW Co has an estimated cost of equity of 12% and $5m ordinary shares in issue with a par value of $0.50.

There has been no change in the number of ordinary shares in issue over this period.

WAW Co pays corporation tax at a rate of 20%.

Listed companies similar to WAW Co have a price/earnings ratio of 15.

REQUIREMENT

A high price/earnings ratio is usually seen as an indication that:

3 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

WAW Co is an unlisted company that has performed well recently. It has been approached by a number of companies in the industry as a potential acquisition target.

The directors of WAW Co are looking to establish an approximate valuation of the company.

Recent information on the earnings per share and dividend per share of WAW Co is as follows:

Year to September 20X3 20X4 20X5 20X6
Earnings $m 6 6.5 7.0 7.5
Dividends $m 2.4 2.6 2.8 3.0

WAW Co has an estimated cost of equity of 12% and $5m ordinary shares in issue with a par value of $0.50.

There has been no change in the number of ordinary shares in issue over this period.

WAW Co pays corporation tax at a rate of 20%.

Listed companies similar to WAW Co have a price/earnings ratio of 15.

REQUIREMENT

What is the value of WAW Co using the price/earnings ratio method?

4 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

WAW Co is an unlisted company that has performed well recently. It has been approached by a number of companies in the industry as a potential acquisition target.

The directors of WAW Co are looking to establish an approximate valuation of the company.

Recent information on the earnings per share and dividend per share of WAW Co is as follows:

Year to September 20X3 20X4 20X5 20X6
Earnings $m 6 6.5 7.0 7.5
Dividends $m 2.4 2.6 2.8 3.0

WAW Co has an estimated cost of equity of 12% and $5m ordinary shares in issue with a par value of $0.50.

There has been no change in the number of ordinary shares in issue over this period.

WAW Co pays corporation tax at a rate of 20%.

Listed companies similar to WAW Co have a price/earnings ratio of 15.

REQUIREMENT

Which of the following statements are problems in using the dividend growth model to value a company?

  1. It is difficult to estimate future dividend growth.
  2. It cannot be used for unlisted companies as they do not have a cost of equity.
  3. It is inaccurate to assume that dividend growth will be constant.
  4. It does not adjust for the value of holding a controlling interest in a company.

5 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

WAW Co is an unlisted company that has performed well recently. It has been approached by a number of companies in the industry as a potential acquisition target.

The directors of WAW Co are looking to establish an approximate valuation of the company.

Recent information on the earnings per share and dividend per share of WAW Co is as follows:

Year to September 20X3 20X4 20X5 20X6
Earnings $m 6 6.5 7.0 7.5
Dividends $m 2.4 2.6 2.8 3.0

WAW Co has an estimated cost of equity of 12% and $5m ordinary shares in issue with a par value of $0.50.

There has been no change in the number of ordinary shares in issue over this period.

WAW Co pays corporation tax at a rate of 20%.

Listed companies similar to WAW Co have a price/earnings ratio of 15.

REQUIREMENT

What is the value of a share in WAW Co using the dividend growth model?

QUESTION – DFE Co(06/06)

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0

F9 (FM) - Part F - MCQs - DFE Co

Course: ACCA - Association of Chartered Certified Accountants
Subject:
F9 (FM) - Financial Management
Syllabus Area: F - Business valuations
Chapter: 17 Business valuations, 18 Market efficiency
Exam Section: Section B
Question Name: DFE Co
Questions type: MCQs
Time: No Time Limit

INSTRUCTIONS

  1. If you are using mobile, turn on the mobile rotation and solve the MCQs on wide screen for better experience.

REQUEST

  1. Please rate the quiz and give us feedback once you completed the quiz.
  2. Share with ACCA students on social media such as, Facebook Groups, Whatsapp, Telegram, etc.

1 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

DFE Co is hoping to invest in a new project. DFE Co's gearing is slightly above the industry average, so when seeking finance for the new project DFE Co opts for equity finance.

The board of DFE Co recently appointed a media liaison officer as they believe the timing and method of public announcements (such as the investment in a large project) is important in managing the value of DFE Co's shares.

DFE Co has 8% convertible loan notes in issue which are redeemable in 5 years' time at their nominal value of $100 per loan note. Alternatively, each loan note could be converted after 5 years into 70 equity shares with a nominal value of $1 each.

The equity shares of DFE Co are currently trading at $1.25 per share and this share price is expected to grow by 4% per year. The before-tax cost of debt of DFE Co is 10% and the after-tax cost of debt of DFE Co is 7%.

REQUIREMENT

Which of the following could cause the interest yield curve to steepen?

  1. Increased uncertainty about the future
  2. Heightened expectations of an increase in interest rates
  3. The expectation that interest rate decreases will happen earlier than previously thought

2 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

DFE Co is hoping to invest in a new project. DFE Co's gearing is slightly above the industry average, so when seeking finance for the new project DFE Co opts for equity finance.

The board of DFE Co recently appointed a media liaison officer as they believe the timing and method of public announcements (such as the investment in a large project) is important in managing the value of DFE Co's shares.

DFE Co has 8% convertible loan notes in issue which are redeemable in 5 years' time at their nominal value of $100 per loan note. Alternatively, each loan note could be converted after 5 years into 70 equity shares with a nominal value of $1 each.

The equity shares of DFE Co are currently trading at $1.25 per share and this share price is expected to grow by 4% per year. The before-tax cost of debt of DFE Co is 10% and the after-tax cost of debt of DFE Co is 7%.

REQUIREMENT

In relation to DFE Co hedging interest rate risk, which of the following statements is correct?

3 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

DFE Co is hoping to invest in a new project. DFE Co's gearing is slightly above the industry average, so when seeking finance for the new project DFE Co opts for equity finance.

The board of DFE Co recently appointed a media liaison officer as they believe the timing and method of public announcements (such as the investment in a large project) is important in managing the value of DFE Co's shares.

DFE Co has 8% convertible loan notes in issue which are redeemable in 5 years' time at their nominal value of $100 per loan note. Alternatively, each loan note could be converted after 5 years into 70 equity shares with a nominal value of $1 each.

The equity shares of DFE Co are currently trading at $1.25 per share and this share price is expected to grow by 4% per year. The before-tax cost of debt of DFE Co is 10% and the after-tax cost of debt of DFE Co is 7%.

REQUIREMENT

What is the current market value of each convertible loan note? (to 2 decimal places)

4 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

DFE Co is hoping to invest in a new project. DFE Co's gearing is slightly above the industry average, so when seeking finance for the new project DFE Co opts for equity finance.

The board of DFE Co recently appointed a media liaison officer as they believe the timing and method of public announcements (such as the investment in a large project) is important in managing the value of DFE Co's shares.

DFE Co has 8% convertible loan notes in issue which are redeemable in 5 years' time at their nominal value of $100 per loan note. Alternatively, each loan note could be converted after 5 years into 70 equity shares with a nominal value of $1 each.

The equity shares of DFE Co are currently trading at $1.25 per share and this share price is expected to grow by 4% per year. The before-tax cost of debt of DFE Co is 10% and the after-tax cost of debt of DFE Co is 7%.

REQUIREMENT

How efficient does the DFE Co board believe the markets to be?

5 / 5

The following scenario relates to questions 1–5.

CASE SCENARIO

DFE Co is hoping to invest in a new project. DFE Co's gearing is slightly above the industry average, so when seeking finance for the new project DFE Co opts for equity finance.

The board of DFE Co recently appointed a media liaison officer as they believe the timing and method of public announcements (such as the investment in a large project) is important in managing the value of DFE Co's shares.

DFE Co has 8% convertible loan notes in issue which are redeemable in 5 years' time at their nominal value of $100 per loan note. Alternatively, each loan note could be converted after 5 years into 70 equity shares with a nominal value of $1 each.

The equity shares of DFE Co are currently trading at $1.25 per share and this share price is expected to grow by 4% per year. The before-tax cost of debt of DFE Co is 10% and the after-tax cost of debt of DFE Co is 7%.

REQUIREMENT

What is the capital structure theory that DFE Co appears to subscribe to?

Your score is

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