PAPER P4 ADVANCED FINANCIAL MANAGEMENT BPP Learning Media is the sole ACCA Platinum Approved Learning Partner – content for the ACCA qualification In this, the only Paper P4 Practice and Revision Kit to be reviewed by the examiner: We discuss the best strategies for revising and taking your ACCA exams We show you how to be well prepared for your exam We give you lots of great guidance on tackling questions We show you how you can build your own exams We provide you with three mock exams including the new Pilot paper Our Passcard and i-Pass products also support this paper FOR EXAMS UP TO JUNE 2014 P R A C T I C E & R E V I S I O N K I T First edition 2007 Seventh edition January 2013 ISBN 9781 4453 6654 (previous ISBN 9781 4453 8003 2) e-ISBN 9781 4453 6957 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Published by BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA www.bpp.com/learningmedia All our rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BPP Learning Media Ltd We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions The suggested solutions in the exam answer bank have been prepared by BPP Learning Media Ltd, except where otherwise stated Printed in the United Kingdom by Ricoh Ricoh House Ullswater Crescent Coulsdon CR5 2HR Your learning materials, published by BPP Learning Media Ltd, are printed on paper sourced from sustainable, managed forests ii © BPP Learning Media Ltd 2013 Contents Page Finding questions Using your BPP Learning Media products iv Question index v Topic index viii Helping you with your revision – the ONLY P4 Practice and Revision Kit to be reviewed by the examiner! ix Revising P4 Topics to revise x Question practice x Passing the P4 exam xi Exam formulae xv Exam information xvii Useful websites xix Planning your question practice BPP Learning Media’s question plan xx Build your own exams xxiv Questions and answers Questions Answers 91 Exam practice Mock exam Questions 357 Plan of attack .367 Answers .369 Mock exam Questions 389 Plan of attack .399 Answers .401 Mock exam (Pilot Paper) Questions 417 Plan of attack .427 Answers .429 ACCA examiner's answers Pilot paper 445 Mathematical tables and formulae 459 Review Form iii A note about copyright Dear Customer What does the little © mean and why does it matter? 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Using your BPP Learning Media products This Kit gives you the question practice and guidance you need in the exam Our other products can also help you pass: Learning to Learn Accountancy gives further valuable advice on revision Passcards provide you with clear topic summaries and exam tips Success CDs help you revise on the move i-Pass CDs offer tests of knowledge against the clock Underlying knowledge CD offers guidance on assumed knowledge for Options papers P4, P5, P6, P7 You can purchase these products by visiting http://www.bpp.com/acca iv Finding questions Question index The headings in this checklist/index indicate the main topics of questions, but questions are expected to cover several different topics Questions have been amended to reflect the new format of the exam from June 2013 Questions set under the old syllabus Paper 3.7 – Strategic Financial Management (SFM) and Paper 14 – Financial Strategy (FS) are included as their style and/or content are similar to the questions that appear in Paper P4 – Advanced Financial Management Part A: Role and responsibility towards stakeholders Time Page number Marks allocation Mins Question Answer Preparation question – Shareholders and bondholders 15 27 91 Preparation question – Capital structure (12/04) 15 27 92 Multimedia company 25 45 94 Agenda for change (12/07, amended) 25 45 97 Solar Supermarkets (12/08, amended) 25 45 100 Preparation question – International corporate governance (SFM, 12/02) 15 27 102 Mezza Co (6/11, amended) 25 45 104 Kengai Co (12/11, amended) 25 45 107 International trade 25 45 109 10 Global financial markets 25 45 111 11 Boxless (SFM, 12/04, amended) 25 45 113 12 World Trade Organisation (SFM, 12/05, amended) 25 45 116 13 Pharmaceutical Co (6/09, amended) 25 45 10 119 14 PMU (12/10, amended) 25 45 10 120 15 Jonas Chemical Systems 25 45 12 123 16 CD 25 45 13 127 17 Slow Fashions Co (6/09, amended) 25 45 14 130 18 Your business (6/09, amended) 25 45 15 133 19 Kodiak Company (12/09, amended) 25 45 15 136 20 Tisa Co (6/12, amended) 25 45 17 139 21 GDW Co 25 45 17 141 22 Preparation question – Cathlynn 15 27 18 143 23 MMC (6/11, amended) 25 45 19 144 24 Marengo Co (12/10, amended) 25 45 19 146 25 Digunder (12/07, amended) 25 45 20 148 26 AVT (SFM, 12/01, amended) 25 45 21 151 27 Alaska Salvage Co (12/09, amended) 25 45 21 153 28 Strayer (SFM, 6/02, amended) 25 45 22 155 29 Neptune (6/08, amended) 25 45 22 157 Part A: Role and responsibility towards stakeholders Part B: Economic environment for multinationals Part C: Advanced investment appraisal Finding questions v Part A: Role and responsibility towards stakeholders Time Page number Marks allocation Mins Question Answer 30 Airline Business (12/07, amended) 25 45 23 161 31 Fubuki (12/10) 25 45 24 164 32 Levante Co (12/11, amended) 25 45 25 167 33 Do-it-Yourself 25 45 26 170 34 AWP Co 25 45 27 174 35 Preparation question – Somax (FS, 6/96, amended) 12 22 28 176 36 Pondhills (FS, 6/01, amended) 25 45 29 178 37 Ennea (6/12) 25 45 30 179 38 Mercury Training (6/08, amended) 25 45 31 182 39 Saturn Systems (6/08, amended) 25 45 31 185 40 Minprice 25 45 32 187 41 Fly 4000 25 45 34 191 42 Burcolene (12/07, amended) 25 45 35 195 43 AIR 25 45 37 199 44 MandM Co (6/10, amended) 25 45 38 202 45 Proteus Co (12/11, amended) 25 45 38 204 46 BBS Stores (6/09, amended) 25 45 39 207 47 Troder (SFM, 6/03, amended) 25 45 42 211 48 MJY (SFM, 12/05, amended) 25 45 42 213 49 KYT (FS, 6/99, amended) 25 45 43 215 50 Asteroid Systems (6/08, amended) 25 45 44 217 51 Multidrop (6/10, amended) 25 45 44 220 52 NTC (SFM, 6/02, amended) 25 45 45 223 53 Casasophia Co (6/11, amended) 25 45 46 226 54 HYK (FS, 12/99, amended) 25 45 47 230 55 Phobos Co (12/08, amended) 25 45 48 232 56 Katmai Co (12/09, amended) 25 45 49 235 57 Sembilan Co (6/12, amended) 25 45 50 237 58 Lamri Co (12/10, amended) 25 45 50 240 59 Moose Co (12/09, amended) 25 45 52 243 60 GoSlo Motor Corp (6/10, amended) 25 45 52 245 61 Kilenc Co (6/12, amended) 25 45 53 247 62 NRD Co 25 45 54 250 Part D: Acquisitions and mergers Part E: Corporate reconstruction and reorganisation Part F: Treasury and advanced risk management techniques Part G: Emerging issues vi Finding questions Part A: Role and responsibility towards stakeholders Time Page number Marks allocation Mins Question Answer 63 Vadener (SFM, 6/06, amended) 50 90 55 252 64 International Enterprises (12/07, amended) 50 90 56 256 65 McTee (SFM, 6/05, amended) 50 90 58 259 66 Wurrall (SFM, 6/04, amended) 50 90 59 265 67 Blipton International (12/08, amended) 50 90 61 270 68 Jupiter Co (12/08, amended) 50 90 62 275 69 Trosoft (SFM, 12/04, amended) 50 90 63 279 70 Your company (FS, 6/99, amended) 50 90 65 283 71 Omnikit (FS, 6/97, amended) 50 90 67 287 72 Intergrand (SFM, 12/02, amended) 50 90 68 293 73 Pursuit Co (6/11, amended) 50 90 70 298 74 Laceto (FS, 6/01, amended) 50 90 72 304 75 Anchorage Retail Co (12/09, amended) 50 90 73 309 76 Romage (FS, 6/00, amended) 50 90 75 314 77 Galeplus (SFM, 12/04, amended) 50 90 77 318 78 Polytot (SFM, 6/04, amended) 50 90 78 322 79 FNDC (SFM, 12/06, amended) 50 90 79 328 80 Nente Co (6/12, amended) 50 90 80 332 81 Seal Island (6/10, amended) 50 90 82 336 82 Sleepon (SFM, 12/05, amended) 50 90 84 341 83 Fuelit (FS, 12/00, amended) 50 90 85 345 84 Aggrochem Co (6/10, amended) 50 90 86 350 Part H: 50 mark questions Mock exam Questions 85 to 88 Mock exam Questions 89 to 92 Mock exam (Pilot paper) Questions 93 to 96 Planning your question practice Our guidance from page xx shows you how to organise your question practice, either by attempting questions from each syllabus area or by building your own exams – tackling questions as a series of practice exams June and December 2013 exams BPP’s answers for these exams along with additional questions will be available for free after the exams on http://www.bpp.com/acca Finding questions vii Topic index Listed below are the key Paper P4 syllabus topics and the numbers of the questions in this Kit covering those topics If you need to concentrate your practice and revision on certain topics or if you want to attempt all available questions that refer to a particular subject, you will find this index useful Syllabus topic Question numbers Acquisitions - regulatory framework and processes 7, 39, 40, 63, 74, 80 Acquisitions and mergers versus other growth strategies 39, 42, 64, 67, 71, 72, 75, 82 Application of option pricing theory in investment decisions 17, 22, 23, 24, 25, 26, 27, 83, 84 Business re-organisation 38, 43, 44, 45, 46, 76, Mock Q4, Mock Q3 Conflicting stakeholder interests 1, 5, 6, 8, 11, Mock Q1 Dividend policy in multinationals and transfer pricing 11, 12, 14, 58, 63, 64, 71, 78, Mock Q4 Environmental issues 4, 7, 8, 73, 83, Mock Q1 Ethical issues 3, 4, 5, 7, 13, 76 Financial planning for multinational organisations 10, 11, 14, 65, 67, 72, Mock Q1 Financial reconstruction 43, 76, Mock Q3 Financial strategy formulation 1, 3, 4, 5, 7, 37, 63, 64, 66, 68, 75, 80, Mock Q4, Mock Q1 Financing acquisitions and mergers 40, 72, 74, 75 Foreign exchange risk hedging 48, 49, 50, 51, 52, 53, 65, 68, 77, 78, 84, Mock Q2, Mock Q2 Impact of financing on investment decisions and adjusted 10, 27, 28, 29, 30, 31, 32, 33, 34, 35, 37, 38, 57, 65, present values 66, 68, 69, 70, 81, Mock Q4 viii Interest rate risk hedging 27, 47, 49, 54, 55, 56, 57, 75, 77, 79, Mock Q2, Mock Q2 International investment and financing decisions 16, 33, 71, 72, Mock Q1, Mock Q1 International trade and finance 60, 61, 70 Investment appraisal - discounted cash flow techniques 15, 16, 17, 18, 20, 21, 29, 56, 67, 68, 69, 81, 82, 83, Mock Q1, Mock Q3, Mock Q3 Islamic financing 59, 62, 70 Management of international trade and finance 9, 11, 12, 13, 37, 63, 78 The role and responsibility of senior financial executive/advisor 2, 3, 10, 13, 64, 66, Mock Q1 Treasury function 48, 50, 78, 79 Valuation and the use of free cash flows 19, 41, 42, 66, 73, 80, 84, Mock Q3 Valuation for acquisitions and mergers 40, 41, 42, 71, 72, 73, 74, 80, 84 World financial markets 59, 60, 61, 73 Finding questions Helping you with your revision – the ONLY P4 Practice and Revision Kit to be reviewed by the examiner! BPP Learning Media – the sole Platinum Approved Learning Partner content As ACCA’s sole Platinum Approved Learning Partner – content, BPP Learning Media gives you the unique opportunity to use examiner-reviewed revision materials for the 2013 and June 2014 exams By incorporating the examiner’s comments and suggestions regarding syllabus coverage, the BPP Learning Media Practice and Revision Kit provides excellent, ACCA-approved support for your revision Tackling revision and the exam Using feedback obtained from ACCA examiners as part of their review: We look at the dos and don’ts of revising for, and taking, ACCA exams We focus on Paper P4; we discuss revising the syllabus, what to (and what not to do) in the exam, how to approach different types of question and ways of obtaining easy marks Selecting questions We provide signposts to help you plan your revision A full question index A topic index listing all the questions that cover key topics, so that you can locate the questions that provide practice on these topics, and see the different ways in which they might be examined BPP's question plan highlighting the most important questions and explaining why you should attempt them Build your own exams, showing how you can practise questions in a series of exams Making the most of question practice At BPP Learning Media we realise that you need more than just questions and model answers to get the most from your question practice Our Top tips included for certain questions provide essential advice on tackling questions, presenting answers and the key points that answers need to include We show you how you can pick up Easy marks on some questions, as we know that picking up all readily available marks often can make the difference between passing and failing We include marking guides to show you what the examiner rewards We include examiners’ comments to show you where students struggled or performed well in the actual exam We refer to the 2012 BPP Study Text (for exams up to June 2014) for detailed coverage of the topics covered in questions Helping you with your revision ix Notes Notes Notes Notes Notes Notes Notes Notes Notes Notes Notes Notes Notes Review Form – Paper P4 Advanced Financial Management (01/13) Name: Address: How have you used this Kit? (Tick one box only) During the past six months you recall seeing/receiving any of the following? (Tick as many boxes as are relevant) Home study (book only) On a course: college Our advertisement in Student Accountant With 'correspondence' package Our advertisement in Pass Other Our advertisement in PQ Our brochure with a letter through the post Why did you decide to purchase this Kit? (Tick one box only) Our website www.bpp.com Which (if any) aspects of our advertising you find useful? (Tick as many boxes as are relevant) Have used the complementary Study text Have used other BPP products in the past Recommendation by friend/colleague Prices and publication dates of new editions Recommendation by a lecturer at college Information on product content Saw advertising Facility to order books off-the-page Other None of the above Which BPP products have you used? Text Success CD Interactive Passcards Kit i-Pass Home Study Package Passcard Your ratings, comments and suggestions would be appreciated on the following areas Very useful Useful Not useful Good Adequate Poor Yes No Passing P4 Planning your question practice Questions Top Tips etc in answers Content and structure of answers Mock exam answers Overall opinion of this Kit Excellent Do you intend to continue using BPP products? The BPP author of this edition can be e-mailed at: andrewfinch@bpp.com Please return this form to: Nick Weller, ACCA Publishing Manager (Professional papers), BPP Learning Media Ltd, FREEPOST, London, W12 8BR Review Form (continued) TELL US WHAT YOU THINK Please note any further comments and suggestions/errors below ... P4 ADVANCED FINANCIAL MANAGEMENT BPP Learning Media is the sole ACCA Platinum Approved Learning Partner – content for the ACCA qualification In this, the only Paper P4 Practice and Revision Kit. .. Strategic Financial Management (SFM) and Paper 14 – Financial Strategy (FS) are included as their style and/or content are similar to the questions that appear in Paper P4 – Advanced Financial Management. .. coverage, the BPP Learning Media Practice and Revision Kit provides excellent, ACCA- approved support for your revision Tackling revision and the exam Using feedback obtained from ACCA examiners