2015 ACCA f9 FM study text BPP

http://freeaccastudymaterial.blogspot.com/ og sp ot co m/ bl ial ter ma Study Text as tud y ACCA Approved Paper F9 Financial Management Study Text for exams up to June 2015 Free access to our Exam Success site Look inside ee ac c BPP House 142-144 Uxbridge Road London W12 8AA United Kingdom T 0845 075 1100 (UK) T +44 (0)20 8740 2211 (Overseas) E Learningmedia@bpp.com bpp.com/learningmedia • A user-friendly format for easy navigation • Exam focus points describing what the examining team will want you to • Regular Fast Forward summaries emphasising the key points in each chapter • Questions and quick quizzes to test your understanding • A practice question bank containing exam- standard questions with answers • A full index • All you need in one book For exams up to June 2015 Contact us In addition to ACCA examining team reviewed material you get: Study Text Paper F9 Financial Management This ACCA Study Text for Paper F9 Financial Management has been comprehensively reviewed by the ACCA examining team This review guarantees appropriate depth and breadth of content and comprehensive syllabus coverage Financial Management BPP Learning Media is dedicated to supporting aspiring business professionals with top-quality learning material as they study for demanding professional exams, often whilst working full time BPP Learning Media’s commitment to student success is shown by our record of quality, innovation and market leadership in paper-based and e-learning materials BPP Learning Media’s study materials are written by professionally qualified specialists who know from personal experience the importance of top-quality materials for exam success ACCA F9 ACCA approved content provider ACCA APPROVED CONTENT PROVIDER htt p:/ /fr June 2014 £32.00 http://freeaccastudymaterial.blogspot.com/ ACF9ST14 (HO).indd 1-3 27/05/2014 17:40 co m/ http://freeaccastudymaterial.blogspot.com/ log sp o t S T U D Y ria l.b PAPER F9 ym ate FINANCIAL MANAGEMENT tud BPP Learning Media is an ACCA Approved Learning Partner – content This means we work closely with ACCA to ensure this Study Text contains the information you need to pass your exam In this Study Text, which has been reviewed by the ACCA examination team, we: Highlight the most important elements in the syllabus and the key skills you need  Signpost how each chapter links to the syllabus and the study guide  Provide lots of exam focus points demonstrating what is expected of you in the exam  Emphasise key points in regular fast forward summaries  Test your knowledge in quick quizzes  Examine your understanding in our practice question bank  Reference all the important topics in our full index ea cc as  /fr e BPP's Practice & Revision Kit and i-Pass products also support this paper htt p:/ FOR EXAMS IN DECEMBER 2014 AND JUNE 2015 http://freeaccastudymaterial.blogspot.com/ T E X T log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ First edition 2007 Seventh edition June 2014 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 ISBN 9781 4727 1084 (Previous ISBN 9781 4453 9652 1) e-ISBN 9781 4453 6739 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, unless otherwise stated British Library Cataloguing-in-Publication Data l.b A catalogue record for this book is available from the British Library ria Published by ate BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA www.bpp.com/learningmedia Printed in the United Kingdom by tud ym Polestar Wheatons Hennock Road Marsh Barton Exeter EX2 8RP © BPP Learning Media Ltd 2014 htt p:/ /fr e ea cc as Your learning materials, published by BPP Learning Media Ltd, are printed on paper obtained from traceable sustainable sources ii http://freeaccastudymaterial.blogspot.com/ http://freeaccastudymaterial.blogspot.com/ co m/ Contents Page Introduction v vii ix xi log sp o t Helping you to pass Studying F9 The exam paper and exam formulae Syllabus and study guide Part A Financial management function Financial management and financial objectives Part B Financial management environment The economic environment for business Financial markets, money markets and institutions 37 57 Working capital Managing working capital Working capital finance ria Part E Business finance Sources of finance Dividend policy Gearing and capital structure The cost of capital Capital structure tud 12 13 14 15 16 ym Investment decisions Investment appraisal using DCF methods Allowing for inflation and taxation Project appraisal and risk Specific investment decisions ate Part D Investment appraisal 10 11 l.b Part C Working capital management 79 93 119 143 159 177 189 205 225 259 269 289 315 Part F Business valuations Business valuations Market efficiency as 17 18 335 357 Part G Risk management Foreign currency risk Interest rate risk cc 19 20 ea Mathematical tables /fr e Practice question bank Practice answer bank Index 371 399 415 419 441 481 htt p:/ Review form Contents http://freeaccastudymaterial.blogspot.com/ iii http://freeaccastudymaterial.blogspot.com/ co m/ A note about copyright Dear Customer What does the little © mean and why does it matter? log sp o t Your market-leading BPP books, course materials and elearning materials not write and update themselves People write them: on their own behalf or as employees of an organisation that invests in this activity Copyright law protects their livelihoods It does so by creating rights over the use of the content Breach of copyright is a form of theft – as well being a criminal offence in some jurisdictions, it is potentially a serious breach of professional ethics With current technology, things might seem a bit hazy but, basically, without the express permission of BPP Learning Media:  Photocopying our materials is a breach of copyright  Scanning, ripcasting or conversion of our digital materials into different file formats, uploading them to facebook or emailing them to your friends is a breach of copyright l.b You can, of course, sell your books, in the form in which you have bought them – once you have finished with them (Is this fair to your fellow students? We update for a reason.) But the e-products are sold on a single user licence basis: we not supply ‘unlock’ codes to people who have bought them second hand htt p:/ /fr e ea cc as tud ym ate ria And what about outside the UK? BPP Learning Media strives to make our materials available at prices students can afford by local printing arrangements, pricing policies and partnerships which are clearly listed on our website A tiny minority ignore this and indulge in criminal activity by illegally photocopying our material or supporting organisations that If they act illegally and unethically in one area, can you really trust them? iv http://freeaccastudymaterial.blogspot.com/ Helping you to pass BPP Learning Media – Approved Learning Partner – content co m/ http://freeaccastudymaterial.blogspot.com/ log sp o t As ACCA's Approved Learning Partner – content, BPP Learning Media gives you the opportunity to use study materials reviewed by the ACCA examination team By incorporating the examination team’s comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Study Text provides excellent, ACCA-approved support for your studies The PER alert Before you can qualify as an ACCA member, you not only have to pass all your exams but also fulfil a three year practical experience requirement (PER) To help you to recognise areas of the syllabus that you might be able to apply in the workplace to achieve different performance objectives, we have introduced the ‘PER alert’ feature You will find this feature throughout the Study Text to remind you that what you are learning to pass your ACCA exams is equally useful to the fulfilment of the PER requirement l.b Your achievement of the PER should now be recorded in your on-line My Experience record Tackling studying ate Developing exam awareness ria Studying can be a daunting prospect, particularly when you have lots of other commitments The different features of the text, the purposes of which are explained fully on the Chapter features page, will help you whilst studying and improve your chances of exam success Our Texts are completely focused on helping you pass your exam ym Our advice on Studying F9 outlines the content of the paper, the necessary skills you are expected to be able to demonstrate and any brought forward knowledge you are expected to have tud Exam focus points are included within the chapters to highlight when and how specific topics were examined, or how they might be examined in the future Using the Syllabus and Study Guide as You can find the syllabus and Study Guide on pages xi – xxi of this Study Text Testing what you can cc Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can recall what you have learnt htt p:/ /fr e ea We include Questions – lots of them – both within chapters and in the Practice Question Bank, as well as Quick Quizzes at the end of each chapter to test your knowledge of the chapter content Introduction http://freeaccastudymaterial.blogspot.com/ v Chapter features Each chapter contains a number of helpful features to guide you through each topic Topic list Syllabus reference What you will be studying in this chapter and the relevant section numbers, together with ACCA syllabus references log sp o t Topic list Introduction Puts the chapter content in the context of the syllabus as a whole Study Guide Links the chapter content with ACCA guidance Exam Guide Highlights how examinable the chapter content is likely to be and the ways in which it could be examined What you are assumed to know from previous studies/exams FAST FORWARD Summarises the content of main chapter headings, allowing you to preview and review each section easily ria l.b Knowledge brought forward from earlier studies Demonstrate how to apply key knowledge and techniques Key terms Definitions of important concepts that can often earn you easy marks in exams ate Examples When and how specific topics were examined, or how they may be examined in the future Exam focus points ym Formulae that are not given in the exam but which have to be learnt Gives you essential practice of techniques covered in the chapter Case Study Real world examples of theories and techniques A full list of the Fast Forwards included in the chapter, providing an easy source of review ea Chapter Roundup Quick Quiz /fr e Gives you a useful indication of syllabus areas that closely relate to performance objectives in your Practical Experience Requirement (PER) cc as Question tud Formula to learn A quick test of your knowledge of the main topics in the chapter Found at the back of the Study Text with more comprehensive chapter questions Cross referenced for easy navigation htt p:/ Practice Question Bank vi co m/ http://freeaccastudymaterial.blogspot.com/ Introduction http://freeaccastudymaterial.blogspot.com/ http://freeaccastudymaterial.blogspot.com/ co m/ Studying F9 This paper examines a wide range of financial management topics, many of which will be completely new to you You will need to be competent at a range of quite tricky calculations as well as being able to explain and discuss financial management techniques and issues log sp o t The F9 examiner The examiner expects you to be able to perform and comment on calculations, exercise critical abilities, clearly demonstrate understanding of the syllabus and use question information Syllabus update The F9 syllabus has been updated for the December 2014 sitting onwards The syllabus changes are summarised below Summary of changes to F9 htt p:/ /fr e ea cc as tud ym ate ria l.b There are no changes to the syllabus except rearrangement of syllabus sections The section on cost of capital is now part of the business finance section The format of the F9 exam has changed Introduction http://freeaccastudymaterial.blogspot.com/ vii http://freeaccastudymaterial.blogspot.com/ co m/ What F9 is about The aim of this syllabus is to develop the knowledge and skills expected of a finance manager, in relation to investment, financing and dividend policy decisions log sp o t F9 is a middle level paper in the ACCA qualification structure There are some links to material you have covered in F2, particularly short-term decision making techniques The paper with a direct link following F9 is P4 which thinks strategically and considers wider environmental factors F9 requires you to be able to apply techniques and think about their impact on the organisation What skills are required? You are expected to have a core of management accounting knowledge from Paper F2 You will be required to carry out calculations, with clear workings and a logical structure  You will be required to interpret data  You will be required to explain management accounting techniques and discuss whether they are appropriate for a particular organisation You must be able to apply your skills in a practical context  l.b   ria How to improve your chances of passing There is no choice in this paper, all questions have to be answered You must therefore study the entire syllabus, there are no short-cuts  The first section of the paper consists of 20 multiple choice questions, worth two marks each These will inevitably cover a wide range of the syllabus Practising questions under timed conditions is essential BPP's Practice and Revision Kit contains mark, 10 mark and 15 mark questions to help you practise this Questions will be based on simple scenarios and answers to Section B questions must be focused and specific to the organisation    Answer plans in Section B will help you to focus on the requirements of the question and enable you to manage your time effectively Answer all parts of the questions in Section B Even if you cannot all of the calculation elements, you will still be able to gain marks in the discussion parts Make sure your answers focus on practical applications of management accounting, common sense is essential! Keep an eye out for articles as the examination team will use Student Accountant to communicate with students Read journals etc to pick up on ways in which real organisations apply management accounting and think about your own organisation if that is relevant cc  ym  tud  as  ate  ea Brought forward knowledge /fr e You will need to have a good working knowledge of certain management accounting techniques from F2 In particular, you will need to be familiar with the capital budgeting process, and be able to apply the concepts of interest and discounting This includes being able to calculate annuities and perpetuities, and to use the discount and annuity tables to calculate net present values htt p:/ This Study Text revises these topics and brought forward knowledge is identified If you struggle with the examples and questions used, you must go back and revisit your previous work The examiner will assume you know this material and it may form part of an exam question viii Introduction http://freeaccastudymaterial.blogspot.com/ http://freeaccastudymaterial.blogspot.com/ co m/ The exam paper and exam formulae Format of the paper From December 2014, the exam is a three-hour paper divided into two sections Section A consists of 20 multiple choice questions of two marks each These questions can be on any part of the syllabus log sp o t Section B consists of three questions of 10 marks each and two questions of 15 marks each The 10-mark questions can be on any part of the syllabus The 15-mark questions will cover Parts C, D and E of the syllabus All questions are compulsory In Section B, answers to the questions will require a mixture of calculations and discussion You also have 15 minutes for reading and planning The exam will cover as much of the syllabus as possible Exam formulae ria l.b Set out below are the formulae you will be given in the exam If you are not sure what the symbols mean, or how the formulae are used, you should refer to the appropriate chapter in this Study Text 2C0D Ch = Miller-Orr Model  spread) ym Return point = Lower limit + ( ate Economic order quantity Chapter in Study Text tud 3 3   transaction cos t  variance of cash flows  Spread =   int erest rate     The Capital Asset Pricing Model 15 as E(ri) = Rf + ßi(E (rm) – Rf) 16 cc The asset beta formula ea    Vd (1 T)  Ve ßa =  d  e  +   (Ve  Vd (1 T))   (Ve  Vd (1 T))  The Growth Model /fr e P0 = 15 D0 (1 g) (re  g) Gordon's growth approximation 15 htt p:/ g = bre Introduction http://freeaccastudymaterial.blogspot.com/ ix htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ http://freeaccastudymaterial.blogspot.com/ co m/ Review Form – Paper F9 Financial Management (6/14) Please help us to ensure that the ACCA learning materials we produce remain as accurate and user-friendly as possible We cannot promise to answer every submission we receive, but we promise that it will be read and taken into account when we update this Study Text Address: log sp o t Name: During the past six months you recall seeing/receiving 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(Tick as many boxes as are relevant) How have you used this Study Text? (Tick one box only) Home study (book only) On a course: college Our advertisement in ACCA Student Accountant With 'correspondence' package Our advertisement in Pass Other Our advertisement in PQ Our brochure with a letter through the post l.b Why did you decide to purchase this Study Text? (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) ria Have used BPP Texts in the past Recommendation by friend/colleague Recommendation by a lecturer at college Prices and publication dates of new editions Saw information on BPP website ate Information on Text content Saw advertising Facility to order books off-the-page Other None of the above Passcards Kit i-Pass ym Which BPP products have you used? Text Home Study Package tud Your ratings, comments and suggestions would be appreciated on the following areas Introductory section Key terms Quality of explanations Useful Not useful Good Adeqate Poor Yes No as Chapter introductions Very useful Case studies and other examples cc Exam focus points Questions and answers in each chapter Fast forwards and chapter roundups ea Quick quizzes Question Bank Answer Bank /fr e Index Overall opinion of this Study Text Excellent Do you intend to continue using BPP products? htt p:/ On the reverse of this page is space for you to write your comments about our Study Text We welcome your feedback The BPP Learning Media ACCA Range Manager of this edition can be e-mailed at: pippariley@bpp.com Please return this form to: Pippa Riley, ACCA Range Manager, BPP Learning Media Ltd, FREEPOST, London, W12 8AA http://freeaccastudymaterial.blogspot.com/ http://freeaccastudymaterial.blogspot.com/ co m/ TELL US WHAT YOU THINK htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t Please note any further comments and suggestions/errors below For example, was the text accurate, readable, concise, user-friendly and comprehensive? http://freeaccastudymaterial.blogspot.com/ ... http://freeaccastudymaterial.blogspot.com/ http://freeaccastudymaterial.blogspot.com/ co m/ Syllabus and Study Guide htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t The F9 syllabus and study. .. http://freeaccastudymaterial.blogspot.com/ Helping you to pass BPP Learning Media – Approved Learning Partner – content co m/ http://freeaccastudymaterial.blogspot.com/ log sp o t As ACCA' s Approved... http://freeaccastudymaterial.blogspot.com/ Introduction http://freeaccastudymaterial.blogspot.com/ http://freeaccastudymaterial.blogspot.com/ co m/ Studying F9 This paper examines a wide range of financial management