点击查看：2020年ACCA考试练习试题分享14
发布时间：2020-09-04
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Financial Management
1 (a) Weighted average cost of capital (WACC) calculation
Cost of equity of KFP Co = 4·0 + (1·2 x (10·5 – 4·0)) = 4·0 + 7·8 = 11·8% using the capital asset pricing model
To calculate the after-tax cost of debt, linear interpolation is needed
After-tax interest payment = 100 x 0·07 x (1 – 0·3) = $4·90
Year Cash flow $ 10% discount PV ($) 5% discount PV ($)
0 Market value (94·74) 1·000 (94·74) 1·000 (94·74)
1 to 7 Interest 4·9 4·868 23·85 5·786 28·35
7 Redemption 100 0·513 51·30 0·711 71·10
––––– –––––
(19·59) 4·71
––––– –––––
After-tax cost of debt = 5 + ((10 – 5) x 4·71)/(4·71 + 19·59) = 5 + 1·0 = 6·0%
Number of shares issued by KFP Co = $15m/0·5 = 30 million shares
Market value of equity = 30m x 4·2 = $126 million
Market value of bonds issued by KFP Co = 15m x 94·74/100 = $14·211 million
Total value of company = 126 + 14·211 = $140·211 million
WACC = ((11·8 x 126) + (6·0 x 14·211))/140·211 = 11·2%
(b) (i) Price/earnings ratio method
Earnings per share of NGN = 80c per share
Price/earnings ratio of KFP Co = 8
Share price of NGN = 80 x 8 = 640c or $6·40
Number of ordinary shares of NGN = 5/0·5 = 10 million shares
Value of NGN = 6·40 x 10m = $64 million
However, it can be argued that a reduction in the applied price/earnings ratio is needed as NGN is unlisted and thereforeits shares are more difficult to buy and sell than those of a listed company such as KFP Co. If we reduce the appliedprice/earnings ratio by 10% (other similar percentage reductions would be acceptable), it becomes 7·2 times and thevalue of NGN would be (80/100) x 7·2 x 10m = $57·6 million
(ii) Dividend growth model
Dividend per share of NGN = 80c x 0·45 = 36c per share
Since the payout ratio has been maintained for several years, recent earnings growth is the same as recent dividendgrowth, i.e. 4·5%. Assuming that this dividend growth continues in the future, the future dividend growth rate will be4·5%.Share price from dividend growth model = (36 x 1·045)/ (0·12 – 0·045) = 502c or $5·02
Value of NGN = 5·02 x 10m = $50·2 million
(c) A discussion of capital structure could start from recognising that equity is more expensive than debt because of the relativerisk of the two sources of finance. Equity is riskier than debt and so equity is more expensive than debt. This does not dependon the tax efficiency of debt, since we can assume that no taxes exist. We can also assume that as a company gears up, itreplaces equity with debt. This means that the company’s capital base remains constant and its weighted average cost ofcapital (WACC) is not affected by increasing investment.
The traditional view of capital structure assumes a non-linear relationship between the cost of equity and financial risk. As acompany gears up, there is initially very little increase in the cost of equity and the WACC decreases because the cost of debtis less than the cost of equity. A point is reached, however, where the cost of equity rises at a rate that exceeds the reductioneffect of cheaper debt and the WACC starts to increase. In the traditional view, therefore, a minimum WACC exists and, as aresult, a maximum value of the company arises.
Modigliani and Miller assumed a perfect capital market and a linear relationship between the cost of equity and financial risk.
They argued that, as a company geared up, the cost of equity increased at a rate that exactly cancelled out the reductioneffect of cheaper debt. WACC was therefore constant at all levels of gearing and no optimal capital structure, where the valueof the company was at a maximum, could be found.
It was argued that the no-tax assumption made by Modigliani and Miller was unrealistic, since in the real world interestpayments were an allowable expense in calculating taxable profit and so the effective cost of debt was reduced by its taxefficiency. They revised their model to include this tax effect and showed that, as a result, the WACC decreased in a linearfashion as a company geared up. The value of the company increased by the value of the ‘tax shield’ and an optimal capitalstructure would result by gearing up as much as possible.
It was pointed out that market imperfections associated with high levels of gearing, such as bankruptcy risk and agency costs,would limit the extent to which a company could gear up. In practice, therefore, it appears that companies can reduce their
WACC by increasing gearing, while avoiding the financial distress that can arise at high levels of gearing.
Time allowed
Reading and planning: 15 minutes
Writing: 3 hours a
ALL FOUR questions are compulsory and MUST be attempted.
Formulae Sheet, Present Value and Annuity Tables are on
pages 6, 7 and 8.
Do NOT open this paper until instructed by the supervisor. P
During reading and planning time only the question paper maybe annotated. You must NOT write in your answer booklet untilinstructed by the supervisor.
This question paper must not be removed from the examination hall.
The Association of Chartered Certified Accountants
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(iii) Flexibility. (3 marks)
(iii) Flexibility may relate to the company being able to cope with flexibility of volume, delivery speed or job specification. In
this particular context, flexibility appears to have been problematic for HLP as evidenced by the fact that 320
consultations relating to commercial were subcontracted during the year. This could be due to the lack of the ability of
HLP advisors to be able to provide consultations to a potentially wide-range of commercial clients, i.e. the variability in
the ‘job specification’ requires greater flexibility than HLP can deliver. Furthermore, a total of 600 consultations relating
to litigation work were also subcontracted throughout the year. These subcontract consultations might be due to the
inability of HLP to deal with fluctuations in demand.
2 The Information Technology division (IT) of the RJ Business Consulting Group provides consulting services to its
clients as well as to other divisions within the group. Consultants always work in teams of two on every consulting
day. Each consulting day is charged to external clients at ￡750 which represents cost plus 150% profit mark up. The
total cost per consulting day has been estimated as being 80% variable and 20% fixed.
The director of the Human Resources (HR) division of RJ Business Consulting Group has requested the services of
two teams of consultants from the IT division on five days per week for a period of 48 weeks, and has suggested that
she meets with the director of the IT division in order to negotiate a transfer price. The director of the IT division has
responded by stating that he is aware of the limitations of using negotiated transfer prices and intends to charge the
HR division ￡750 per consulting day.
The IT division always uses ‘state of the art’ video-conferencing equipment on all internal consultations which would
reduce the variable costs by ￡50 per consulting day. Note: this equipment can only be used when providing internal
consultations.
Required:
(a) Calculate and discuss the transfer prices per consulting day at which the IT division should provide
consulting services to the HR division in order to ensure that the profit of the RJ Business Consulting Group
is maximised in each of the following situations:
(i) Every pair of consultants in the IT division is 100% utilised during the required 48-week period in
providing consulting services to external clients, i.e. there is no spare capacity.
(ii) There is one team of consultants who, being free from other commitments, would be available to
undertake the provision of services to the HR division during the required 48-week period. All other
teams of consultants would be 100% utilised in providing consulting services to external clients.
(iii) A major client has offered to pay the IT division ￡264,000 for the services of two teams of consultants
during the required 48-week period.
(12 marks)
(a) (i) The transfer price of ￡750 proposed by the IT division is based on cost plus 150% from which it can be deduced that
the total cost of a consulting day is (100/250) x ￡750 = ￡300. This comprises ￡240 (80%) variable cost and ￡60
(20%) fixed cost. In this instance the transfer price should be set at marginal costs plus opportunity cost. It is assumed
in this situation that transferring internally would result in the IT division having a lost contribution of ￡750 – ￡240 =
￡510 per consulting day. The marginal cost of the transfer of services to the HR division is ￡190 (￡240 external variable
costs less ￡50 saving due to use of internal video-conferencing equipment). Adding the opportunity cost of ￡510 gives
a transfer price of ￡700 per consulting day. This is equivalent to using market price as a basis for transfer pricing where
the transfer price is set at the external market price (￡750) less any costs avoided (￡50) by transferring internally.
(ii) There is in effect no external market available for one of the required pairs of consultants within the IT division and
therefore opportunity cost will not apply and transfers should be made at the variable cost per consulting day of ￡190.
The other pair of consultants, who would otherwise be 100% utilised in providing consulting services to external clients,
should be charged at a rate of ￡700 per day which represents marginal cost plus opportunity cost.
(iii) The lost contribution from the major client amounts to ￡264,000/(2 x 240) = ￡550 less variable costs of ￡240 =
￡310 per consulting day. Thus, in this instance the transfer price should be the contribution foregone of ￡310 plus
internal variable costs of ￡190 making a total of ￡500 per consulting day.
(d) There is considerable evidence to suggest that as a result of implementation problems less than 50% of all
acquisitions achieve their objectives and actually end up reducing shareholder value.
Required:
Provide Ken with a brief report on the most likely sources of integration problems and describe the key
performance indicators he should use to measure progress towards acquisition objectives. (15 marks)
(d) Many academic studies, together with actual managerial experience, point to the post-acquisition integration phase as being
the key to an acquirer achieving their acquisition objectives. In particular, the creation (or destruction) of shareholder value
rests most heavily on the success of the integration phase, which in turn helps determine whether the acquirer has chosen
the ‘right’ target company and paid the right price for it. One source strongly argues that the capability to manage the
integration of the two organisational sturctures, in particular the conversion of information systems and retention and
motivation of key employees, determines how much value can be extracted from the combined entities. The ability to manage
the integration process will therefore affect the success of the prior phases of the acquisition process – the search for and
screening of potential candidates, the effective carrying out of due diligence, financial evaluation and successful negotiation
of the deal.
Unfortunately, the failure to develop the necessary integration skills dooms many firms to continued failure with their
acquisitions, though some firms are conspicuously successful in developing such a capability and they gain significant
competitive advantage over their less successful competitors and create value for the stakeholders. One explanation for this
conspicuous inability to learn from past acquisition experience, compared with other activities in the value chain, lies with
their infrequency and variety. ‘No acquisition is like another.’ Much of the difficulty however lies in the complex
interrelationship and interdependency between the activities being integrated and a consequent difficulty of knowing what is
causing performance problems. Thus, it is no good communicating all the positives to the customer if there is a failure to
retain and motivate the sales force. To this complexity of integrating different processes is added the problem of developing
appropriate measures of and accurate monitoring of the integration processes. In one study of US bank acquirers, only 40%
had developed specific performance measures for the systems conversion process, despite the critical importance of systems
integration to efficient operation of the combined banks. Key performance indicators need to be set in the areas previously
identified as offering major opportunities for synergies. These synergies will affect both the cost and revenue side of the
business. Real cost reductions are clearly a major reason for the proposed acquisition in view of the competitive environment
faced. Equally relevant are appropriate measures of customer service. Each area will need appropriate key performance
indicators showing priorities and relevant timescales for achievement.
Therefore, there is a critical need to learn from previous experience and the relationship between decisions made, actions
taken and performance outcomes. This knowledge and experience needs to be effectively recorded and shared. It can then
influence the earlier phases of the acquisition referred to above, thus leading to a virtuous circle of better integration and
acquisitions that actually enhance value. In so doing, acquisitions can lead to faster growth and better performance.
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