Questions
1
, ACCA examiner's answers
The ACCA examiner's answers to questions marked 'Pilot paper', '12/07', ‘6/08’ or ‘12/08’ or, can be
found on the BPP website at the following link:
www.bpp.com/acca/examiner-solutions
Additional question guidance
Additional guidance to certain questions can be found on the BPP website at the following link:
www.bpp.com/acca/extra-question-guidance
2
,FINANCIAL MANAGEMENT FUNCTION
Questions 1 and 2 cover Financial Management Function, the subject of Part A of the BPP Study Text for Paper F9.
1 ABC Co 45 mins
Summary financial information for ABC Co is given below, covering the last two years.
Current year Previous year
€’000 €’000
Revenue 74,521 68,000
Cost of sales 28,256 25,772
Salaries and wages 20,027 19,562
Other costs 11,489 9,160
Profit before interest and tax 14,749 13,506
Interest 1,553 1,863
Tax 4,347 3,726
Profit after interest and tax 8,849 7,917
Dividends payable 4,800 3,100
Shareholders’ funds 39,900 35,087
Long term debt 14,000 17,500
Number of shares in issue (‘000) 14,000 14,000
P/E ratio (average for year)
ABC Co 14.0 13.0
Industry 15.2 15.0
Required
(a) Using profitability, debt, and shareholders’ investment ratios, discuss the performance of ABC Co over the
last two years. (12 marks)
(b) Explain why how accounting profits may not be the best measure of a company’s achievements. (5 marks)
(c) Discuss how good corporate governance procedures can help to manage under-performance in private
sector companies. (8 marks)
(Total = 25 marks)
Questions 3
, 2 RZP Co (FMC, 6/05) 45 mins
As assistant to the Finance Director of RZP Co, a company that has been listed on the London Stock Market for
several years, you are reviewing the draft Annual Report of the company, which contains the following statement
made by the chairman:
'This company has consistently delivered above-average performance in fulfilment of our declared objective of
creating value for our shareholders. Apart from 20X2, when our overall performance was hampered by a general
market downturn, this company has delivered growth in dividends, earnings and ordinary share price. Our
shareholders can rest assured that my directors and I will continue to deliver this performance in the future'.
The five-year summary in the draft Annual Report contains the following information:
Year 20X4 20X3 20X2 20X1 20X0
Dividend per share 2.8p 2.3p 2.2p 2.2p 1.7p
Earnings per share 19.04p 14.95p 11.22p 15.84p 13.43p
Price/earnings ratio 22.0 33.5 25.5 17.2 15.2
General price index 117 113 110 105 100
A recent article in the financial press reported the following information for the last five years for the business
sector within which RZP Co operates:
Share price growth average increase per year of 20%
Earnings growth average increase per year of 10%
Nominal dividend growth average increase per year of 10%
Real dividend growth average increase per year of 9%
You may assume that the number of shares issued by RZP Co has been constant over the five-year period. All
price/earnings ratios are based on end-of-year share prices.
Required
(a) Analyse the information provided and comment on the views expressed by the chairman in terms of:
(i) growth in dividends per share;
(ii) share price growth;
(iii) growth in earnings per share.
Your analysis should consider both arithmetic mean and equivalent annual growth rates. (13 marks)
(b) Calculate the total shareholder return (dividend yield plus capital growth) for 20X4 and comment on your
findings. (3 marks)
(c) Discuss the factors that should be considered when deciding on a management remuneration package that
will encourage the directors of RZP Co to maximise the wealth of shareholders, giving examples of
management remuneration packages that might be appropriate for RZP Co. (9 marks)
(Total = 25 marks)
4 Questions
1
, ACCA examiner's answers
The ACCA examiner's answers to questions marked 'Pilot paper', '12/07', ‘6/08’ or ‘12/08’ or, can be
found on the BPP website at the following link:
www.bpp.com/acca/examiner-solutions
Additional question guidance
Additional guidance to certain questions can be found on the BPP website at the following link:
www.bpp.com/acca/extra-question-guidance
2
,FINANCIAL MANAGEMENT FUNCTION
Questions 1 and 2 cover Financial Management Function, the subject of Part A of the BPP Study Text for Paper F9.
1 ABC Co 45 mins
Summary financial information for ABC Co is given below, covering the last two years.
Current year Previous year
€’000 €’000
Revenue 74,521 68,000
Cost of sales 28,256 25,772
Salaries and wages 20,027 19,562
Other costs 11,489 9,160
Profit before interest and tax 14,749 13,506
Interest 1,553 1,863
Tax 4,347 3,726
Profit after interest and tax 8,849 7,917
Dividends payable 4,800 3,100
Shareholders’ funds 39,900 35,087
Long term debt 14,000 17,500
Number of shares in issue (‘000) 14,000 14,000
P/E ratio (average for year)
ABC Co 14.0 13.0
Industry 15.2 15.0
Required
(a) Using profitability, debt, and shareholders’ investment ratios, discuss the performance of ABC Co over the
last two years. (12 marks)
(b) Explain why how accounting profits may not be the best measure of a company’s achievements. (5 marks)
(c) Discuss how good corporate governance procedures can help to manage under-performance in private
sector companies. (8 marks)
(Total = 25 marks)
Questions 3
, 2 RZP Co (FMC, 6/05) 45 mins
As assistant to the Finance Director of RZP Co, a company that has been listed on the London Stock Market for
several years, you are reviewing the draft Annual Report of the company, which contains the following statement
made by the chairman:
'This company has consistently delivered above-average performance in fulfilment of our declared objective of
creating value for our shareholders. Apart from 20X2, when our overall performance was hampered by a general
market downturn, this company has delivered growth in dividends, earnings and ordinary share price. Our
shareholders can rest assured that my directors and I will continue to deliver this performance in the future'.
The five-year summary in the draft Annual Report contains the following information:
Year 20X4 20X3 20X2 20X1 20X0
Dividend per share 2.8p 2.3p 2.2p 2.2p 1.7p
Earnings per share 19.04p 14.95p 11.22p 15.84p 13.43p
Price/earnings ratio 22.0 33.5 25.5 17.2 15.2
General price index 117 113 110 105 100
A recent article in the financial press reported the following information for the last five years for the business
sector within which RZP Co operates:
Share price growth average increase per year of 20%
Earnings growth average increase per year of 10%
Nominal dividend growth average increase per year of 10%
Real dividend growth average increase per year of 9%
You may assume that the number of shares issued by RZP Co has been constant over the five-year period. All
price/earnings ratios are based on end-of-year share prices.
Required
(a) Analyse the information provided and comment on the views expressed by the chairman in terms of:
(i) growth in dividends per share;
(ii) share price growth;
(iii) growth in earnings per share.
Your analysis should consider both arithmetic mean and equivalent annual growth rates. (13 marks)
(b) Calculate the total shareholder return (dividend yield plus capital growth) for 20X4 and comment on your
findings. (3 marks)
(c) Discuss the factors that should be considered when deciding on a management remuneration package that
will encourage the directors of RZP Co to maximise the wealth of shareholders, giving examples of
management remuneration packages that might be appropriate for RZP Co. (9 marks)
(Total = 25 marks)
4 Questions
