2015 ACCA f9 FM study text BPP

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Study Text

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ACCA Approved
Paper F9
Financial Management
Study Text for exams
up to June 2015

Free access
to our Exam
Success site
Look inside

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• A user-friendly format for easy navigation
• Exam focus points describing what the examining
team will want you to do
• 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
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ACCA F9

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ACCA APPROVED CONTENT PROVIDER

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PAPER F9
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FINANCIAL MANAGEMENT

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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

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BPP's Practice & Revision Kit and i-Pass products also support this paper.

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FOR EXAMS IN DECEMBER 2014 AND JUNE 2015

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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 0
(Previous ISBN 9781 4453 9652 1)
e-ISBN 9781 4453 6739 2

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

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A catalogue record for this book
is available from the British Library

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Published by

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BPP Learning Media Ltd
BPP House, Aldine Place
London W12 8AA
www.bpp.com/learningmedia
Printed in the United Kingdom by

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Polestar Wheatons
Hennock Road
Marsh Barton
Exeter
EX2 8RP

©
BPP Learning Media Ltd
2014

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Your learning materials, published by BPP Learning
Media Ltd, are printed on paper obtained from
traceable sustainable sources.

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Contents

Page

Introduction

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vii
ix
xi

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Helping you to pass
Studying F9
The exam paper and exam formulae
Syllabus and study guide

Part A Financial management function
1

Financial management and financial objectives

3

Part B Financial management environment
2
3

The economic environment for business
Financial markets, money markets and institutions

37

57

Working capital
Managing working capital
Working capital finance

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4
5
6

Part E Business finance
Sources of finance
Dividend policy
Gearing and capital structure
The cost of capital
Capital structure

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13
14
15
16

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Investment decisions

Investment appraisal using DCF methods
Allowing for inflation and taxation
Project appraisal and risk
Specific investment decisions

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Part D Investment appraisal
7
8
9
10
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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

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335
357

Part G Risk management
Foreign currency risk
Interest rate risk

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20

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Mathematical tables

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Practice question bank
Practice answer bank
Index

371
399
415
419
441
481

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Review form ..................................................................................................

Contents

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A note about copyright
Dear Customer
What does the little © mean and why does it matter?

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Your market-leading BPP books, course materials and elearning materials do 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

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You can, of course, sell your books, in the form in which you have bought them – once you have finished
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single user licence basis: we do not supply ‘unlock’ codes to people who have bought them second hand.

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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 do. If they act illegally and unethically in one area, can you
really trust them?

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Helping you to pass
BPP Learning Media – Approved Learning Partner – content

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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.

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Your achievement of the PER should now be recorded in your on-line My Experience record.

Tackling studying

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Developing exam awareness

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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.

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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.

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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

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You can find the syllabus and Study Guide on pages xi – xxi of this Study Text

Testing what you can do

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Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can

recall what you have learnt.

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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

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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.

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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.

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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.

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Examples

When and how specific topics were examined, or how
they may be examined in the future.

Exam focus points

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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.

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Chapter Roundup
Quick Quiz

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Gives you a useful indication of syllabus areas that
closely relate to performance objectives in your Practical
Experience Requirement (PER).

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Question

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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.

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Practice Question Bank

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Introduction

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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.

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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

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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

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1 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.

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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.

2 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

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3 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
2 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 do 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

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4 Brought forward knowledge

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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.

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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.

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Introduction

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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.

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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

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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

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6

1
 spread)
3

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Return point = Lower limit + (

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Economic order quantity

Chapter in
Study Text

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3
3
 4  transaction cos t  variance of cash flows 
Spread = 3 

int erest rate




The Capital Asset Pricing Model

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E(ri) = Rf + ßi(E (rm) – Rf)

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The asset beta formula

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
  Vd (1 T)

Ve
ßa = 
d 
e  + 
 (Ve  Vd (1 T))   (Ve  Vd (1 T)) 
The Growth Model

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P0 =

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D0 (1 g)
(re  g)

Gordon's growth approximation

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g = bre

Introduction

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The weighted average cost of capital

 V 
 V 
WACC =  e  ke +  d  kd (1–T)
 Ve  Vd 
 Ve  Vd 

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The Fisher formula

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(1 + i) = (1 + r)(1 + h)

19

Purchasing power parity and interest rate parity

(1 hc )
(1 hb )

F0 = S0 

(1 ic )
(1 ib )

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S1 = S0 

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Syllabus and Study Guide

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The F9 syllabus and study guide can be found below.

Introduction

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Financial management function

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