[IAW3005]

We have added the tax saving to the cash flow because, in investment appraisal, we assume a “going concern” company that has other profitable income to offset the loss against, or the ability to carry back the loss to obtain a prompt refund.

Represents a reduction in future cash outflows (tax pymts) or an increase in future inflows (refunds).
It improves the overall profitability of the investment.
Ignoring it would understate the net cash flow of the project.

In summary, the tax saving is treated as a positive cash flow because it represents a real cash saving—either by not paying tax on other profits or by reducing the tax paid in a previous period via a claim on the CT600.

Hope this helps

[IAW3005]

The question says the time for the first batch of 50 units was 400 hours but the labour budget is the subject of a learning effect where the learning rate is 90%. The rate of pay is $12 per hour .
The business had received and satisfied an order for 600 units but is has now received a second order for another 800 units . Value for b = – 0.152

Quite simply, the discrepancy occurs because the learning effect is defined based on the first batch of 50 units, not the first single unit.

[IAW3005]

Apologies for the delay

Calculating the Miller-Orr model on a Casio fx-83GT PLUS can be tricky due to the complex formula and the need for cubed roots.

The key to solving this is breaking the formula down into steps and using the brackets carefully to ensure the calculator follows the correct order of operations

[IAW3005]

Apologies for the delay in responding
Open tuition is still relevant
Kind regards

[IAW3005]

F9 there isn’t much change
The syllabus is available from the ACCA website to see for yourself
You will note no significant changes

[IAW3005]

So the current level of cash is that needed for the current level of activity.

If the level of activity doubles then we are going to need twice as much cash.

The overdraft is the missing figure because the SOFP must balance.

[IAW3005]

To calculate net cash flow in investment appraisal, you need to follow these steps:

Identify Cash Inflows and Outflows: Determine all expected cash inflows from the investment, such as revenues, and all cash outflows, including production costs and any additional expenses.

Calculate Operating Cash Flow
After calculating the operating cash flow, deduct any applicable taxes to arrive at the net cash flow.

Consider Depreciation: Remember that depreciation is a non-cash expense and should be added back to the net cash flow since it does not affect cash.

Adjust for Timing: Cash flows are typically assumed to occur at the end of each year for simplicity, although in practice, they may be spread throughout the year.

Account for Working Capital: If additional working capital is required at the start of the project, this should be included as an outflow.

By following these steps, you can effectively calculate the net cash flow for your investment appraisal.

[IAW3005]

The DGM calculates the cost of equity based on the current market price of the share, the current dividend, and the expected future dividend growth rate.

The DVM focuses on the present value of future dividends, which can be used to assess the value of a stock.

If the question provides information about future dividend growth rates and current dividends, DGM may be more appropriate.

If the question emphasises the present value of dividends without specific growth rates, DVM might be the better choice.

[IAW3005]

Your welcome

[IAW3005]

While you are correct that production volume has changed, the problem explicitly provides a specific estimate for the number of orders based on the new system’s impact on last year’s figures.

In professional examinations, if a specific estimate or probability is given for a cost driver’s quantity – number of orders, that instruction overrides a general assumption of volume-based variability.

The “number of orders” is often treated as a step-fixed or batch-level cost driver.

Unless a specific units per order ratio is provided, you must follow the provided estimates for the activity level itself.

[IAW3005]

As explained in the lectures on this, you cannot now be expected to draw a decision tree in the exam (although you can be tested that you understand decision trees).

The answer to part (b) must start with the results from the geologist, because what she says will affect the decision about whether or not to drill.

[IAW3005]

As explained in the lectures on this, you cannot now be expected to draw a decision tree in the exam (although you can be tested that you understand decision trees).

The answer to part (b) must start with the results from the geologist, because what she says will affect the decision about whether or not to drill.

[IAW3005]

Mark up is on top of cost
So if cost is $450 and mark up 5%
1 + Mark up
that means $450 * 1.05
= the selling price is $472.50

Margin of 5%
If the cost is $450 / 1 – Margin
Whilst 1 – Margin= 1 – 0.05
So 450/ 0.95 = $473.68

[IAW3005]

To calculate the life-cycle cost per unit, you must first find the total costs incurred over the entire life of the product and then divide that total by the total number of units produced over the entire life.

Here is the correct mathematical approach:
1. Calculate Total Units 2,000 + 5,000 + 7,000 = 14,000
2. Calculate Total Variable Production Costs $ 22,000
3. Calculate Total Variable Selling Costs $5,800
4. Calculate Total Fixed Costs $ 17,300
5. Calculate Total Life-cycle Cost $ 22,000 + $5,800+ $17,300 =$ 45,100
6. Calculate Life-cycle Cost per Unit $ 45,100 / 14,000 = $3.22

In life-cycle costing, you must aggregate the total wealth consumed (total dollars) and spread it over the total benefit created (total units).

Simply adding the per-unit costs from different years does not make sense because the fixed costs are spread over different activity levels in each year.

[IAW3005]

Well start with the opening balance of 3,800,000 which at 0.05% means o/d interest for period1 is -19000

So net cashflow is rec 4,220,000-pay 3,950,000 -o/d int 19000 = net cash flow of 251,000

Op bal (3,800,000) net cash flow 251,000 = 3,549,000

Same process again ….period 2

Opening balance of 3,549,000 which at 0.05% means of interest for period1 is -18000

So net cashflow is rec 4,350,000-pay 4,100,000 -o/d int 18000 – bank loan int 200,000= net cash flow of 32,000

Op bal (3,549,000) net cash flow 32,000 = 3,517,000

[IAW3005]

Yes you can
Well done

[IAW3005]

It is possible to apply for both. They are very different subjects to do.

PM – is management accounting to aid in business planning, decision-making, and control. Covers budgeting, standard costing, variance analysis, performance measurement, and CVP analysis (breakeven).

FM – teaching you the knowledge and skills of a finance manager to make crucial investment, financing, and dividend policy decisions for a business, covering areas like working capital, cost of capital, investment appraisal, business finance, and risk management.

[IAW3005]

We posted on
May 6, 2022 at 4:01 pm

There was a time many years ago that correlation and time series were not examined in Paper MA (was F2) and so were first examined in Paper PM (was F5). In those days they did often appear in the Paper PM exam.

They were then brought into the syllabus for Paper MA, and therefore were automatically examinable in Paper PM (because Paper PM can include anything from Paper MA, even though they were not explicitly listed separately in the Paper PM syllabus). Now they have been specifically listed just to make it clear, but as is written in the introduction section of Chapter 12 of our PM lecture notes, it remains unlikely that you will be asked detailed calculations, but if you have forgotten them you should watch the free Paper MA lectures on them.

The Paper PM lecture will not therefore be updated to include them again.

(I appreciate that you might have been exempt from Paper MA, in which case you should have been taught these areas in your degree course, but again there are full free lectures on them in Paper MA ? )

[IAW3005]

Nominal NPV Calculation

When calculating the nominal NPV, you should inflate all cash flows (sales, variable costs, and fixed costs) using their specific inflation rates. This means you apply the specific inflation rates to each cash flow item to arrive at the nominal cash flows. Then, you discount these nominal cash flows at the nominal cost of capital.

Real NPV Calculation

For the real NPV, the approach is different. You typically do not inflate the cash flows. Instead, you would use the general inflation rate to adjust the nominal cash flows to real cash flows. This involves deflating the nominal cash flows by the general inflation rate to remove the effects of inflation. After obtaining the real cash flows, you would discount them at the real cost of capital.

General vs. Specific Inflation

The general inflation rate is used to convert nominal cash flows to real cash flows when calculating the real NPV. In contrast, specific inflation rates are applied to individual cash flow items when calculating the nominal NPV.

Different Questions

In the case where only a general inflation rate is provided, you would use this rate to calculate the nominal NPV directly. For the real NPV, you would not apply any inflation, as you are working with real cash flows.

[IAW3005]

As I said

In the real exam questions will clearly state requirements of the question
Part A or B

Round to 1 decimal
Or round to a whole number
Etc….

[IAW3005]

As I said

In the real exam questions will clearly state requirements of the question
Part A or B

Round to 1 decimal
Or round to a whole number
Etc….

[IAW3005]

Unfortunately it is in the syllabus
D 2b

All areas of the syllabus could be examined
I do not think you should topic pick

The examiners ensure all areas of the syllabus are examined over the time periods.
So eventually everything is covered either in Part A, B & C

We might say it’s not a popular topic not that it “definitely” won’t be examined

[IAW3005]

You always use xdiv value
Whether for WACC or for valuation

[IAW3005]

In the real exam questions will clearly state requirements of the question
Part A or B

Round to 1 decimal
Or round to a whole number
Etc….

[IAW3005]

What is the question asking for? It is a rather odd thing for them to ask, we agree with you!
You have to display your knowledge of understanding of the question requirements and what to do.

That is why in almost all questions we simply discount the nominal flows at the nominal cost of capital. We only deflate and use the real cost of capital if the question specifically asks for it.

The ‘real’ cash flows are derived by deflating nominal cash flows, including working capital, at the general rate of inflation. It is also worth noting that tax is applied to inflated cash flows, which can create a mismatch if not handled correctly. The safest approach in exams is to deflate the net cash flows (after tax) to ensure consistency.

If the examiner’s method appears to create confusion for you state any assumptions you make in your answer.

By clearly stating your assumptions and adhering to the standard practice of deflating net cash flows, you can present a well-reasoned answer that demonstrates your understanding of these principles.
You do whatever you feel is right, you will still get marks.

[Author]

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