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ACCA > F9 Chapters 1-5 > Flashcards

F9 Chapters 1-5 Flashcards

1
Q

What are the 3 types of Stakeholders?

A
  • Internal (e.g. Employees/ Directors)
  • Connected (e.g. Customers/ Suppliers/ Banks/ Shareholders)
  • External (e.g. Government/ Community/ Regulators/ Pressure Groups)
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3
Q

How do you ensure managers take decisions that reflect shareholder objectives?

A
  • Clearly Defined, easy to monitor, impossible to manipulate
  • Link rewards to shareholder wealth
  • Match time horizons of shareholders and managers
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4
Q

What is the agency relationship?

A

When one party, P, employs another party, A, to perform a task on their behalf.

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5
Q

What are the 3 E’s?

A
  • Economy: minimising inputs to achieve defined output
  • Efficiency: ratio of inputs to outputs
  • Effectiveness: whether outputs/objectives are met
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6
Q

What is the definition of VFM?

A

Achieving the desired level and quality of service at the most economical cost

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7
Q

Advantages of ROCE?

A
  • Simple
  • Links with out accounting measures
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8
Q

Disadvantages of ROCE?

A
  • No account of project life
  • No account of timing of cashflow
  • Depends on depreciation/acc policies
  • Does not measure absolute gain
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9
Q

Payback period equation?

A

-Payback period = Initial Investment

                              —————————

                                 Annual Cashflow
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10
Q

Advantages of Payback?

A
  • Simple
  • Useful for rapidly changing technology
  • Minimises risk
  • Favours quick return
  • Uses cashflow, not profit
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11
Q

Disadvantages of Payback?

A
  • Ignores returns after payback period (/ and during period)
  • Ignores overall profitability
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12
Q

Definition of Present Value (PV)

A

The cash equivalent now of money receivable/payable at some future date

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13
Q

If the NPV is positive - what does this mean?

A
  • The project is financial viable
  • The surplus funds after funding the investment
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14
Q

Assumptions of discounting?

A
  • All cashflows occur at start/end of period
  • Initial investment is at T0
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15
Q

Advantages of using NPV?

A
  • Considers time value of money
  • Uses cashflow, not profit
  • Should lead to maximisation of shareholders’ wealth
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16
Q

Disadvantages of using NPV?

A
  • More difficult to calculate/explain
  • Requires knowledge of discount rates etc
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17
Q

ROCE / ARR Equation?

A

ROCE = Average PBIT

           ———————————

          1/2 ( Investment + Scrap)
18
Q

What is the present value of a Perpetuity?

A

PV = Cashflow x 1

                              ———————

                              Rate of Interest
19
Q

Definition of IRR?

A

The Internal Rate of Return (IRR) represents the discount rate at which the NPV of an investment is zero.

20
Q

Advantages of IRR?

A
  • Considers time value of money
  • Uses cashflow, not profit
  • Should increase shareholders’ wealth if positive
21
Q

Disadvantages of IRR?

A
  • Not an absolute measure of profitability
  • Interpolation is estimate (unless using a spreadsheet)
  • Possible to have multiple or no IRR
22
Q

What is Af4-10

A

Af4-10 = Af1-7 x Df3

23
Q

Which is better: NPV or IRR?

A

NPV is king

24
Q

What are EACs?

A

The Equivalent Annual Costs/Cashflow to which a series of uneven cashflows is equivalent in PV terms.

25
Q

What is the formula for money rate?

A

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

i = money rate (overall)

r = real rate (require rate excl inflation)

h = inflation rate

26
Q

What is the formula for EAC?

A

EAC = PV of costs

          ——————

          Annuity Factor
27
Q

What is soft capital rationing?

A

A company may impose its own rationing on capital.

This is contrary to rational view of shareholder wealth maximisation.

28
Q

What is hard capital rationing?

A

An absolute limit on the amount of finance available is imposed by the lending institutions (external)

29
Q

Where projects can be done in parts, what formula should be used to distingush the best?

A

Profitability Index (PI) = NPV

                                   ———————

                                       Investment
30
Q

Where projects cannot be done in parts or are mutually exclusive, what should be used to distingush the best?

A

Trial and error

ACCA (3 decks)

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