ICAEW – FM questions with correct answers

Accounting Rate of Return - Answer Average Profit/Average investment Internal Rate of Return - Answer a + NPVa/NPVa-NPVb x (b-a) Money cost of capital - Answer (1 + money coc) = (1 + real coc%) x (1 + inflation %) Equivalent annual cost (EAC) - Answer PV of 1 cycle/AF^n of cycle Profitability index (for divisible projects) - Answer NPV/Investment in yr of rationing Sensitivity to sales volume - Answer NPV/PV of net contribution (after tax) Interest Rate Parity - Answer SPOT x (1 + o/seas interest %)/(1+ home interest %). Used to work out forward rates Purchasing power parity - Answer SPOT x (1 + o/seas inflation %)/(1 + home inflation %) TERP - Answer MV shares before + new funds / total number of shares post issue Dividend yield - Answer Dividend per share/share price Earnings per share (PAT) - Answer Earnings/