Prepare efficiently for the ACA Financial Management Professional Level exam. This document covers all essential topics, including strategy, NPV calculation, hedging, valuations, WACC, and gearing. Each section is designed to provide a clear and concise overview, complete with key concepts and stru...
ICAEW FM: Financial Management
Exam Notes and Proformas
, · Interest cost is never included in investment appraisals as its included in the cost of capital (i.e., discount factor)
· Depreciation is not included in NPV schedules: it’s a non cash item
· Always check if figures are presented in real terms or money terms (i.e., inflated)
· Anything that its allocated is never relevant -> don’t include in NPV
· Irrelevant figures (i.e., paid either way) are not included in NPV
· Any tax allowable costs are deducted from revenue -> lower profit -> hence lower tax on profit charge
· Contribution = Profit
NPV proforma
T0 T1 T2 T3 T4
Investment (X)
Machinery X
Variable costs (W2) (X) (X) (X) (X)
Fixed costs (additional) (W2) (X) (X) (X) (X)
Sale proceeds (W2) X X X X
Tax on profit (W2) (X) (X) (X) (X)
Tax saving WDA (W1) X X X X
Working Capital (W3) (X) (X) (X) (X)
Cashflows (X) X X X X
2 way for the NPV:
(1) NPV excel formula
NPV = (DF%, T1-T4)+T0
(2) Find each period's PV and sum
DF X X X X X -> as calculated in W4
PV Cashflow 0 *DF Cashflow 1 *DF Cashflow 2 *DF Cashflow 3 *DF Cashflow 4 *DF
NPV = SUM of PVs
, Standard Workings
W1: Capital allowances
CT @ x%
Year 1 X
WDA (X) X
Year 2 X
WDA (X) X
Year 3 X
Disposal X <- no WDA in year of disposal
(X)/X X/(X)
Remember:
- If bought near year end -WDA eligible
- If bought at start of year -WDA starts in next year
W2: Inflate Figures
T1 T2 T3 T4
Sales X*1% X*1%*1% …..... X*1%*1%....*1%
Costs X*1% X*1%*1% …..... X*1%*1%....*1%
Total X X X X
Tax @% (%) (%) (%) (%)
W3: Working Capital
T0 T1 T2 T3 T4
Opening (X)
Required (1) (2) (3)
Additional (1) - (X) (2) - (1) (2) - (3) 3
W4: DF
(if it changes duting the duration of the project)
T1 = 1/ 1+DF1
T2 =T1*(1/1+DF2)
T3 =T2*(1/1+DF3)
T4 =T3*(1/1+DF4)
Standard Deviation, Mean, Coefficient
In a normal distribution:
1. 68% of the data fall 1 SD above and below the mean
2. 95% of the data fall 2 SD above and below the mean
3. 97.5% of the data fall 3 SD above and below the mean
The CoV is SD/Mean, which is usedto compare the relative risk of competive projects
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