ERRATA SHEET

ACCA Paper F9 Financial Management, 07/08, Complete Text.

ISBN: 978-1-84710-243-0 Chapter 5, page 94

Insert a line above Raw materials: Finished goods 1/12 x 975,000 Above 112,500 on the same line as Finished goods figure 81,250

Should read 587,500

Should read 470,625

Chapter 6 Page 114 Error:

EOQ =

2 200 120,000 2

= 3,703

Correction:
EOQ = 2 200 120,000 3.5 = 3,703

Chapter 8 Page 167 Error: 5 Reduction in inventory ($24m $25m) Correction: 5 Reduction in inventory ($24m $25m) Error: 5 Increase in receivables ($45m $33m) Correction: 5 Increase in receivables ($45m $33m) Page 175 Error:

(i)

4 50 9,000,000 = $31,200 Spread = 3 0.0003

1 3

Correction:

(i)

3 50 9,000,000 Spread = 3 4 0.0003

1 3

= $31,200

Page 176 Error: (iii) Return point =

20,000 + 31,200 3 = $30,400

Correction: (iii) Return point = 20,000 +

31,200 3

= $30,400

Chapter 10 Page 221 Illustration 1 - Compounding Error:

Value after two years

Correction:

110 1.12 = 121

Value after two years

110 1.1 = 121

Page 234 Error:

IRR = L +
Correction:

NL (H L) NL NL

IRR = L +

NL (H L) NL NH

Chapter 11 Page 274 Error: TYU 6 (b) Time Net trading inflows Tax payable (30%) Initial investment Scrap proceeds Tax relief on WDAs Net cash flows Discount factor @ 8% Present value Correction: TYU 6 (b) Time Net trading inflows Tax payable (30%) Initial investment Scrap proceeds Tax relief on WDAs Net cash flows Discount factor @ 8% Present value

T0
(26,000)

T1
16,000

T2
16,000 (4,800)

T3
16,000 (4,800)

T4
(4,800) 12,500 (460) 7,240 0.735 5,321 $16,559

(26,000) 1.000 (26,000)

1,950 17,950 0.926 16,622

1,463 12,663 0.857 10,852

1,097 12,297 0.794 9,764 NPV

T0
(26,000)

T1
16,000

T2
16,000 (4,800)

T3
16,000 (4,800)
12,500 1,097 24,797 0.794 19,689 NPV

T4
(4,800)

(26,000) 1.000 (26,000)

1,950 17,950 0.926 16,622

1,463 12,663 0.857 10,852

(460) (5,260) 0.735 (3,866) 17,297

Chapter 11 Page 275 Error: TYU 6 (c) Time Net trading inflows Tax payable (30%) Initial investment Scrap proceeds Tax relief on WDAs Net cash flows Discount factor @ 8% Present value Correction: TYU 6 (c) Time Net trading inflows Tax payable (30%) Initial investment Scrap proceeds Tax relief on WDAs Net cash flows Discount factor @ 8% Present value Error: TYU 7

T0
(26,000)

T1
16,000

T2
16,000 (4,800)

T3
16,000 (4,800)

T4
(4,800) 12,500 638 8,338 0.735 6,128 $16,268

(26,000) 1.000 (26,000)

16,000 0.926 14,816

1,950 13,150 0.857 11,270

1,463 12,663 0.794 10,054 NPV

T0
(26,000)

T1
16,000

T2
16,000 (4,800)

T3
16,000 (4,800)
12,500 1,463 25,163 0.794 19,979 NPV

T4
(4,800)

(26,000) 1.000 (26,000)

16,000 0.926 14,816

1,950 13,150 0.857 11,270

638 (4,162) 0.735 (3,059) 17,006

Working Correction: TYU 7

T0 $ 32,400

T1 $ 30,000

T2 $ 34,992

T3 $ 32,400

T0 $
Working

T1 $ 32,400 30,000

T2 $

T3 $ 34,992 32,400

Chapter 12 Page 286 Error:

Illustration 3 Annual cash flow $ 50,000 100,000 150,000 0.3 0.5 0.2 Probability NPV $ (212,190) 4,260 221,710 (17,385)

ENPV = 0.3 (- 212,190) + 0.5 4,260 + 0.2 (- 221,170) =

Correction:

Illustration 3 Annual cash flow $ 50,000 100,000 150,000 0.3 0.5 0.2 Probability NPV $ (212,190) 4,260 220,710 (17,385)

ENPV = 0.3 (- 212,190) + 0.5 4,260 + 0.2 (220,710) =

Chapter 18 Page 467 Error:

The companys shares are currently worth $4 and their value is expected to grow at a rate of 7% pa.
Correction:

The companys shares are currently worth $4 and their value is expected to grow at a rate of 7% pa. The company pays corporation tax at 30%.
Chapter 18 Page 477 Error: TYU 11

Conversion value = 20 4(1.07)5 = 20 5361 = 112.20

Error: TYU 11

Conversion value = 20 4(1.07)5 = 20 5361 = 112.20

Chapter 22 Page 552 Error: Ill 2 Economic risk

The current exchange rate is 1.26/$ What would be the effect on the exporters business if the dollar strengthened to 1.31/$? Solution The product was previously selling at $16 1.26 = $20.16. After the movement in exchange rates the exporter has an unhappy choice: Either they must

raise the price of the product to maintain their profits: 16 1.31 = $20.96 but risk losing sales as the product is more expensive and less competitive, or maintain the price to keep sales volume but risk eroding profit margins as $20.16 is now only worth $20.16/1.31 = $15.39.

Correction: Ill 2 Economic risk

The current exchange rate is 1.26/$ What would be the effect on the exporters business if the dollar strengthened to 1.31/$? Solution The product was previously selling at $16 1.26 = 20.16. After the movement in exchange rates the exporter has an unhappy choice:

Either they must

Raise the price of the product to maintain their profits: 16 1.31 = 20.96 but risk losing sales as the product is more expensive and less competitive, or Maintain the price to keep sales volume but risk eroding profit margins as 20.16 is now only worth 20.16/1.31 = $15.39.

Page 564 Error: Illustration 11

at the lower rate of 1.4325, the bank would sell them for 69,808 at the higher rate of 1.4330, the bank would sell them for 69,784
RULE Band buys high.

Clearly the bank would be better off selling them at the higher rate If a company want to sell $200,000 in exchange for sterling (so the bank would be buying dollars): at the lower rate of 1.4325, the bank would buy them for 139,616 at the higher rate of 1.4330, the bank would sell them for 139,567
RULE Correction: Illustration 11 Bank sells low.

The bank will make more money selling at the lower rate:

if we used the lower rate of 1.4325, the bank would sell them for 69,808 if we used the higher rate of 1.4330, the bank would sell them for 69,784
RULE Band sells low.

Clearly the bank would be better off selling them at the lower rate If a company want to sell $200,000 in exchange for sterling (so the bank would be buying dollars): if we used the lower rate of 1.4325, the bank would buy them for 139,616 if we used the higher rate of 1.4330, the bank would buy them for 139,567
RULE Bank buys high.

The bank will make more money buy at the higher rate: