Management Accounting Financial Strategy

Paper P9 – Management Accounting Financial Strategy Post Exam Guide May 2006 Exam Examiner’s General Comments The performance on Paper P9 was extremely disappointing. Many candidates appeared to have done little preparation. It was noted in the November 2005 Post Exam Guide that many candidates demonstrated poor knowledge of even quite basic financial calculations and that their grasp of many basic concepts was also limited. These weaknesses are still evident in May 2006. A further weakness was the poor presentation and structure of candidates’ solutions. Question One appeared to present candidates with particular challenges despite clues to answering the question (and (a) (i) in particular) being clearly evident in the scenario. Question Two was a standard working capital management and financing question, although it was avoided by the majority of candidates and many candidates ignored the financing aspects of the question. Question Three was even more unpopular, although it required fairly straightforward calculations of the yield to maturity of a bond and a conversion value of a convertible bond which provided readily accessible marks for the well-prepared candidate. Questions Four and Five were by far the most popular of the optional questions on this paper. Answers to Question Four were disappointing as many candidates were unable to apply the APV approach correctly and few candidates used an ungeared cost of equity in the NPV base calculation. Question Five was generally well answered with most candidates being able to make a reasonable attempt at the NPV calculations and draw basic conclusions from the results. However, few were able either to calculate appropriate PIs based on rationed cash flows, or to “stand back” from the NPV and PI results and use these to help identify the best overall combination of projects. In the sections below that explain how the marking scheme was applied, where the comment says “up to 3 marks are available for each valid