ACCA F9 questions

mark057

Hi all,

I've not long started my question practices for F9 and I'm finding the answer book answers more
detailed than ever.

I answered a question which asked for limitations of an investment appraisal theory.

Although the answer was structured into paragraph form, I focused my answer on clear short
bullet points similar to the passcard style e.g. Payback method does not consider the timing of
cash flows.

Would that style be suitable in the exam?

Mark

SandyHood

Dear Mark

Short sentences are good. I guess your example is deliberately wrong to draw attention to your question.
But here is my example of : What are the limitations of the payback method of investment appraisal?

• A comparison of alternative possible investment opportunities ignores all cash flows after the point at which each has "paid back" the cost of the investment. This favours projects which pay back early over others which may take longer but will have a greater benefit to shareholder value.
• All annual cash flows are treated at their predicted values. Thus a $3,000 cash inflow for project 1 in year 4 is not discounted any more than a $3,000 cash inflow for project 2 in year 1.
• It is difficult to judge how long a payback period should be when assessing the acceptability of calculated payback periods for named projects

mark057

Thanks for that information Sandy. It gives me a very good idea of what to target.

I went through a long DCF technique question this morning with NPV, Payback and IRR. Not a prayer to complete
on time. Easy to calculate but too much number crunching required for 45 mins given the discursive elements too.