اردو

Home / Practice / ACCA / Financial Management / FM E Business finance

FM E Business finance

Written by Mahnoor Sheikh (ACCA)

10 ACCA Financial Management questions with answers and explanations.

Printable worksheet with answer key

All questions with answers
  1. A risk-free rate of 4 percent, a market return of 9 percent and a beta of 1.2. What is the cost of equity using CAPM?

    • 1 10%
    • 2 9%
    • 3 13.8%
    • 4 6%
    Show answer

    Correct answer: 10%

    4% + 1.2 x (9% - 4%) = 10%.

    Report a mistake

  2. The last dividend is $0.50, growth is 4 percent and the cost of equity is 10 percent. What is the share price using the dividend valuation model?

    • 1 $8.67
    • 2 $5.20
    • 3 $5.00
    • 4 $8.33
    Show answer

    Correct answer: $8.67

    0.50 x 1.04 / (0.10 - 0.04) = 8.67.

    Report a mistake

  3. Equity is 60 percent of the finance at a cost of 10 percent, and debt is 40 percent at an after-tax cost of 5 percent. What is the WACC?

    • 1 8%
    • 2 7.5%
    • 3 6%
    • 4 15%
    Show answer

    Correct answer: 8%

    0.6 x 10% + 0.4 x 5% = 8%.

    Report a mistake

  4. Irredeemable debt pays 6 percent interest on $100 nominal and trades at $80. The tax rate is 25 percent. What is the after-tax cost?

    • 1 7.5%
    • 2 6%
    • 3 5.625%
    • 4 4.5%
    Show answer

    Correct answer: 5.625%

    6 x 0.75 / 80 = 5.625%.

    Report a mistake

  5. Why is debt usually cheaper than equity?

    • 1 It is paid last
    • 2 It has no interest
    • 3 It ranks higher for repayment and interest is normally tax deductible
    • 4 It has no risk
    Show answer

    Correct answer: It ranks higher for repayment and interest is normally tax deductible

    Lenders have a prior claim, so they accept lower returns.

    Report a mistake

  6. Which of these is prohibited in Islamic finance?

    • 1 Profit sharing
    • 2 Trade credit
    • 3 Riba (interest)
    • 4 Leasing
    Show answer

    Correct answer: Riba (interest)

    Returns come from trade, leasing or sharing profit and loss.

    Report a mistake

  7. Which Islamic finance instrument is a form of lease finance?

    • 1 Mudaraba
    • 2 Murabaha
    • 3 Ijara
    • 4 Sukuk
    Show answer

    Correct answer: Ijara

    Murabaha is trade credit and mudaraba is equity finance.

    Report a mistake

  8. Which Islamic finance instrument is a debt-like security backed by assets?

    • 1 Ijara
    • 2 Sukuk
    • 3 Musharaka
    • 4 Mudaraba
    Show answer

    Correct answer: Sukuk

    Sukuk give investors a share of the returns on assets.

    Report a mistake

  9. According to Modigliani and Miller with tax, what happens to company value as gearing rises?

    • 1 It rises because of the tax shield on debt
    • 2 It stays the same
    • 3 It is not affected by tax
    • 4 It falls
    Show answer

    Correct answer: It rises because of the tax shield on debt

    Without tax, value is not affected by gearing.

    Report a mistake

  10. What does beta measure?

    • 1 The company's dividend
    • 2 The company's gearing
    • 3 A share's sensitivity to market movements
    • 4 The company's profit
    Show answer

    Correct answer: A share's sensitivity to market movements

    It measures systematic risk.

    Report a mistake

More Financial Management topics