Fundamentals Level – Skills Module, Paper F9 Financial Management December 2014 Answers Section A 1 A Monetary value of return = $3·10 x 1·197 = $3·71 Current share price = $3·71 – $0·21 = $3·50 2 3 4 B C A The hedge needs to create a peso liability to match the 500,000 peso future income. 6-month peso borrowing rate = 8/2 = 4% 6-month dollar deposit rate = 3/2 = 1·5% Dollar value of money market hedge = 500,000 x 1·015/(1·04 x 15) = $32,532 or $32,500 5 6 7 B C C Total cash flow ($) Joint probability EV of cash flow ($) 36,000 14,000 32,000 10,000 16,000 (6,000) 0·1125 0·0375 0·4500 0·1500 0·1875 0·0625 4,050 525 14,400 1,500 3,000 (375) ––––––– 23,100 Less initial investment EV of the NPV (12,000) ––––––– 11,100 ––––––– 8 9 B A MV = (7 x 5·033) + (105 x 0·547) = $92·67 10 11 12 D D A 17 13 B Inventory = 15,000,000 x 60/360 = $2,500,000 Trade receivables = 27,000,000 x 50/360 = $3,750,000 Trade payables = 15,000,000 x 45/360 = $1,875,000 Net investment required = 2,500,000 + 3,750,000 – 1,875,000 = $4,375,000 14 15 16 17 C D C A Gearing = [(4,000 x 1·05) + 6,200 + (2,000 x 0·8)]/(8,000 x 2 x 5) = 12,000/80,000 = 15% 18 19 B D Dividend growth rate = 100 x ((33·6/32) – 1) = 5% MV = 33·6/(0·13 – 0·05) = $4·20 20 D Section B 1 (a) Cash balances at the end of each month: December January February March April Sales (units) 1,200 1,250 1,300 1,400 1,500 Selling price ($/unit) 800 800 840 840 –––––– –––––– –––––– –––––– Sales ($000) 960 1,000 1,092 1,176 –––––– –––––– –––––– –––––– Month received January February March April December 1,250 2,500 500 January January 1,300 2,600 520 February February 1,400 2,800 560 March 1,500 3,000 600 Production (units) Raw materials (units) Raw materials ($000) Month payable March April December 1,250 125 January 1,300 130 February 1,400 140 March 1,500 150 Production (units) Variable costs ($000) Month payable December January February March