ACCA Pakistan Strategic Professional Options Syllabus

Strategic Professional Options syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Strategic Professional Options in ACCA Pakistan, not a summary of it.

1. 1

   Advanced Financial Management (AFM)

   4 topics

   • Role of Senior Financial Adviser
   • Advanced Investment Appraisal
   • Acquisitions and Mergers
   • Advanced Risk Management
2. 2

   Advanced Performance Management (APM)

   4 topics

   • Strategic Planning and Control
   • Performance Measurement Systems
   • Divisional Performance and Transfer Pricing
   • Performance Management Information Systems
3. 3

   Advanced Taxation (ATX-PKN)

   4 topics

   • Advanced Income and Corporate Taxation
   • Taxation of Specialised Sectors
   • Tax Planning and Ethics
   • International Taxation
4. 4

   Advanced Audit and Assurance (AAA)

   4 topics

   • Regulatory and Professional Framework
   • Practice Management and Quality Control
   • Planning and Conducting Engagements
   • Reporting and Other Assignments

Strategic Professional Options flashcards for ACCA Pakistan

18 of 57 cards from the Strategic Professional Options deck — real questions with worked answers.

1. What are the four key roles of a senior financial adviser within an organisation?

   (1) Investment decisions (appraising and selecting projects), (2) Financing decisions (raising funds and managing capital structure), (3) Dividend/distribution decisions, and (4) Risk management. They advise on maximising shareholder wealth while balancing other stakeholder interests.

2. In financial management, what is the primary objective of the firm and what conflict can arise from it?

   The primary objective is maximisation of shareholder wealth. The main conflict is the agency problem: managers (agents) may pursue their own interests rather than those of shareholders (principals), mitigated through incentives, monitoring and governance.

3. What is the formula for the Adjusted Present Value (APV) method of investment appraisal?

   APV = Base-case NPV (project discounted at ungeared/all-equity cost of capital) + PV of financing side effects (e.g. tax shield on debt, issue costs, subsidised loan benefits).

4. When is the Adjusted Present Value (APV) method preferred over NPV using WACC?

   APV is preferred when the project's capital structure (gearing) changes significantly over its life, or when there are specific financing side effects such as tax relief on debt, issue costs, or subsidised loans, making a constant WACC inappropriate.

5. What is the Modigliani-Miller (with tax) formula linking the value of a geared firm to an ungeared firm?

   Vg = Vu + (D x t), where Vg = value of geared company, Vu = value of ungeared company, D = market value of debt, and t = corporation tax rate. (D x t) is the present value of the debt tax shield.

6. What is the Modigliani-Miller Proposition 2 (with tax) formula for the cost of equity in a geared company?

   Ke(g) = Ke(u) + (Ke(u) - Kd)(1 - t)(Vd/Ve), where Ke(g) is geared cost of equity, Ke(u) is ungeared cost of equity, Kd is cost of debt, t is tax rate, and Vd/Ve is the debt-to-equity market value ratio.

7. What is the formula to ungear (asset) and regear an equity beta using the Hamada / MM relationship?

   Asset beta: βa = βe x [Ve / (Ve + Vd(1 - t))] (assuming debt beta is zero). Regear by rearranging for the new equity beta using the target company's capital structure and tax rate.

8. In a Black-Scholes option pricing context, what are the five inputs required to value a call option?

   (1) Pa = current price of underlying asset, (2) Pe = exercise price, (3) t = time to expiry, (4) r = risk-free rate, and (5) s = volatility (standard deviation) of returns on the underlying asset.

9. What is the put-call parity relationship used in real options analysis?

   Value of call - Value of put = Pa - Pe x e^(-rt). Rearranged: p = c - Pa + Pe x e^(-rt), allowing a put option value to be derived once the call value is known.

10. Name and briefly describe three types of real options in investment appraisal.

    (1) Option to delay/defer (timing the investment), (2) Option to expand/follow-on (further investment if successful), and (3) Option to abandon/withdraw (sell or cease the project). Each adds value not captured by standard NPV.

11. What is the difference between the Free Cash Flow to Firm (FCFF) and Free Cash Flow to Equity (FCFE) valuation approaches?

    FCFF discounts cash flows available to all providers of finance at the WACC to give enterprise value (then deduct debt for equity value). FCFE discounts cash flows available to equity holders (after interest and debt movements) at the cost of equity to give equity value directly.

12. What are the three principal methods of valuing a target company in an acquisition?

    (1) Asset-based valuation (net asset/book or realisable value), (2) Market-based valuation (e.g. P/E ratio, dividend valuation model), and (3) Cash flow based valuation (DCF using free cash flows / FCFE).

13. What is the bootstrapping effect in an acquisition financed by a share-for-share exchange?

    Bootstrapping occurs when a high-P/E company acquires a low-P/E company; if the market applies the acquirer's high P/E to the combined earnings, EPS and share value rise without any real synergy - an illusory gain that is not sustainable.

14. What is the formula for the value of synergy in a merger, and how does it relate to the maximum acquisition premium?

    Synergy = Value of combined entity (V(AB)) - (Value of A + Value of B) standalone. The maximum premium the acquirer should pay over the target's standalone value equals the synergy value, since paying more transfers all gains to target shareholders.

15. Distinguish between a horizontal, vertical and conglomerate acquisition.

    Horizontal: same industry/stage of production (e.g. two competitors). Vertical: different stages of the same supply chain (forward toward customer or backward toward supplier). Conglomerate: unrelated businesses, diversifying activities.

16. What are the main defensive tactics a target company can use against a hostile takeover?

    Poison pill, white knight (friendly alternative bidder), crown jewels (sell key assets), Pac-Man defence (counter-bid for the acquirer), golden parachutes, share buy-backs, and appealing to shareholders/regulators. Many are restricted by takeover codes once a bid is underway.

17. What is the difference between a Management Buyout (MBO) and a Management Buy-in (MBI)?

    An MBO is the purchase of a business by its existing management team. An MBI is the purchase of a business by an external management team who bring in their own management to run it. Both are often financed by venture capital and debt (leverage).

18. What are the three main types of foreign exchange risk exposure?

    (1) Transaction risk (effect of rate movements on the value of pending foreign-currency cash flows), (2) Economic risk (long-term effect on competitive position and PV of future cash flows), and (3) Translation risk (effect on reported value of foreign assets/liabilities in consolidated accounts).

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