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ACCA Pakistan Financial Management (FM) Flashcards
51 question-and-answer cards covering Financial Management (FM) as it is examined in ACCA Pakistan. 24 of them are printed below, taken from across the deck — no signup, no paywall on the preview.
24 sample cards from the Financial Management (FM) deck
Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.
What is the payback period and its main decision rule?
The time taken for a project's cumulative cash inflows to recover the initial investment. Rule: accept projects with a payback within the company's target period; choose the shortest payback.
State two advantages and two disadvantages of the payback method.
Advantages: simple to calculate and understand; focuses on liquidity/early cash flows reducing risk. Disadvantages: ignores cash flows after payback; ignores the time value of money (in simple form).
What is the Accounting Rate of Return (ARR) and how is it commonly calculated?
ARR = (Average annual accounting profit / Average investment) x 100%. Average investment = (initial investment + scrap value) / 2. Accept if ARR exceeds a target rate.
What is the key weakness of ARR as an investment appraisal method?
It uses accounting profit rather than cash flows and ignores the time value of money.
What is Net Present Value (NPV) and its decision rule?
NPV is the sum of the present values of a project's future cash flows less the initial investment, discounted at the cost of capital. Rule: accept projects with a positive NPV; it maximises shareholder wealth.
What is the Internal Rate of Return (IRR)?
The discount rate at which a project's NPV equals zero. Decision rule: accept the project if the IRR exceeds the company's cost of capital.
State the formula used to estimate IRR by interpolation.
IRR = L + [ NPV_L / (NPV_L - NPV_H) ] x (H - L), where L and H are the lower and higher discount rates and NPV_L, NPV_H are their net present values.
What is the present value formula for a single future cash flow?
PV = Future cash flow x 1/(1+r)^n, where r is the discount rate and n is the number of periods (the discount factor).
What is the formula for the present value of an annuity?
Annuity factor = [1 - (1+r)^-n] / r. PV of annuity = annual cash flow x annuity factor.
What is the formula for the present value of a perpetuity?
PV of a perpetuity = cash flow / r. For a growing perpetuity, PV = cash flow / (r - g), where g is the growth rate.
What is the difference between the money (nominal) and real methods of dealing with inflation in DCF?
The money method discounts money (inflated) cash flows at the money cost of capital; the real method discounts real cash flows at the real cost of capital. Both give the same NPV.
State the Fisher equation linking real and nominal rates.
(1 + money/nominal rate) = (1 + real rate) x (1 + inflation rate).
How are tax-allowable depreciation (capital allowances) treated in NPV calculations?
They are not cash flows themselves but generate tax savings (tax relief). The tax saved = allowance x tax rate, and these savings are included as cash inflows, timed according to when tax is paid.
What is sensitivity analysis in investment appraisal?
A technique measuring how much an input variable can change before the NPV becomes zero (the decision changes). Sensitivity = NPV / PV of the cash flow affected, expressed as a percentage.
What is the difference between risk and uncertainty in investment appraisal?
Risk means future outcomes and their probabilities can be quantified/estimated; uncertainty means probabilities cannot be assigned because there is too little information.
What is the expected value (EV) and how is it calculated?
A weighted average of possible outcomes: EV = sum of (each outcome x its probability). It is used to assess risky investments but ignores the decision-maker's risk attitude and the spread of outcomes.
Distinguish between debt and equity as sources of finance.
Equity (ordinary shares) gives ownership, voting rights and variable dividends, ranking last on liquidation; debt (loans/bonds) carries a fixed interest obligation, no ownership, is often secured, and ranks ahead of equity. Debt interest is tax deductible.
List three sources of short-term finance.
Bank overdraft, short-term bank loans, and trade credit. (Also factoring/invoice discounting.)
What is a rights issue?
An offer of new shares to existing shareholders in proportion to their current holdings, usually at a discount to the market price, allowing them to maintain their percentage ownership.
State the formula for the Cost of Equity using the Dividend Growth Model.
Ke = [D0(1+g) / P0] + g, where D0 = current dividend, g = growth rate, P0 = current ex-dividend share price. (D0(1+g) is the next expected dividend D1.)
State the Capital Asset Pricing Model (CAPM) formula for the cost of equity.
Ke = Rf + beta x (Rm - Rf), where Rf = risk-free rate, Rm = market return, (Rm - Rf) = equity risk premium, and beta = systematic risk of the share.
What is the Weighted Average Cost of Capital (WACC) and its formula?
WACC = [Ke x E/(E+D)] + [Kd(1-T) x D/(E+D)], where Ke = cost of equity, Kd(1-T) = after-tax cost of debt, E = market value of equity, D = market value of debt, T = tax rate.
What does Modigliani and Miller's capital structure theory with tax conclude?
Because debt interest is tax deductible, increasing gearing increases the value of the firm through the tax shield, so the optimal capital structure is theoretically 100% (or near-100%) debt; WACC falls as gearing rises.
What is the traditional view of capital structure?
There is an optimal level of gearing at which WACC is minimised and firm value maximised; beyond that point, rising financial risk increases both Ke and Kd, raising WACC again.
What this deck covers
The Financial Management (FM) deck follows the ACCA Pakistan Financial Management (FM) syllabus — 6 chapters and 21 topics — so questions land on material that is genuinely examinable rather than trivia around it. That works out to roughly 8.5 cards per chapter.
Answers are written to be recallable, not just readable — averaging about 161 characters, which is long enough to carry the reasoning and short enough to say out loud.
A deck like this earns its keep on the second and third pass. Read the syllabus first so you know the shape of the subject, then use the cards to find the specific facts that have not stuck.
Financial Management (FM) flashcards FAQ
How many Financial Management (FM) flashcards are in this ACCA Pakistan deck?
51 cards. This page previews 24 of them, sampled evenly across the deck so you can judge the difficulty before installing anything.
Are these ACCA Pakistan flashcards free?
Yes. The preview here is free to read with no signup, and the full 51-card deck is free inside the Examius app.
What do the Financial Management (FM) cards cover?
They follow the ACCA Pakistan Financial Management (FM) syllabus — 6 chapters and 21 topics — so the questions track what is actually examinable.
How should I use these flashcards?
Read the syllabus first so you know the shape of the subject, then drill the deck. Examius schedules each card with spaced repetition, so cards you keep missing come back sooner and ones you know drift further apart.