Title AC3059 - Financial Management - 2020 Examiners Commentaries.pdf ✅

Examiners’ commentaries 2020 Examiners’ commentaries 2020 AC3059 Financial management Important note This commentary reflects the examination and assessment arrangements for this course in the academic year 2019–20. The format and structure of the examination may change in future years, and any such changes will be publicised on the virtual learning environment (VLE). Information about the subject guide and the Essential reading references Unless otherwise stated, all cross-references will be to the latest version of the subject guide (2015). You should always attempt to use the most recent edition of any Essential reading textbook, even if the commentary and/or online reading list and/or subject guide refer to an earlier edition. If different editions of Essential reading are listed, please check the VLE for reading supplements – if none are available, please use the contents list and index of the new edition to find the relevant section. General remarks Learning outcomes At the end of the course and having completed the essential reading and activities, you should be able to: describe how different financial markets function estimate the value of different financial instruments (including stocks and bonds) make capital budgeting decisions under both certainty and uncertainty apply the capital assets pricing model in practical scenarios discuss the capital structure theory and dividend policy of a firm estimate the value of derivatives and advise management how to use derivatives in risk management and capital budgeting describe and assess how companies manage working capital and short-term financing discuss the main motives and implications of mergers and acquisitions integrate subject matter studied on related modules and to demonstrate the multi-disciplinary aspect of practical financial management problems use academic theory and research to question established financial theories be more proficient in researching materials on the internet and Online Library use excel for statistical analysis. 1
AC3059 Financial management What the examiners are looking for The examination paper has two sections, A and B, with six questions in Section A and two in Section B. Candidates should answer four questions from Section A and one from Section B. All questions carry equal marks. Section A has the analytical and computational questions that test your ability to apply analytical and computational skills to the problems set, and then they usually conclude with a part requiring interpretation of the solutions prepared in the first parts of the question. The questions in Section B usually require a mix of understanding, knowledge, description or analysis and application applied to the theory, concept or practical scenario presented. The answer should then be presented in an essay format, unless otherwise requested. Workings should be submitted for all questions requiring calculations. Any necessary assumptions introduced in answering a question are to be clearly stated. The problem-based questions in Section A are quite lengthy and to speed up your understanding and analysis of what each question is about, we suggest that first you go to the end of each question and read the requirements for that question before reading the text in the body of the question. This approach saves you time that otherwise would have been spent reading information for a question that you are not going to attempt, since you can decide whether or not to attempt a question once you have read its requirements. If you are not going to attempt a particular question, then you have not wasted time reading information that you do not need to read. The second benefit is that, having read the requirements for a question you are going to attempt, you can then go on and read the whole question with an idea of what information you expect to be looking for in order to answer the question set. Wherever a written answer is required, be it a whole answer or just part of the answer, you will be expected to produce an answer which presents and develops the theory(ies) and concept(s) that are appropriate, and then to sustain your argument in the context of the question set. If a judgment is required, then it should be demonstrated in the light of the argument you have presented for the context given to you. The length of your answer should reflect the maximum marks that can be awarded to your answer. Do not write page after page to answer a question that is only worth, say, five marks maximum, since you should not spend more than nine minutes on such an answer. If you have spent more time on the five-mark answer, you are reducing the time you could spend earning marks elsewhere. Remember that spending more than a quarter of the examination time on one or more questions can seriously reduce your chances on the other question(s) you want to tackle. In the answers to the computational questions you should include your workings. Partial credit cannot be awarded if the final numbers presented are wrong through errors of omission, calculation etc. unless your workings are shown. In the essay-type questions, you should structure your answers, starting with an introductory paragraph that outlines the answer you will be giving and the arguments you will be making. In the main body of your answer, describe the theories and concepts that provide the basis of the argument that can then be developed and substantiated. The concluding section should draw together the main points of your argument in a summary. You are expected to read beyond the subject guide and the additional material, and any insights you gain should be included in your answers. For example, you could go beyond the textbook and subject guide material on efficient markets hypothesis and read a wide range of articles on various research studies on semi-strong and weak form markets. You would then have the material you need to answer a question on efficient markets. 2
Examiners’ commentaries 2020 Read widely You are expected to read beyond the subject guide and the additional material, and any insights you gain should be included in your answers. For example, you could go beyond the textbook and subject guide material on the efficient markets hypothesis and read a wide range of articles on various research studies on semi-strong and weak form markets. You will then have the material you need to answer a question on efficient markets. Key steps to improvement Read beyond the subject guide. Practise computational questions in the subject guide, textbooks and any other appropriate sources. Practise both computational and written questions from past examination papers. As the examination draws closer, practise under time pressure, remembering that you probably only have approximately 36 minutes per question in which to write your answer. Ensure your written answers to your practice questions do attempt to answer the questions posed and not the one you wish you could be answering. Learn to focus on the contents, context and requirements of that specific question. Readings for this paper Please note that shorthand will be used when referring to the following textbooks: BMA – Brealey, R.A., S.C. Myers and F. Allen, Principles of corporate finance. (New York: McGraw–Hill Inc, 2010) tenth edition [ISBN 9780071314268]. SG – subject guide. Fung, L. Financial management. (London: University of London International Programmes, 2015). Examination revision strategy Many candidates are disappointed to find that their examination performance is poorer than they expected. This may be due to a number of reasons, but one particular failing is ‘question spotting’, that is, confining your examination preparation to a few questions and/or topics which have come up in past papers for the course. This can have serious consequences. We recognise that candidates might not cover all topics in the syllabus in the same depth, but you need to be aware that examiners are free to set questions on any aspect of the syllabus. This means that you need to study enough of the syllabus to enable you to answer the required number of examination questions. The syllabus can be found in the Course information sheet available on the VLE. You should read the syllabus carefully and ensure that you cover sufficient material in preparation for the examination. Examiners will vary the topics and questions from year to year and may well set questions that have not appeared in past papers. Examination papers may legitimately include questions on any topic in the syllabus. So, although past papers can be helpful during your revision, you cannot assume that topics or specific questions that have come up in past examinations will occur again. If you rely on a question-spotting strategy, it is likely you will find yourself in difficulties when you sit the examination. We strongly advise you not to adopt this strategy. 3
AC3059 Financial management Examiners’ commentaries 2020 AC3059 Financial management Important note This commentary reflects the examination and assessment arrangements for this course in the academic year 2019–20. The format and structure of the examination may change in future years, and any such changes will be publicised on the virtual learning environment (VLE). Information about the subject guide and the Essential reading references Unless otherwise stated, all cross-references will be to the latest version of the subject guide (2015). You should always attempt to use the most recent edition of any Essential reading textbook, even if the commentary and/or online reading list and/or subject guide refer to an earlier edition. If different editions of Essential reading are listed, please check the VLE for reading supplements – if none are available, please use the contents list and index of the new edition to find the relevant section. Comments on specific questions Candidates should answer FIVE of the following EIGHT questions: FOUR from Section A and ONE from Section B. All questions carry equal marks. Workings MUST BE submitted for all questions requiring calculations. Any necessary assumptions introduced in answering a question are to be stated. Section A Answer any four questions from this section. Question 1 Orion plc is determined to report earnings per share of 267p. It therefore acquires Mintaka plc. There are no gains associated with the acquisition. In exchange for Mintaka’s shares, Orion issues just enough of its own shares to ensure its 267p earnings per share objective. Please find the following information: Orion Mintaka Earnings per Share £2.00 £2.50 Price per Share £40 £25 Price-Earnings Ratio 20 10 Number of Shares 100,000 200,000 Earnings £200,000 £500,000 Market Value £4,000,000 £5,000,000 4