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ACCA Financial Management (FM) 2023 past questions and answers

This 2023 ACCA Financial Management (FM) set has 20 practice questions. Try these 5 free sample questions, tap a question to reveal the answer and explanation. Then practise the whole 2023 set with instant marking.

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Sample ACCA Financial Management (FM) 2023 questions

1. A listed manufacturer is reviewing its objective after shareholders challenge a proposal that would increase this year's accounting profit but reduce expected long-term cash flows and increase business risk. Which objective should guide the finance director's decision?
  1. Maximise current-year accounting profit regardless of risk
  2. Maximise shareholder wealth by considering the timing, amount and risk of cash flows
  3. Maximise sales revenue even if the present value of costs is higher
  4. Minimise all expenditure, including expenditure that creates positive-value projects

Answer: B. Maximise shareholder wealth by considering the timing, amount and risk of cash flows

Shareholder wealth maximisation recognises the amount, timing and risk of expected cash flows. Current profit or sales alone can encourage decisions that destroy value, while indiscriminate cost minimisation can reject worthwhile investments.

2. A country's central bank raises its policy interest rate to reduce inflation. A company has a large variable-rate bank loan and is considering a new project funded by borrowing. Which immediate financial effect is most likely, other things being equal?
  1. The company's variable-rate interest expense falls
  2. The project's operating cash flows automatically increase
  3. The company's gearing ratio falls without any repayment
  4. The company's borrowing cost is likely to rise, making debt-funded investment less attractive

Answer: D. The company's borrowing cost is likely to rise, making debt-funded investment less attractive

A rise in market interest rates normally increases the interest paid on variable-rate borrowing and raises the required return on new debt-financed projects. It does not automatically change operating cash flows or reduce gearing.

3. A wholesaler has average inventory days of 50, receivables days of 40 and payables days of 35. Using the formula inventory days plus receivables days less payables days, what is its cash operating cycle?
  1. 55 days
  2. 85 days
  3. 125 days
  4. 45 days

Answer: A. 55 days

The cash operating cycle is 50 + 40 - 35 = 55 days. Adding payable days rather than subtracting them would incorrectly produce 125 days.

4. A company is evaluating a three-year project that will use a warehouse it already owns. The warehouse could instead be rented to another business for $40,000 per year during those three years. Which treatment of the rental income is appropriate in the project's cash-flow appraisal?
  1. Exclude it because the warehouse purchase cost was paid in the past
  2. Exclude it because rent is not a cash flow generated by the project
  3. Include the foregone rental income as an opportunity cost in each project year
  4. Include only the original purchase price of the warehouse as a project cash flow

Answer: C. Include the foregone rental income as an opportunity cost in each project year

Using the warehouse prevents the company from earning rent, so the lost $40,000 each year is an incremental opportunity cost of accepting the project. The historical purchase price is sunk and is not relevant to the decision.

5. A listed company plans to raise equity finance through a rights issue. Which statement best describes the usual purpose and structure of a rights issue?
  1. New shares are offered only to institutional investors, so existing shareholders cannot participate
  2. Existing shareholders are offered new shares in proportion to their holdings, allowing them to maintain their ownership percentage if they take up the offer
  3. The company pays tax-deductible interest to shareholders on the new shares
  4. Existing shareholders' voting percentages must fall even if they take up their full entitlement

Answer: B. Existing shareholders are offered new shares in proportion to their holdings, allowing them to maintain their ownership percentage if they take up the offer

A rights issue gives existing shareholders the opportunity to subscribe for shares, usually in proportion to their current holdings. A shareholder who takes up the entitlement can generally preserve their percentage ownership; dividends on ordinary shares are not interest or tax-deductible.

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