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ACCA Financial Management (FM) 2024 past questions and answers

This 2024 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 2024 set with instant marking.

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Sample ACCA Financial Management (FM) 2024 questions

1. The directors of Luma Co are considering a proposal that will increase accounting profit next year but is expected to reduce the present value of future cash flows to shareholders. Which objective should guide the finance director's decision?
  1. Maximise next year's reported profit regardless of risk
  2. Maximise shareholder wealth by considering the timing, amount and risk of cash flows
  3. Minimise all borrowing, even if this prevents positive-NPV investment
  4. Maximise revenue because revenue growth always increases company value

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

The primary financial management objective is to maximise shareholder wealth, which reflects expected cash flows, their timing and risk. Accounting profit or revenue alone does not capture these factors.

2. The central bank raises its policy interest rate to reduce inflationary pressure. A manufacturing company has substantial variable-rate borrowing and expects weaker consumer demand. Which immediate combination is most consistent with this policy change?
  1. The company's variable borrowing cost falls and aggregate demand rises
  2. The company's variable borrowing cost falls and inflation necessarily rises
  3. The company's borrowing cost is unchanged and demand is unaffected
  4. The company's variable borrowing cost is likely to rise, while higher rates may restrain aggregate demand

Answer: D. The company's variable borrowing cost is likely to rise, while higher rates may restrain aggregate demand

Higher policy rates tend to increase the cost of variable-rate borrowing and reduce consumption and investment demand. The intended disinflationary effect is not an immediate reduction in the company's debt cost.

3. Nori Co is assessing a machine costing $120,000 now. It will generate after-tax cash inflows of $45,000, $50,000 and $55,000 at the ends of years 1, 2 and 3. At 10%, the discount factors for years 1-3 are 0.909, 0.826 and 0.751. What is the project's NPV, to the nearest dollar?
  1. $3,510
  2. $(3,510)
  3. $12,000
  4. $(8,490)

Answer: A. $3,510

The present value of inflows is (45,000 × 0.909) + (50,000 × 0.826) + (55,000 × 0.751) = $123,510, so NPV is $3,510. The negative option reverses the sign after subtracting the initial cost.

4. Aster Co reports an average inventory holding period of 70 days, a receivables collection period of 45 days and a payables payment period of 35 days. What is its cash operating cycle?
  1. 60 days
  2. 150 days
  3. 80 days
  4. 110 days

Answer: C. 80 days

The cash operating cycle is inventory days plus receivables days less payables days: 70 + 45 − 35 = 80 days. Adding all three periods would incorrectly treat supplier credit as extending the cycle.

5. Miro Co can issue irredeemable debt at a pre-tax cost of 8%. Corporation tax is 25% and interest is tax-deductible. What is the debt cost to use in a conventional after-tax WACC calculation?
  1. 6%
  2. 8%
  3. 10%
  4. 2%

Answer: A. 6%

The after-tax cost of debt is 8% × (1 − 0.25) = 6%. The pre-tax rate is not the debt component used in an after-tax WACC when interest tax relief is available.

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