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ICAN Strategic Financial Management 2023 past questions and answers

This 2023 ICAN Strategic Financial Management 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 ICAN Strategic Financial Management 2023 questions

1. A manufacturer is assessing a machine that costs N100 million now and is expected to generate N45 million at each year-end for three years, with no residual value. At a discount rate of 10%, using the three-year annuity factor of 2.487, what is the project's NPV, approximately?
  1. N11.9 million
  2. N3.2 million
  3. Negative N11.9 million
  4. N111.9 million

Answer: A. N11.9 million

NPV = (N45m × 2.487) − N100m = N11.915m, approximately N11.9m. N111.9m is the present value of inflows, not the NPV, because it does not deduct the initial cost.

2. A logistics company must estimate the IRR of a project requiring N120 million now and producing N50 million at each year-end for three years. The annuity factor for three years is approximately 2.402 at 12% and 2.283 at 14%. To the nearest whole percentage, what is the project's IRR?
  1. 10%
  2. 12%
  3. 14%
  4. 16%

Answer: B. 12%

The required annuity factor is N120m ÷ N50m = 2.4, almost exactly the three-year factor of 2.402 at 12%, so the IRR rounds to 12%. At 14% the factor is too low and the inflows' present value would be below the investment.

3. A food processor is choosing one of two mutually exclusive projects with similar risk and timing. Project A requires N100 million and has an NPV of N30 million; Project B requires N500 million and has an NPV of N100 million. Which project should be selected to maximise shareholder wealth, assuming the NPVs are measured at the same appropriate cost of capital?
  1. Project A, because its NPV is higher as a percentage of its cost
  2. Neither, because both projects require capital
  3. Project B, because it adds the greater absolute value
  4. Project A, because smaller projects always have lower risk

Answer: C. Project B, because it adds the greater absolute value

For mutually exclusive projects, the project with the higher absolute NPV adds more value, so Project B is preferred. Project A's higher NPV-to-cost ratio does not override Project B's greater N100m value contribution.

4. A company has market-value equity of N600 million and market-value debt of N400 million. Its cost of equity is 15%, its pre-tax cost of debt is 10%, and the corporate tax rate is 30%. Using market-value weights and the after-tax cost of debt, what is its WACC?
  1. 12.0%
  2. 11.8%
  3. 13.0%
  4. 10.0%

Answer: B. 11.8%

WACC = (0.6 × 15%) + (0.4 × 10% × (1 − 0.30)) = 9% + 2.8% = 11.8%. Using the pre-tax debt cost without the tax shield would give 13%, not the after-tax WACC requested.

5. A wholesaler currently earns EBIT of N30 million and pays annual interest of N6 million. It borrows a further N20 million at a fixed annual rate of 12%, with no immediate change in EBIT. What will its interest cover be after borrowing?
  1. 5.0 times
  2. 4.0 times
  3. 3.0 times
  4. 3.6 times

Answer: D. 3.6 times

New interest is N20m × 12% = N2.4m, making total interest N8.4m; interest cover is N30m ÷ N8.4m = 3.57, approximately 3.6 times. The former 5.0-times cover ignores the additional interest burden.

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