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ICAN Strategic Financial Management 2024 past questions and answers

This 2024 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 2024 set with instant marking.

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Sample ICAN Strategic Financial Management 2024 questions

1. A logistics company is considering equipment costing N280,000 now. It expects annual net cash inflows of N120,000 at each year-end for three years. At the company's 10% cost of capital, use discount factors of 0.91, 0.83 and 0.75 for years 1, 2 and 3. What is the project's NPV?
  1. N18,200
  2. N18,800
  3. N298,800
  4. N(1,200)

Answer: B. N18,800

Present value of inflows = N120,000 x (0.91 + 0.83 + 0.75) = N298,800; NPV = N298,800 - N280,000 = N18,800. Option C is the present value of inflows, not NPV.

2. A project requires N100,000 and returns N60,000 at the end of each of the next two years. Using discount factors of 0.91 and 0.83 at 10%, and 0.83 and 0.69 at 20%, estimate the IRR by linear interpolation.
  1. 10.0%
  2. 16.7%
  3. 13.3%
  4. 20.0%

Answer: C. 13.3%

NPV at 10% is N60,000 x 1.74 - N100,000 = N4,400; NPV at 20% is N60,000 x 1.52 - N100,000 = negative N8,800. Interpolated IRR = 10% + [4,400/(4,400 + 8,800)] x 10% = 13.3%.

3. A company has market-value equity of N600 million and 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%. Assuming these are its only long-term financing sources, what is its WACC?
  1. 11.8%
  2. 12.0%
  3. 13.0%
  4. 15.0%

Answer: A. 11.8%

Equity weight is 0.6 and debt weight is 0.4. WACC = (0.6 x 15%) + [0.4 x 10% x (1 - 0.30)] = 9% + 2.8% = 11.8%. Option B omits the tax adjustment to debt.

4. An analyst values an ordinary share using the constant-growth dividend model. The next annual dividend is N12 per share, the required return is 15%, and dividends are expected to grow perpetually at 5%. What is the estimated value per share?
  1. N80
  2. N100
  3. N240
  4. N120

Answer: D. N120

Using P0 = D1/(ke - g), the value is N12/(0.15 - 0.05) = N120 per share. N100 would result from incorrectly using the current dividend rather than the next dividend.

5. A listed group is evaluating the purchase of a smaller competitor. The target's standalone value is estimated at N500 million, the present value of post-acquisition synergies is N80 million, and integration costs have a present value of N20 million. Ignoring financing effects, what is the maximum value the buyer should be willing to pay to leave the buyer's shareholders no worse off?
  1. N500 million
  2. N560 million
  3. N580 million
  4. N600 million

Answer: B. N560 million

Maximum value = target standalone value + synergy value - integration costs = N500m + N80m - N20m = N560m. Paying N580m would transfer N20m of the net synergy to the seller and reduce buyer value.

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