ACCA/CAT

Specific Comments

Question One

This question required candidates to assess the net present value （NPV）of a long term project in part （i）. It was therefore necessary for candidates to calculate annuity factors using formulae rather than using tables. Parts （ii），（iii） and （iv）required candidates to consider the risks and uncertainties associated with the project and assessing these using sensitivity analysis and simulations. Part （ii）asked candidates to discuss the principal uncertainties associated with the project. Part （iii）asked candidates to undertake sensitivity analysis of the project’s NPV to changes in various input factors. Part （iv）asked candidates to explain how simulations could be used to assess the volatility of projects.

Parts （i）and （ii）were generally done well，with many candidates achieving high marks for both parts. Those that failed to score high marks in part （i）did so because they did not get the timing of the cash flows correct and therefore used incorrect discount factors. In part （ii）most candidates displayed a good level of discursive knowledge in answering this part.

Parts （iii）and （iv）were done less well. Many candidates did not undertake the correct sensitivity analysis to show the impact on the NPV due to a change in the factors which determine the NPV. It would be advisable for candidates to study the examiner’s solutions and understand how sensitivity analysis should be conducted. Many candidates confused simulations with sensitivity analysis and therefore the explanations given in part （iv）were often not relevant to the requirements. A notable minority of candidates did not attempt parts （iii）and （iv）at all.

Question Two

This question required candidates to assess the value of an acquiring company （part （i））and then use the Black-Scholes Option Pricing （BSOP）model to assess the equity value of the combined company：acquirer plus target （part （iii）.The question also required candidates to explain the use of BSOP（and its constituents）to assess the value of the company and to discuss whether the BSOP can provide a meaningful value for a company （parts （ii）and （iv））.

Overall the computational part of （i）was done well with many candidates gaining a high proportion of the marks for this part. However many candidates did not explain the assumptions made in detail and therefore failed to achieve many marks for this. Common errors in the calculations were where candidates used the $580，000 or $180，000 as the free cash flow，and not using the r.b model to calculate growth，resulting in fewer marks being gained.

In part （ii）many answers talked about option pricing in general，by considering the value of option on an underlying asset，such as a share，rather than specifically relating it to corporate valuation. Such answers should have explained how equity can be regarded as a call option on a company’s assets written by the lenders，and therefore when it was appropriate to use it to assess the value of a company. The data required was also explained in general terms in many answers，rather than specifically to valuing a company.

Most answers in part （iii）applied the BSOP correctly，although the variables used in most cases were not accurate. It was disappointing that only in a minority of cases were the exercise and asset prices calculated or estimated correctly. Therefore although most answers gained some marks for part （iii），very few gained the full nine marks allocated for this part.

Overall answers to part （iv）were poor with few candidates able to provide a meaningful discussion. A significant number of responses did not answer this part at all. Good answers to this part considered the caveats of the BSOP and applied them to the valuation of a company.

This question had up to four marks allocated as professional marks. Given that many candidates only fail marginally，gaining most of these marks was highly beneficial. Unfortunately，some answers assumed that giving a report-like title was sufficient，which was not the case. Higher professional marks were awarded to answers that gave due care to the structure of the report and the presentation of the answer.

（责任编辑：中大编辑）

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