ACCT7106 Final Exam (Suggested Solutions) - Semester 1, 2022
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Part I – Multiple choice questions
Question 1. B
Question 2. C
Question 3. A
Question 4. C
Question 5. C
Question 6. C
Question 7. B
Question 8. C
Question 9. A
Question 10. C
Question 11. B
Question 12. C
Question 13. A
Question 14. B
Question 15. B
Question 16. A, B and C
Question 17. A, B and D
Question 18. A and B
Question 19. A and C
Question 20. D
ACCT7106 Final Exam (Suggested Solutions) - Semester 1, 2022
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Part II – Written questions
Question 21.
Taringa Retailers Ltd
Reformulated Statement of Financial Position
June 2021 June 2022
Operating assets 20,500 25,500
Financial assets 5,500 6,000
26,000 31,500
Operating liabilities 8,500 8,000
Financial obligations 10,500 10,000
Common equity 7,000 13,500
26,000 31,500
Taringa Retailers Ltd
Reformulated Statement of Profit and Loss
For the year ending on June 30, 2022
Sales 42,500
Operating income (after tax) 8,500
Net financial expenses (after tax) (700)
Comprehensive Income (after tax) 7,800
Taringa Retailers Ltd
Reformulated Statement of Cash Flows
For the year ending on June 30, 2022
Cash flow from operations (C) 8,800
Cash investment (I) (5,800)
Free Cash Flow (FCF) 3,000
Net transactions with the shareholders (d) 1,300
Total financing flows (F) 1,700
June 2021 June 2022
ACCT7106 Final Exam (Suggested Solutions) - Semester 1, 2022
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NOA 12,000 17,500
NFO 5,000 4,000
RNOA 0.58
ROCE 0.76
SPREAD 0.42
FLEV 0.44
NBC 0.16
PM 0.2
AT 2.88
A. 8500
B. 8800
C. 3000
D. 1300
E. 1700
F. 0.6
G. 0.8
H. 0.4
I. 0.4
J. 0.2
K. 2.9
L. 0.2
Question 22.
A. 0.8 ≈ 0.6 + 0.4 x 0.4
B. ROCE is higher than RNOA as Taringa Retailers Ltd has financial leverage and positive
spread.
Question 23.
A. Cost of Equity = 1.9% + 0.9 x 9% = 10% = 0.10
B. P/B ratio = 42/9 = 4.7
C. 46
DDM FY22 FY23 FY24
DPS 220.0 242.0
PV(DPS) 200.0 200.0
TV 5,082.0
PV(TV) 4,200.0
Total PV 4,600.0
Value per share 46.0
D. 78
ACCT7106 Final Exam (Suggested Solutions) - Semester 1, 2022
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RIM FY22 FY23 FY24
EPS 420.0 473.0
DPS 220.0 242.0
CSE/share 900.0 1,100.0 1,331.0
RI 330.0 363.0
PV(RI) 300.0 300.0
TV 7,623.0
PV(TV) 6,300.0
Total PV 6,900.0
Value per share 78.0
Question 24.
A. Buy recommendation as Value (RIM) > Value (DDM) > Stock price.
B. The valuations are different from DDM and RIM as the growth rate of CSE in FY24 is not
equal to the terminal growth rate.
C. P/B ratio > 1 which could be due to the following reasons:
• Most assets are measured at modified historical cost, not fair value.
• Accounting does not recognise the value of most intangible assets on the Balance
Sheet, especially internally generated intangibles.
• Expenditures such as R&D and advertising are largely expensed as incurred, but
might retain value.
• A collection of assets can be worth more when used together than when used
separately (synergy).
D. As only EPS and DPS forecasts are available, unlevered valuation models (DCF and ReOI)
cannot be used. Since the forecast horizon is short when working with analyst consensus
forecast, the residual income model (RIM) will give a better valuation as compared to the
dividend discount model (DDM). Thus, RIM should be preferred.
E. Advantage of RIM: Focuses on earnings, which is a better measure of performance than
dividends or FCF.
Disadvantage of RIM: More complex than DDM.
Question 25.
If Peter has misclassified non-trade receivables as operating assets then the following valuation
parameters will be affected:
• NOA: NOA will be overstated.
• NFO: NFO will be overstated.
• WACC: WACC will be understated as NFO is overstated.
ACCT7106 Final Exam (Suggested Solutions) - Semester 1, 2022
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• OI: Information regarding interest income is not mentioned in the question. Assuming
Peter ensured that there was a direct association between operating assets and operating
income items, it is possible that Peter has classified interest income from non-trade
receivables as operating income instead of financial income. If this is true then OI will
be overstated.
• RI: RI = OI – NOAt-1 x WACC. It is difficult to figure out whether RI will be overstated
or understated.
• ReOI Valuation: It will be difficult to figure out whether calculated total enterprise
value will be understated or overstated. But it is more likely to be incorrect as several
valuation parameters are incorrect.
Question 26.
A. 76.2
B. 69.0
C. 9.0
FY22 FY23 FY24
FCF 3.30 3.63
PV 3.00 3.00
TV 76.23
PV(TV) 63.00
Total PV 69.00
NFO 15.00
Value of equity 54.00
Shares outstanding 6.00
Value per share 9.00