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The document instructs candidates to attempt specified questions and includes a compulsory scenario-based case on evaluating a diversification project using WACC, CAPM, and the Gordon growth model, including beta estimation and discount rate selection. Section B presents an investment decision involving a private university, comparing money market returns with a probabilistic cash flow structure from Road Flight Ltd.",{"@graph":69,"@context":122},[70,84,105],{"@type":71,"itemListElement":72},"BreadcrumbList",[73,77,79,82],{"item":74,"name":75,"@type":76,"position":8},"https://docshare.wps.com","Home","ListItem",{"item":78,"name":9,"@type":76,"position":14},"https://docshare.wps.com/document/",{"item":80,"name":20,"@type":76,"position":81},"https://docshare.wps.com/document/exam/",3,{"item":83,"name":65,"@type":76,"position":19},"https://docshare.wps.com/document/the-institute-of-chartered-accountants-of-nigeria-professional-level-examination-pilot-question-and-answer-strategic-financial-management/638654/",{"url":83,"name":65,"@type":85,"image":86,"author":91,"headline":65,"publisher":94,"fileFormat":97,"inLanguage":63,"description":67,"dateModified":98,"datePublished":99,"encodingFormat":97,"isAccessibleForFree":100,"interactionStatistic":101},"DigitalDocument",{"url":87,"@type":88,"width":89,"height":90},"https://docshare.wps.com/thumbnails/the-institute-of-chartered-accountants-of-nigeria-professional-level-examination-pilot-question-and-answer-strategic-financial-management/638654.png","ImageObject",300,407,{"name":92,"@type":93},"dabgoudw","Person",{"url":74,"name":95,"@type":96},"DocShare","Organization","application/pdf","2026-10-31","2026-10-22",true,{"@type":102,"interactionType":103,"userInteractionCount":14},"InteractionCounter",{"@type":104},"ViewAction",{"@type":106,"mainEntity":107},"FAQPage",[108,114,118],{"name":109,"@type":110,"acceptedAnswer":111},"What is the required approach to appraise Frank’s holiday travel project?","Question",{"text":112,"@type":113},"Use an appropriate WACC framework. Compute current WACC ignoring the project via CAPM and the Gordon growth model, then adjust for the project by estimating the relevant cost of equity and overall equity beta using CAPM.","Answer",{"name":115,"@type":110,"acceptedAnswer":116},"How do the two methods in part (a) differ for estimating Frank’s current WACC?",{"text":117,"@type":113},"Part (a)(i) requires WACC based on CAPM, while part (a)(ii) requires WACC derived using the Gordon growth model to estimate the cost of equity component before combining it into WACC.",{"name":119,"@type":110,"acceptedAnswer":120},"In Question 2, how should Educonsult compare the money market option with investing in RFL?",{"text":121,"@type":113},"Contrast the certain money-market return (given as 12% per year) against the uncertain RFL cash flows, which depend on probabilities across years and the timing choice of receiving either the end-of-year payment 282 million now or 162 million later.","https://schema.org",{"og:url":83,"og:type":124,"og:title":65,"og:site_name":95,"og:description":67},"article",{"robots":126,"canonical":83},"index,follow",{"doc_id":128,"site_id":62},638654,1792962969,{"code":4,"msg":5,"data":131},{"doc_id":128,"user_id":132,"nickname":92,"user_avatar":133,"doc_module":4,"category_id":19,"category_name":20,"doc_title":65,"doc_description":67,"doc_content":134,"file_id":135,"file_url":136,"file_type":137,"file_size":138,"view_count":14,"is_deleted":4,"is_public":8,"is_downloadable":8,"audit_status":8,"page_count":139,"language":140,"language_code":63,"site_id":62,"html_lang":63,"table_of_contents":141,"faqs":142,"seo_title":143,"seo_description":67,"update_tm":144,"read_time":145},3985747860484,"https://ap-avatar.wpscdn.com/davatar_276721f389ce27ea32af1340a28f341c","THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA PROFESSIONAL LEVEL EXAMINATION PILOT QUESTION AND ANSWER STRATEGIC FINANCIAL MANAGEMENT  \nTime Allowed 3¼ hours (including 15 minutes reading time)  \nINSTRUCTION: YOU ARE REQUIRED TO ATTEMPT FIVE OUT OF THE SEVEN QUESTIONS IN THIS PAPER  \nSECTION A: COMPULSORY QUESTION (30 MARKS) Question 1  \nFrank’s is a listed company in the food retail sector and has large stores in all the major cities in the country. Frank’s board is considering diversifying by opening holiday travel shops in all its stores.  \nAt a recent board meeting , the directors were discussing how the holiday travel shops project(‘the project’) should be appraised. The sales director insisted that Frank’s current weighted average cost of capital (WACC) should be used to appraise the project as the majority of its operations will still be in food retailing. The finance director disagreed because the existing cost of equity does not take into account the systematic risk of the new project. The finance director also said that the company’s overall WACC, which reflects all of the company’s activities, would change as a result of the project’s acceptance. The board were also concerned about the market’s reaction to their diversification plans. A further board meeting was scheduled at which Frank’s advisors would be asked to make a presentation on the project.  \nYou work for Frank’s advisors and have been asked to prepare information for the presentation. You have established the following:  \nFrank intends to raise the capital required for the project in such a way as to leave its existing debt: equity ratio (by market values) unchanged following the diversification.  \nExtracts from Frank’s most recent management accounts are shown below:  \nStatement of financial position at 31 May 2025  \nOrdinary share capital (10 kobo shares) Retained earnings  \n6% Redeemable bonds at nominal value (redeemable 2029)  \nLong term bank loans (interest rate 4%)  \n₦m  \n233  \n5,030 5,263 1,900  635  \n7,798  \nOn 31 May 2025 Frank’s ordinary shares had a market value of 276 kobo (ex-div) and an equity beta of 0.60. For the year ended 31 May 2025 the dividend yield was 4.2% and the earnings per share were 25kobo. The return on the market is expected to be 8% pa and the risk free rate 2% pa.  \nFrank’s bonds had a market value of ₦108 (ex-interest) per ₦100 nominal value on 31 May 2025 and they are redeemable at par on 31 May 2029.  \nCompanies operating solely in the holiday travel industry have an average equity beta of 1.40 and an average debt: equity ratio (by market values) of 3:5 . It has been estimated that if the project goes ahead the overall equity beta of Frank will be made up of 90% food retailing and 10% holiday travel shops. Assume that the tax rate will be 20% pa for the foreseeable future.  \nRequired  \na) Ignoring the project, calculate the current WACC of Frank’s using:  \ni) The CAPM  \nii) The Gordon growth model (16 marks)  \nb) Using the CAPM, calculate the cost of equity that should be included in a WACC suitable for appraising the project and explain your reasoning. (4 marks)  \nc) By calculating an overall equity beta and using the CAPM, estimate the overall WACC of Frank’s assuming that the project goes ahead and comment upon the implications of a permanent change in the overall WACC. (4 marks)  \nd) Discuss whether Frank’s should diversify its operations and how the stock market might react to the proposed project. (3 marks)  \ne) Identify the appropriate project appraisal methodology that should be used when a project’s financing results in a major increase in a company’s market gearing ratio and, using the data relating to Frank’s, calculate the project discount rate that should be used in these circumstances. (3 marks)  \n(Total: 30 marks)  \nSECTION B:  \nINSTRUCTION: YOU ARE REQUIRED TO ATTEMPT ANY TWO OUT OF THE THREE  \nQUESTIONS IN THIS SECTION (40 MARKS)  \nQuestion 2  \nAn educational consult company, Educonsult, has raised ","cbCaifdDPyRT0jY7","https://ap.wps.com/l/cbCaifdDPyRT0jY7","pdf",536697,26,"English","# SECTION A: COMPULSORY QUESTION (30 MARKS)\n## Question 1: Frank’s diversification and WACC appraisal\n# SECTION B (40 MARKS)\n## Question 2: Educonsult university funding decision with probabilistic cash flows","[{\"question\":\"What is the required approach to appraise Frank’s holiday travel project?\",\"answer\":\"Use an appropriate WACC framework. Compute current WACC ignoring the project via CAPM and the Gordon growth model, then adjust for the project by estimating the relevant cost of equity and overall equity beta using CAPM.\"},{\"question\":\"How do the two methods in part (a) differ for estimating Frank’s current WACC?\",\"answer\":\"Part (a)(i) requires WACC based on CAPM, while part (a)(ii) requires WACC derived using the Gordon growth model to estimate the cost of equity component before combining it into WACC.\"},{\"question\":\"In Question 2, how should Educonsult compare the money market option with investing in RFL?\",\"answer\":\"Contrast the certain money-market return (given as 12% per year) against the uncertain RFL cash flows, which depend on probabilities across years and the timing choice of receiving either the end-of-year payment 282 million now or 162 million later.\"}]","THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA PROFESSIONAL LEVEL EXAMINATION - PILOT QUESTION AND ANSWER - STRATEGIC FINANCIAL MANAGEMENT | PDF",1792691616,66]