Download PDF Past Paper On Financial Decision Making I For Revision
Financial Decision Making I is the gateway to corporate financial strategy. It focuses on how organizations evaluate investment opportunities and manage the capital required to fund them. To excel in this exam, you must go beyond simple arithmetic and understand the Time Value of Money (TVM), the trade-off between Risk and Return, and how to select projects that maximize shareholder wealth.
Below is the exam past paper download link
Download PDF Past Paper On Financial Decision Making I For Revision
Above is the exam past paper download link
To help you make the right choice for your revision, we have synthesized the most frequent questions found in recent Financial Decision Making past papers.
Financial Decision Making I: Key Revision Q&A
Q1: What is “Net Present Value” (NPV) and why is it the preferred method?
A: NPV calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.
The Rule: If NPV is positive, the project adds value and should be accepted.
Why it Wins: Unlike the Payback Period, NPV considers the Time Value of Money and accounts for all cash flows over the entire life of the project.
Q2: Explain the “Internal Rate of Return” (IRR) and its limitations.
A: IRR is the discount rate that makes the NPV of a project equal to zero. While it is easy for managers to understand (expressed as a percentage), it has flaws:
Mutually Exclusive Projects: It may conflict with NPV when comparing projects of different scales.
Non-Conventional Cash Flows: It can result in multiple IRRs if cash flows change sign more than once.
Q3: How do you calculate the “Weighted Average Cost of Capital” (WACC)?
A: WACC is the average rate a business pays to finance its assets, weighted by the proportion of equity and debt in its capital structure.
Equation: $WACC = (W_e \times K_e) + (W_d \times K_d \times (1 – t))$
Note: You must use the Market Value of debt and equity, not the Book Value, to get an accurate cost of capital.
Q4: What is the “Capital Asset Pricing Model” (CAPM)?
A: CAPM is used to determine the required return on equity ($K_e$) by considering the risk-free rate, the market risk premium, and the specific risk of the stock (Beta).
Formula: $R_a = R_{rf} + \beta_a \times (R_m – R_{rf})$
Beta ($\beta$): Measures the systematic risk of an investment relative to the market.
Q5: Describe “Operating Leverage” vs. “Financial Leverage.”
A: * Operating Leverage: Relates to the mix of fixed vs. variable costs. High fixed costs mean a small change in sales leads to a large change in operating income.
Financial Leverage: Relates to the use of debt in the capital structure. High debt means a small change in operating income leads to a large change in Earnings Per Share (EPS).
Why Practice with Financial Decision Making Past Papers?
Exams in this subject are Quantitative and Evaluative. You won’t just define “capital”; you will be given a set of projected cash flows and asked to “Calculate the NPV and Profitability Index” or “Determine the Optimal Capital Budget under conditions of capital rationing.”
By practicing with our past papers, you will:
Master Discounting Techniques: Practice using annuity and present value tables accurately under exam pressure.
Refine Risk Analysis: Learn how to perform Sensitivity Analysis to see how a 10% change in sales volume affects project viability.
Understand Working Capital: Practice managing the “Cash Conversion Cycle” and calculating the optimal level of current assets.
Access the Full Revision Archive
Ready to optimize your financial strategy? We have organized a comprehensive PDF library containing five years of Financial Decision Making I past papers, complete with step-by-step NPV workings, WACC templates, and model answers for capital structure discussions.
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Last updated on: March 18, 2026
New information gained / new value takehome
- Financial Decision Making I: Key Revision Q&A Q1: What is “Net Present Value” (NPV) and why is it the preferred method?
- While it is easy for managers to understand (expressed as a percentage), it has flaws:Mutually Exclusive Projects: It may conflict with NPV when comparing projects of different scales.
- Non-Conventional Cash Flows: It can result in multiple IRRs if cash flows change sign more than once.
- Equation: $WACC = (W_e \times K_e) + (W_d \times K_d \times (1 – t))$Note: You must use the Market Value of debt and equity, not the Book Value, to get an accurate cost of capital.
This content was developed using AI as part of our research process. To ensure absolute accuracy, all information has been rigorously fact-checked and validated by our human editor, Frankline Kirimi.
External resource 1: Google Scholar Academic Papers
External resource 2: Khan Academy Test Prep
Reference 1: KNEC National Examinations
Reference 2: JSTOR Academic Archive
Reference 3: Shulefiti Revision Materials
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