Category Archives: Finance

CFE MAY 2016/ SEPT 2016

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Many students across Canada are thinking to appear in the final exam either in May or in September 2016 to get the designation of CPA. Some are repeater, some are for the first time, some are from either CGA or CMA.

The big question is how to get through this exam? Exam is not as easy as your earlier courses. It requires hard work to understand conceptual technical knowledge of all six competency area i.e. Financial Accounting, Management Accounting, Audit, Finance, Taxation, Strategy and Governance. Exam is evaluated on the basis of case analysis approach through depth and breadth of related competency. You should plan out your schedule of taking Capston1, Capston2 and CFE exam. You should also plan out your availability of time to cover all above courses.

Students should not jump out in writing case analysis directly. They must go through all important concepts related to technical subjects and ensure its accuracy through practice of related MCQ. Many students who failed in this exam are on account of lack of technical knowledge. Once if you are strong in technical concepts, it will be easier for you to write any case analysis effectively.

Students should also know the effective writing skill and approach to write the case analysis.
I am publishing one book exclusively for CFE shortly which contains all technical course concepts with lot of high value MCQ. On line lectures will also available for students to get confidence in the exam. For latest updates visit CFE CPA Tutor Home Page.

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CHARTERED PROFESSIONAL ACCOUNTANT

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Some Excerpts from the CPA CANADA Website in Nutshell

A unique and very impressive designation for accountancy profession in Canada. Three big

accounting bodies CGA, CMA and CA has now merged into a single accounting entity for global

development of the profession in Canada.

Summary of course content:

1. CPA-PREP

2. CPA-PEP

3. CPA-CFE

A student either a under graduate or graduate in any discipline can select respective step 1 or 2

to start with the program. An under graduate student need to complete related modules in

CPA-PREP if he has not done in his earlier educational courses.

CPA- PEP consists of core 1, core 2 and any two of available four elective modules. Core 1 is

related with Financial Reporting and core 2 is related with Management Accounting.Four

elective module consists of Finance, Performance Accounting, Assurance and Taxation.

Assurance and Taxation are must for Public Accounting practice. Student need to pass all four

exams at the end of each module. Exam is related with about 25 % with MCQ and short

questions and 75 % with case analysis

CPA-CFE consists of three day exam and is must for all students to pass and get the designation

of CPA

Capstone one and Capstone 2 are a part for preparation for CFE

Day-1 include one case analysis of 4 hour duration based on enabling competencies related

with ethics , problem solving, leadership and communication skill.

Day-2 include 5 hour of one big case analysis in which student need to select core area of his

choice and need to provide response

Day-3 include 3 hour of exam consists of three short case analysis of a different nature

Student need to pass individually day 1 to day three exam

CFE exam is related with 25 % with MCQ and 75 % with case analysis

In short student should be competent enough in related technical course concepts and solving

MCQ to pass CPA

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CAPITAL INVESTMENT ALTERNATIVES

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EVALUATION OF CAPITAL INVESTMENT ALTERNATIVES

Capital investment proposals are evaluated based on following financial tools.

Methods used include:

  • Net Present Value (NPV)
  • Internal Rate of Return (IRR)
  • Payback Period and Discounted Payback Period
  • Profitability Index (PI)

INTERNAL RATE OF RETURN

The IRR is the discount rate at which the PV of future benefits exactly equals the PV of the investment (in other words, a zero NPV)

  • All the relevant cash flows discussed in the  calculation of the NPV are also relevant here however the rate at which we are discounting the cash flows is unknown
  • The only way (even for a computer) is to substitute different discount rates into the equation until the resultant NPV comes to zero (this is known as trial and error)

NPV VS IRR

If the IRR is greater than the WACC, the project should be accepted.

  • This decision will always be compatible with the decision obtained from NPV analysis because a positive NPV automatically means that the IRR is greater than the WACC
  • A difficulty arises when comparing two mutually exclusive projects
  • There is an important and close relationship between NPV and IRR. The NPV is greater than zero if and only if the IRR is greater than the discount rate. This relationship implies that if a single proposed capital investment is considered in isolation, both NPV and IRR will provide the same answer to the question of whether or not the investment should be undertaken. However, NPV and IRR need not provide the same answer if projects that require different investments are compared. In conclusion, NPV and IRR need not rank projects equivalently, if the projects differ in size.
  • The project with the highest NPV may not have the highest IRR
  • Under such circumstances, the NPV is always the criteria to use

PAY BACK PERIOD

A simple approach to capital budgeting that is designed to tell you how many years it will take to recover the initial investment.

  • It is often used by financial managers as one of a set of investment screens, because it gives the manager an intuitive sense of the project’s risk.
  • The calculation can be performed without considering the time value of money or by considering time value (discounted payback).

PROFITABILITY INDEX (PI)

Another measure that can help in ranking the projects when several are involved is the profitability index (PI)

  • Uses exactly the same figures as are needed for the NPV and is calculated as the ratio of the PV of net cash benefits to the PV of the investment.
  • A ratio greater than 1.0 will always result when the NPV is positive
  • When the NPV is zero, the PI will be exactly 1.0

All three measurements (NPV, IRR and PI) will result in the same decision for a particular investment

 

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