ACCA FM: 5 NPV Mistakes the Examiner Keeps Flagging (June 2026)

Investment appraisal is worth 20–25% of your FM exam. The examiner keeps taking marks off for the same errors.

FM’s pass rate dropped to 48% in December 2025. For a paper that’s largely numerical, that tells you something — candidates aren’t losing marks because they don’t know the formulas. They’re losing them because of how they handle the detail inside NPV calculations. The 2025 examiner reports spell out exactly where, and it’s the same list every sitting.

1. Using profit figures instead of cash flows

NPV uses cash flows, not accounting profits. That sounds obvious until you’re in the exam and the question hands you a profit forecast. The examiner flagged that too many candidates failed to convert from profit to cash flow — they either skipped the adjustments entirely or made errors like deducting depreciation twice (once as an expense, then again as an adjustment). The rule: add back depreciation and any other non-cash items, then deal with working capital changes separately. If the question gives you revenue and cost figures directly, you’re already working with cash flows — don’t adjust what doesn’t need adjusting.

2. Including sunk costs in the NPV

Research and development costs already spent, market research already paid for, or any cost incurred before the investment decision — these are sunk costs and must be excluded from the NPV calculation. The examiner specifically noted candidates including pre-project expenditure as a Year 0 outflow. The test is simple: would this cost change depending on whether you accept or reject the project? If no, leave it out.

Wrong: Project feasibility study cost £40,000 last year. Student includes (£40,000) at T0 in the NPV table.

Correct: The £40,000 is already spent regardless of the decision. It is irrelevant to the NPV and excluded entirely.

3. Getting the working capital treatment wrong

Working capital is one of the most reliable mark-losers in FM. Two specific errors dominate. First, candidates use the total working capital figure each year instead of the incremental change. If working capital needs to be £50,000 in Year 1 and £70,000 in Year 2, the cash outflow at T1 is £50,000 and at T2 it’s £20,000 (the increase), not £70,000. Second, candidates forget to release working capital at the end of the project. The full cumulative working capital investment is recovered as a cash inflow in the final year. Miss this and you understate the NPV.

Wrong: WC needed: Y1 £50k, Y2 £70k, Y3 £80k. Student enters (£50k), (£70k), (£80k) as outflows.

Correct: Incremental flows: T1 (£50k), T2 (£20k), T3 (£10k). At end of project: +£80k inflow as working capital is released.

4. Mishandling the tax timing

The examiner noted that candidates frequently defer tax payments by one year automatically — even when the question explicitly states tax is paid in the same year it arises. Read the question. If it says tax is payable in the year the profit is earned, the tax cash flow sits in the same column as the operating cash flow. If it says tax is paid one year in arrears, shift it. But you must follow what the question tells you, not what you assume the default is. Getting this wrong shifts every tax cash flow into the wrong year and costs multiple marks across the entire NPV table.

5. Botching the IRR interpolation

IRR questions ask you to estimate the discount rate that gives an NPV of zero, using two trial rates. The interpolation formula is straightforward, but the examiner highlighted recurring errors: candidates mixing up which NPV goes where, using two positive (or two negative) NPVs instead of one of each, or making arithmetic slips under pressure.

The formula: IRR = a + [(NPVa / (NPVa − NPVb)) × (b − a)], where a is the lower rate with positive NPV and b is the higher rate with negative NPV. Always label your workings clearly — write out which rate produced which NPV before substituting into the formula. The examiner awards method marks, so even if your arithmetic slips, clear workings protect you.

What to do before June 2026

Build every NPV table the same way. Use a consistent column layout: T0, T1, T2, T3… across the top. Rows for: sales revenue, operating costs, tax, working capital, capital expenditure, scrap/residual value. Discount each year’s net cash flow separately. A standard template means you never forget a row — and the examiner can follow your logic even if a number is wrong.

Drill the adjustments, not just the discount factors. Most marks in an NPV question come from getting the cash flows right, not from applying discount factors. Spend your revision time on ten working capital adjustments, ten tax timing questions, and ten profit-to-cash-flow conversions. The discounting itself is the easy part.

Read the question requirements twice before touching your calculator. Is tax paid in the same year or in arrears? Is inflation already included or do you need to inflate? Is there a scrap value? These details are where marks are won and lost. The examiner noted that candidates who misread a single instruction often lost marks across the entire question, not just on one line.

FM’s pass rate sits just below 50%. Investment appraisal is the single biggest topic on the paper — get it right and you’re most of the way there.