ACCA FM September 2026: 5 WACC Errors the SD25 Examiner Flagged (10 Marks)
The coupon rate is never the cost of debt — and the SD25 FM examiner just listed it as one of five errors that wreck the 10-mark WACC question. FM passed 48% in June 2026, and this question is where calculation marks go to die.
What the SD25 examiner actually found
The September/December 2025 FM examiner report walks through a full 10-mark WACC calculation (Mean Co) and names the errors markers saw again and again: using book values instead of market values, using the coupon rate as the cost of debt, failing to adjust interest for tax, averaging the component costs equally instead of weighting them by market value, and mixing units — $000 in one line, $ in the next.
One more trap: reserves. They sit in the statement of financial position, so candidates treat them as a source of finance. For a market value WACC they are ignored — reserves are already inside the market value of the shares. Include them separately and you have double-counted equity.
The redeemable loan notes caused the most damage. Because they are redeemable, the cost of debt is an IRR calculation on the after-tax cash flows: pay out the ex-interest market price today, receive after-tax interest each year plus the redemption value at the end. Candidates who applied a perpetuity method to redeemable debt earned no marks for it — the examiner says so explicitly.
On the cost of equity, the same two slips as every sitting: using D0 instead of D1 in the dividend growth model, and dividing by the $0.50 nominal value instead of the $7.26 ex-div market price.
Worked example: wrong vs right
Wrong: Mean Co's loan notes carry a 7% coupon, so the cost of debt is 7%. Then average the three component costs: (12.1% + 7% + 8.5%) ÷ 3 ≈ 9.2%. Two errors, and the final number is meaningless.
Right: After-tax interest is $7 × (1 − 0.20) = $5.60 per year. Run an IRR on: pay $94.59 now, receive $5.60 for years 1–7 plus $100 redemption in year 7. That gives 6.6%. The bank loan isn't traded, so no IRR — just 8.5% × 0.80 = 6.8%. Then weight by market values: equity $217.8m at 12.1%, loan notes $9.459m at 6.6%, bank loan at book value $5m (untraded debt has no market value) at 6.8%. WACC = 11.8%.
Averaging instead of weighting turns 11.8% into 9.2%. Every NPV you discount afterwards is wrong too.
What to do
1. Classify the debt before you touch a number. Redeemable and traded: IRR of after-tax cash flows. Irredeemable: perpetuity. Bank loan: after-tax interest rate, book value as the weight. The examiner says identifying the type of debt is always step one.
2. Use the spreadsheet IRR function. The examiner points out it's faster and safer than linear interpolation between two trial rates. List the cash flows in cells, label them, and let =IRR() do the work — labelled workings also protect your method marks under the own figure rule.
3. Convert everything to $000 before weighting. The Mean Co equity is $217,800k; the loan notes are $9,459k. Mix $000 with $ and your weights are off by a factor of a thousand. One consistent unit, one clean weighted average.
The bottom line
FM passed 48% in June 2026 — the second-lowest pass rate at Applied Skills after PM's 41%. The WACC question is 10 marks of pure method, and the examiner has published exactly which errors lose them.
The examiner told you the five mistakes. Making a sixth is fine — repeating these five isn't.