ACCA FM WACC December 2026: Why Book Values Quietly Cost You Marks

Use market values, not book values, for the WACC weights, and use D1 (not D0) in the dividend growth model. Get those two right and most of an FM cost of capital question is already in the bank.

Why this keeps costing marks

FM is a tough paper. ACCA's June 2026 results put the FM pass rate at 48%, below FR (52%) and TX (55%). Cost of capital is a short, mechanical topic, which is exactly why dropped marks hurt: they are marks you should never lose.

The weighting error is the classic one. The question gives you share capital and reserves on the statement of financial position, then the share price and bond price further down. Book values are the tempting numbers because they are the first ones on the page. But WACC is a market-based measure of what it costs to raise funds today, so the weights must be market values: shares in issue multiplied by share price, and bonds at their quoted price, not their nominal value.

The second leak is the dividend growth model. The formula is Ke = D1 / P0 + g. If the question hands you the dividend just paid (D0), you must grow it by (1 + g) first. Skip that step and you understate the cost of equity every time.

The third is tax. Interest is tax-deductible, so debt carries a (1 - t) adjustment. Equity does not. Applying tax to the wrong one, or forgetting it on the bond, is a one-line slip that flows through the entire calculation.

Worked example: wrong vs right

A company has 4m shares (nominal $1, market price $2.50, last dividend 20c, growth 4%) and $5m of 6% irredeemable bonds trading at $80 per $100. Book reserves take equity to $12m. Tax is 25%.

Wrong answer: Ke = 0.20 / 2.50 + 4% = 12.0% (used D0). Kd = 6% x 0.75 = 4.5% (used nominal value, not market price). Weights on book values: equity $12m, debt $5m. WACC = (12 x 12.0% + 5 x 4.5%) / 17 = 9.79%.

Correct answer: D1 = 0.20 x 1.04 = 0.208, so Ke = 0.208 / 2.50 + 4% = 12.32%. Kd = (6 x 0.75) / 80 = 5.625%. Market values: equity 4m x $2.50 = $10m, debt $5m x 80% = $4m. WACC = (10 x 12.32% + 4 x 5.625%) / 14 = 10.41%.

That is a 0.62 percentage point gap. On a 20-mark Section C question, a wrong WACC drags the NPV, and the follow-through marks are harder to claim.

What to do

1. Write "MV" next to every weight before you calculate. Shares multiplied by price, bonds multiplied by quoted price divided by 100. If you find yourself using a statement of financial position figure, stop.

2. Circle D0 or D1 in the question. If the dividend is described as "just paid" or "last year's", multiply by (1 + g) before dividing by price.

3. Do a sense check. After-tax debt should come out lower than equity. If Kd is higher than Ke, you have a slip somewhere. It takes ten seconds in the CBE and catches most arithmetic and tax errors.

The bottom line

FM's pass rate sat at 48% in June 2026. Candidates who lose marks on WACC are rarely failing on difficulty. They are failing on the first number they pick up from the page.

Market values in, book values out.