This part of question 1 asked candidates to identify two financial objectives of a listed company and to discuss how each objective was supported by the planned investment in new machinery.

This was a straightforward question that should have gained higher average marks than in fact it did.

Since the question asked for two financial objectives to be identified, candidates who identified more than two objectives were wasting their time. Too many candidates struggled to identify two financial objectives, or gave objectives that were non-financial rather than financial, or that where quite vague in nature.

The most common financial objective given by candidates was maximisation of shareholder wealth. This gave scope for a discussion of the relationship between this objective and the positive net present value of the planned investment, the need to pay dividends, and so on.

A good choice for the second financial objective could have been something profit-related, such as an objective in terms of revenue, profit before tax, profit after tax (earnings), return on capital employed, return on equity and so on.

Increasing market share is not a financial objective, although it could support a financial objective relating to, for example, revenue or profit. An example of a vague objective could be “growing the company”. A number of candidates gave profitability and liquidity as financial objectives, but struggled to explain how liquidity was supported by the planned investment in machinery.