Question 1

**Section B - Case 2: Quantum Mesh Inc**

*Scenario:* Quantum Mesh Inc is a tech startup developing AI-driven satellite mesh networks. A venture capital firm is considering a buyout. Quantum Mesh has an operating profit (EBIT) of $5m, depreciation of $1m, and a corporate tax rate of 20%. Capital expenditure for the year was $1.5m, and working capital increased by $0.5m.

**Question 5:** If Quantum Mesh decides to raise further capital independently, the CFO suggests following the Pecking Order Theory.

According to the Pecking Order Theory, what is the preferred sequence of financing?

Accepted Answer

Remember the logic of the Pecking Order Theory: managers prefer financing that requires the least amount of external scrutiny and has the lowest issuance costs.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Confusing the pecking order with the traditional view of WACC, or thinking equity is preferred over debt because it doesn't require mandatory interest payments.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FM — Financial Management Practice Exam 5

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