CIMA F3 Common Mistakes & Exam Technique
F3 is calculation-heavy at a strategic level, and most errors come from a small mechanical slip inside an otherwise well-understood formula — using the wrong weighting basis, or the wrong dividend figure, changes the answer completely.
1. WACC weightings should normally use market values, not book values
Unless a question specifically states otherwise, WACC should be weighted using the market values of equity and debt, not their book values — book values can significantly understate the true weight of equity in particular, since retained earnings and share premium rarely reflect current market capitalisation.
2. TERP blends the pre-rights value with the new shares issued, not just the discount
The theoretical ex-rights price is (total value of shares before the issue plus cash raised from the new shares) divided by the total number of shares after the issue — it is not simply the rights price itself, nor a simple average of the old and new prices without weighting by the actual number of shares involved.
3. The dividend growth model uses next year's dividend, not the one just paid
The share price under the dividend growth model is D1 (the next dividend, i.e. D0 grown by one period) divided by (cost of equity minus growth rate) — using D0 directly in the numerator without growing it forward by one year is one of the most common numerical errors in this formula.
4. Sustainable growth rate is a valuation formula, not an ESG concept
Sustainable growth rate (retention ratio multiplied by return on equity) describes the growth rate a company can fund from retained earnings alone — it has no connection to environmental or social sustainability, despite sharing the word. Don't let the terminology overlap pull you toward an ESG-framed answer when the question is really asking about financing growth.
5. GRI and the UN SDGs are voluntary reference frameworks, not mandatory standards
When advising on ESG reporting, remember that the Global Reporting Initiative and the UN Sustainable Development Goals are voluntary frameworks companies choose to align with and report against — they are not mandatory accounting standards with the force of IFRS, and a question testing this distinction is checking you know the difference between voluntary disclosure and mandatory compliance.
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