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On part D, the question gave two forward rate 12 months and 6 month
You showed the interest for 6 month but you used the the 12 months forward rate and money rate.
I’m confused as I would expect for 6 month interest, you will use 6 month forward and money exchange rate.
It says the interest is paid on a six monthly basis, so I understand why you divided the euro interest but what I don’t understand is why you used 12 month forward rate for it.
I would expect by using 12 month forward rate and money market, the euro interest will be 12 month which is 520,000.
Please advise as I’m sure I’m missing something here.
The interest is payable 6 monthly and is therefore 260,000 in 6 months and then 260,000 in 12 months.
The exam just wanted two illustrations, and so I illustrated the 260,000 payable in 12 months time.
(You could just as well have illustrated using the 260,000 payable in 6 months time)
Thank you very much.
HI i just wanted to know,while im doing F9 past papers i seem not to know what to write especially with the writing so i look at the answer and copy it..is that a bad idea?because sometimes i really dont have a clue what to write when it comes to the writing part for F9
Writing out the answer yourself is fine, if it helps you remember.
However, most important it that you understand the answer properly, because he can ask questions in so many different ways and he does this deliberately to check that you understand and that you have not just learned an answer.
Also, before looking at his answer, at least decide what you think is being asked. (Too often people give beautiful answers to the wrong question!!!) Then when you read his answer, ask yourself if you had understood what was being asked, and if not then why not.
okay thank you
hi john if it happens that in an exam question under investment appraisal we are told to ignore taxation but then we are given two discount rates of nominal after tax weighted average cost of capital and nominal before tax weighted average cost of capital will we use nominal before tax weighted average cost of capital since taxation is being ignored
Although I will answer you, please do not ask questions like this as comments to lectures on something completely different. This sort of question should be asked in the ‘Ask ACCA Tutor’ forum.
However…..if the question says to ignore tax, then obviously you ignore tax and use the cost of capital before tax!!!
From memory he has only done this once (in June 2012) and he did it for a very good reason. There were two parts and in one part you were told to ignore tax, and in the other part you were not. For that reason he gave the cost of capital before tax (for one of the parts) and the cost of capital after tax (which was for the other part).
okay sorry for asking in the wrong place
Aren’t there any tax savings on interest payments?
That is why the extra tax is calculated on the extra profit after subtracting the interest, as usual.
for q3a, why new finance amount need add issue cost?
Because we need to raise enough money to be able to finance the investment and also to pay the issue costs.
@Johnmoffat: The investment operations are in eur; debt is in eur; isn’t the real mismatch between the equity (we need to repay dividends in dollars) and the operations earnings, which are in eur? pls advise.
But that is the whole purpose of looking at ways of hedging the risk in part (d) of the question.
Shouldn’t it be EUR 6.5MN x 1.3 = 8.45MN USD?
@vesna, No – the spot rate is EUR/$ 1.3, which means that 1.3 Euros = 1 $
Bit confused…how can 13M euro is equal to 10M dollar….it should be other way round….
@mdnadeem, No it should not be the other way round. The spot rate is EUR/$ 1.3 which means that 1.3 Euros = 1 $
Sorry to bother again. Could you just clarify – when you do the money markets illustration you used the annual interest figure against the 6 month interest which was calculated from before ie the EUR 260000. Should the interest rate be divided by two when doing the six month illustration. The figures calculated are different from the examiners answer, whereby they have calculated the 6 month interest rate in an extremely weird way by raising to power 5. Look forward to your reply.
Dear Sir, The answer although stated as 12 months is in fact for 6 months, unless I have mistaken something as at the interest payable calculation you have divided by 2 for a 6 month interest charge. Furthermore then follow-on calculations should have been done at the half year interest rates. Am I correct?
@rajb19, The question asks you to illustrate. There is an interest payment due in 6 months time and another one in 12 months time.
You could use either to illustrate – I have used the interest payment due in 6 months time.
(But if you look at the examiners answer, he does the 6 month payment, but also says it would be just as acceptable to consider the interest due in 12 months instead)
Got to be honest I found this one really tough and if this comes up I will be done for.
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