OpenTuition.com Free resources for accountancy students
Free ACCA lectures and course notes | ACCA AAT FIA resources and forums | ACCA Global Community
Please what if we are are an Oil company and we were going to invest in a Ship project, hence which means the business risk may be different from that of the company. The project will be all Equity financed and the current WACC is 10%. We were also given a similar company’s data in the shipping business. BUT Finally, the examiner drops a bomb and say after careful analysis, the company found out that taking on the project will not change the existing risk of the company.
In this case above, what should be the discount factor to use?
It would be impossible for the examiner to do this. The only way that the existing risk would not change would be if oil carried the same risk as ships. If that were the case then using the asset beta for ships would still be the right approach (because the asset beta for oil would be the same)
If you see a question and you think he is doing this, then I really would read again very carefully
PS If you are asking questions of me, then it is better to ask in the Ask the ACCA tutor forum for P4. It is not always possible to check all the comments made below lectures – there are so many lectures – but questions in the Ask ACCA Tutor forums are always checked and answered.
Thanks John, I will post future questions in the Ask ACCA Tutor forums.
Many Thanks really for this
Hi Tutor ,
Where can I find lectures relating to Valuations of mergers and acquisitions – Type 1,2,3 acquisition ?
There are no lectures on this yet. However the course notes contain all you need.
Thanks for a great lecture.
But was wondering where can I find lecture relating to the alternative way mentioned at the end of lecture?
The alternative way is adjusted present value, which is dealt with in chapter 12.
You are welcome
opetuition tutors are great but you are marvellous: but where is the section for the alternative way
I HAVE UNDERSTOOD THOUGH I MUST ADMIT ONE THEN NEEDS TO PAY PARTICULAR ATTENSION TO THE GEARING RATIO. That you need to understand like in the example above that when he says gearing ratio (debt to equity) of 0.4, it doesn’t mean 40% debt and 60% equity. I mean that was my initial confused assumption Admin. which would have also been in the exam too!
Once again, Great lecture!….but, what is that alternative?
I’m not sure about one thing…In Example 11 the asset beta equals to 1.57, equity beta is 1.80. What about the difference of 0.23? What does it represent if we assume that debt beta is 0?
Gearing makes the shares more risky and therefore the equity (share) beta is greater than the asset beta (which is the risk if there was no gearing). The fact that we assume the debt beta to be zero is irrelevant in that more gearing will always make a share more risky.
There is no special significance attaching to the difference of 0.23.
the lecture is great but i wonder why we don’t consider tax effect on culculating wacc? why not culculate wacc as:[ve/(ve+vd)]*ke+[ve/(ve+vd)]*0.75*6%?
@bunnywong1986, oh sorry i see, 6% is after tax relief
Awesome explanation !!
HELP! I can’t see the rest of the ecture. It stops at around 21mins, after (Ke) for part b of the question
This lecture has clarified most of the errors that I was making on this topic.
Thank you. I hope I will not repeat the same mistakes during exams.
You must be logged in to post a comment.
ACCA F1 /FIA FAB Dec 2013 Exam was...
F4 Dec 2013 Exam was... Post comments
F5 Dec 2013 Exam was... Post comments
F6 Dec 2013 Exam was... Post comments
F7 Dec 2013 Exam was... Post comments
F8 Dec 2013 Exam was... Post comments
F9 Dec 2013 Exam was... Post comments
P3 Dec 2013 Exam was... Post comments
P4 Dec 2013 Exam was... Post comments
P5 Dec 2013 Exam was... Post comments
P6 Dec 2013 Exam was... Post comments
P7 Dec 2013 Exam was... Post comments
Please post your comments and vote in our Instant Polls
FIA MA1 exam was...
FIA FA2 exam was...
FIA MA2 exam was...
CAT FAU Exam was...
CAT FTX Exam was...
CAT FFM exam was...
Return to top of page
Copyright © 2013 · Privacy and Cookies · Advertising · Contact us · Sitemap · Log in