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BBS Stores (6/09) & Romage (6/00)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › BBS Stores (6/09) & Romage (6/00)

  • This topic has 6 replies, 3 voices, and was last updated 7 years ago by John Moffat.
Viewing 7 posts - 1 through 7 (of 7 total)
  • Author
    Posts
  • April 30, 2016 at 9:42 am #313151
    kimtranvn
    Member
    • Topics: 14
    • Replies: 13
    • ☆

    Dear Sir,

    I need your advice on question BBS Stores (6/09) & question Romage (6/00):

    BBS STORES (6/09):

    1) In part (b) solution: asset beta = 1.824 x (1 – 0.09748).
    I understand 0.09748 = 1,130(1-35%)/(6,800+1,130(1-35%)).
    The question is why the debt in this case is 1,130 only. Why dont we in clude other non-financial liabilities (890) ?

    2) In part (b) solution: 1.646 = 4,338 x asset beta/6,800 + 2,462 x 0.625/6,800.
    In this calculation 6,800 is market value of equity value so this is the weighted average
    of equity value. In study text book (BPP) this should be the weighted average of total company value cluding equity and debt (refer to study text page 325 & 326). So why are the calculations different?

    3) In (2) above, asset beta is 0.625 which is not mention in question. I understand 0.625 = 1.25 x 50%/(50% + 50%) Please confirm if my undertanding is correct. In this case, why dont we show the working for 0.625?

    ROMAGE (6/00)

    In part (b) appendix 1, MV equity = 50/0.25 x 0.55 x 2.96. How can we get 0.55 in this calculation?

    Thanks,
    KT

    April 30, 2016 at 10:04 am #313156
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    1) Because they are non-financial. We only include non-current liabilities in the formula.

    2) The examiner has used the equity values to get the weighted average of the betas on the basis that it is the equity that carries the business risk. There is an argument for using the total value – what is important (as always in P4) is to state your assumptions. There is rarely just one correct answer in P4 – it depends on assumptions.
    I cannot comment on what BPP say in their Study Text because I don’t have it 🙂

    3) You are correct in your understanding of the calculation of the 0.625. I don’t know why the answer does not show the workings for it – I would have done!!

    Romage:

    In (b) (i) of the question, you are told to use 55%in any gearing estimates.

    April 30, 2016 at 11:08 am #313160
    kimtranvn
    Member
    • Topics: 14
    • Replies: 13
    • ☆

    Thanks

    April 30, 2016 at 2:52 pm #313177
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    You are welcome 🙂

    August 7, 2017 at 4:29 pm #400951
    parisnaaa
    Member
    • Topics: 32
    • Replies: 92
    • ☆☆

    Hi John,
    Regarding option 2, why are they taking the amount 1231 and deduct 360 to get 871? The amount 1231 is of option 1. Why is it related to the second option?

    I thought the share repurchase calculation would be 425/4=106.25 shares. The share capital =106.25 *0.25=26.56.

    August 7, 2017 at 6:21 pm #400968
    parisnaaa
    Member
    • Topics: 32
    • Replies: 92
    • ☆☆

    Hi John, one more thing, In a ii, to to calculate the retail asset beta why is 0.625 taken as property’s beta asset? How is it calculated?

    August 8, 2017 at 6:16 am #401005
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    The 1231 is the money from the unbundling and will happen under both options. The options only relate to what they do with the money.

    The explanation of the 0.625 is given in the first post in this thread. It used the idea that the total beta is the weighted average of the individual betas, as is explained in my free lectures.

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  • The topic ‘BBS Stores (6/09) & Romage (6/00)’ is closed to new replies.

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