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June 22, 2020 at 7:14 am
Hi John, I am a little bit confuse as to when to use post tax and pre tax when calculating the cost of debt. I did watch your free lectures about a thousand and one times but to avail.
COULD YOU PLEASE HELP IN THIS INSTANCE BY EXPLAINING IT TO ME. Looking forward to your swift response.
John Moffat says
June 22, 2020 at 8:54 am
The cost of debt is always calculated post tax. It is the return to investors that is pre-tax.
July 2, 2020 at 5:29 pm
Am so grateful thanks.
July 2, 2020 at 6:45 pm
You are welcome 🙂
January 10, 2020 at 4:04 am
November 29, 2019 at 3:46 pm
Hi, I’m confused in Q5, we have 200,000 in issue by nominal 0.5 c, why in responses is multiplied 200,000 by 2.40. I think should be 200,000/0.5*2.40. Am I write? Can you help me please here?
November 29, 2019 at 7:33 pm
No you are not right.
The question says that there are 200,000 shares. (You would only have been right if the question had said that the nominal (balance sheet value) of the shares was $200,000)
November 29, 2019 at 8:10 pm
Oooo thank’s a lot, it is tricky, and i should be more attentive
November 30, 2019 at 9:00 am
November 22, 2019 at 5:30 am
why is IRR calculated for q3 ?
November 22, 2019 at 7:38 am
Because that is how we always calculate the cost of redeemable or convertible debt!
Have you not watched the free lectures on this?
October 25, 2019 at 11:56 am
Sir with regards to question 2 chp 17, i dont understand how u got the cube root to b 5. I am getting an answer of 5.5.If i were to round it up it would have been ‘6’.Please explain .
October 25, 2019 at 2:25 pm
You must be doing something wrong on your calculator. The cube root of 36.0/31.1 is 1.04998. Therefore g is indeed 5%.
October 29, 2018 at 8:10 pm
hi john for q 3 i don’t understand why choice 90pc for mv
October 30, 2018 at 7:52 am
The first sentence of the question says that the market value is 90.
Did you watch my free lectures on this before attempting the test?
October 29, 2018 at 7:34 pm
hi john for q 2 how do you get 5% for growth 36/31.1is 1.157556 gi am trying to find the cube but not finding it
October 30, 2018 at 7:51 am
You do need to have a scientific calculator, and it will have a cube root button.
November 14, 2018 at 11:09 am
sir thank you i get it was so worried i would not get it
November 14, 2018 at 5:44 pm
November 26, 2017 at 3:41 pm
dear sir, in question no. 1 why the answer is not 8% they have told in one years time know sir? so the formula will be D1/Po+G
November 27, 2017 at 7:11 am
33.6/420 + 0.05 equals 13%, not 8% !!
November 30, 2017 at 2:59 pm
ohh thank u so much
December 1, 2017 at 7:30 am
November 11, 2017 at 10:58 am
I have a question regarding Quizz question 5. When you compute the MV of debt, you do 200.000 * 90/100 = 180.000$. But but shouldn’t it be multiplied by 100 ? Because the market value of debt is as said 90p.c which is 90%*100 = 90 instead of 0,9.
Therefore, i get a WACC of 7,20% which is not within the answers proposed… It get me confused.
Thanks in advance,
November 12, 2017 at 9:54 am
The market value is $90 for every $100 nominal. Therefore $200 nominal is worth $180; $300 nominal is worth $240, and so on.
$200,000 nominal is worth 200,000 x 90/100 = $180,000.
Think about it, if the value of $100 nominal is only $90, how on earth can the value of $200,000 nominal be more than $200,000!!!
August 24, 2017 at 3:43 pm
In question why the share price is taken as 420 instead of 4.20….?
August 24, 2017 at 3:45 pm
In question.1) why the share price is taken as 420 intead of 4.20?
August 24, 2017 at 4:08 pm
It doesn’t matter whether you put the share price and the dividend both in $’s (so $4.20 and $0.32) or both in cents (so 420 and 32) – the answer is the same.
(Did you actually watch my free lectures before attempting the test? The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.)
August 6, 2017 at 2:24 pm
I would appreciate it if I could get a detailed explanation for Question 3. I do not seem to understand how the NPV figures were arrived at. Thank you so much John.
August 6, 2017 at 4:46 pm
There is a mistake 🙁
The correct figures are:
At 10%, the NPV = – 90 + (7 x 3.761) + (110 x 0.621) = 4.64 At 15%, the NPV = -90 + (7 x 3.352) + (110 x 0.497) = -11.87
The IRR = 10 + (4.64 / (4.64 + 11.87)) x 5 = 11.4%
August 6, 2017 at 2:14 pm
Please, has question 3 been corrected?
I do not seem to understand as to how you arrived at the NPVs listed in the correction that comes up after selecting the wrong answer.
d.f. PV@10% d.f. PV@5% 0 MV (90) 1 (90) 1 (90) 1-5 Int 7 3.791 26.54 4.329 30.30 5 Red 110 0.521 57.31 0.784 86.24 NPV= -6.15 NPV= 26.54
December 2, 2016 at 3:08 am
Question one why not 8percent? By rearranging the formula I got re = D(1+g)/(P-g)
December 2, 2016 at 7:34 am
You have rearranged the formula wrongly.
If you watch my free lecture, you will see that rearranging the formula gives:
Re = (Do(1+g) / P ) + g
I do suggest you watch the lecture because this is an incredibly common question in the exam!!
November 28, 2016 at 10:11 am
Thank you for organizing those quizes. They helped a lot I was able to significantly improve my knowledges and restore everything I knew before in a short time.
<3 <3 <3
November 28, 2016 at 2:08 pm
I am pleased they have helped you 🙂
August 30, 2016 at 4:03 pm
Please I would like to know the formula used to arrive @ the cost of equity for question 1
December 25, 2015 at 3:57 am
Question 3 IRR of the flows: 0 M.V. (90) 1-5 Int. 7 per annum (because tax allowable) 5 Repayment 110 In your calculation debt interest is not tax adjusted; i am confused sir. Pls kindly explain.
December 25, 2015 at 9:01 am
Sorry – you are correct and it is a mistake.
I will have it corrected – thank you for pointing it out.
December 8, 2015 at 7:02 am
question 3 of 5 CHAPTER 17 PRACTISE QUESTIONS
The NPV that i get by using discount factor 10% was 16.22 but not 6.22.
therefore the final answer I get 15.1%
December 8, 2015 at 7:39 am
You are correct – the NPV at 10% is 16.22.
However that gives the correct IRR as 14.50%.
Thanks for spotting the error – I will have it corrected.
November 29, 2015 at 7:55 pm
question 2 of 5 CHAPTER 17 PRACTISE QUESTIONS
Please can you explain why the cost of equity is 12%? how is the calculation done?
November 29, 2015 at 8:06 pm
g = (cubed root of 36.0/31.1) – 1 = 0.05 or 5%
Cost of equity = ((36.0 x 1.05) / 540) + 0.05 = 0.12 or 12%
(I am currently entering workings so that when you submit an answer, the software will show the working for the correct answer. So far this is happening for the first 10 tests, but it will happen for all the tests within a few more days 🙂 )
May 31, 2017 at 8:55 am
I would like to know why 540 is being used instead of 5.40.
May 31, 2017 at 9:29 am
Because I have shown all the workings in cents!!!
By all means show them in dollars (dividend = 0.36, MV = $5.40) and you will get exactly the same answer!!!!
November 23, 2015 at 5:59 pm
The question says that there are 200,000 shares (not 400,000). (It does not say that the nominal value is $200,000)
Therefore the total market value of the equity is 200,000 x 2.40 = $480,000
The market value of the debt is $180,000.
Therefore the WACC = (480,000/(480,000+180,000)) x 15%) + ((180,000/(480,000 + 180,000)) x 7%) = 12.82%
November 24, 2015 at 12:55 pm
Thank you for explaining!
Such is a careless mistake of mine.
November 24, 2015 at 3:18 pm
November 11, 2017 at 3:09 pm
I just read the exact same thing for this. I saw it as $200,000 worth of shares not just 200,000 shares. Which I do all the time, I don’t read the question properly!! At least I know what I’m doing wrong 🙂
November 12, 2017 at 9:51 am
The more you make mistakes, then less chance that you will make them in the exam 🙂
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