[adamliew]

dividend capacity is the ability of company to pay amount of dividend back to shareholder, am i correct ?
but if ask what is dividend capacity, it is hard for me to determine the value, because if retain in full cash flow, which make shareholder unhappy, but if fully pay back to shareholder, which make no reinvestment of cash flow, make not good for company also didnt maximization shareholder wealth

ok sir, i will try the question
by the way, recently i had search someone ask question regarding dividend capacity before, and is that can be answer the dividend capacity by calculate free cash flow to equity ?

in addition, refer to june 2015 question 3 (C)
as my understanding, free cash flow to equity is mean free cash flow to shareholder, also mean the cash which shareholder can get.(correct me if wrong)
i done some free cash flow to equity, since there have no mention in the question about how many cash inflow the company will retain, so we usually will assume fully pay back to shareholder when the money earn in that year, so also mean that, free cash flow to equity are do not have reinvestment assumption if we doing the fcf to equity (pv of future cash flow or perpetuity )
because when i saw the answer to calculate the value of firm, they are take the dividend pay
back rather than dividend plus retained earning.
it make me confuse again

[adamliew]

sorry sir, i just realised it said estimate equity value in acquisition using the fcf to firm.
so we use the fcff and find equity value,
by the way, if i using my method, will the answer be same? why not ? since it is value equity and fcfe also value of equity, and find equity also can fcff minus debt value become equity value. it really confusing me

[adamliew]

Hi sir John, for the same question, to future currency hedge,
ask what i know, future hedging is we buy/ sell the future, and later, if the spot rate go to unfavourable rate, we will gain from the future price.

but when i see the answer for calculate the future hedge, why they just show expected payment US$5,060,000/1.0651=CHF 4,773,728

i thought we just need to calculate the payment at spot, then knock off the profit earn from future price.

my answer :
i can calculate the future price at 4 month UA$ 1.0651 by
1.0659-1.0635=0.0024
0.0024x (2/6)= 0.0008
future price 1.0659 + 0.0008= 1.0651

since we sell future first and buy later
1.0659-1.0651=0.008
(US$ 0.0008/CHF)x38 contract x CHF 125,000= US$ 3800

since it is profit in future, so convert it spot in future
spot in 4 month time
US$1.0635/CHF x (1.01)=US$1.0741/CHF

US$3800 divide US$1.0741/CHF = CHF 3538

US$5,060,000 divide US$1.0741/CHF =4,710,921
payment CHF 4,710,921 minus profit from future price CHF 3538
=4,707,383

ok, it is my payment if hedge by future
but the question answer is CHF4,750,728

John, could you correct my mistake, also check whether my explanation got wrong or confuse.

[adamliew]

ok, i am slightly understand what sir have clarify it, but i just wondering why my method are not work, you forest it by mutiple 95 % on the euro/$ spot rate, it also consider the euro get strengthen by 5 %, but i increase the $ by 5 % and divide it, it also mean the dollar are weaker. the concept for me seem correct, and both are similar, just one is denominate value 95%, and another is numerator value 105%.

but why the answer quite not similar, and if i just use euro 0.7810/$1.05 for forcast the years. can i get correct ?

[adamliew]

sorry sir, i just want to know my answer is correct or not and it wont happen next time

[adamliew]

hi vort 24, i wish to try answer your question, by the way, anyone might correct me, if my answer is wrong, and appreciate to correct me.

the case is that, we do not include the loan interest and loan payment because loan interest already include in WACC (if the wacc you discounting is not only ke)
we put interest in wacc rather than display on cash flow appraisal table, because interest expense is a required return by debtholder. and wacc is the required rate of return by investor (shareholder and banker which provide loan to company

for eg, project which are borrow $ 1,000 and interest rate annually is $ 100 (10%p.a)
while , your kd will be 10% , of course we need to calculate the tax saving of kd, so the kd (post tax will be ) 7 %, if the tax rate is 30 %. and for the principal, $ 1000, it is not consider incremental or cost for the project, because it will repay originally back to the debtholder. the cost will be the interest only.

please correct me with clearly, if i explain incorrectly

[adamliew]

by the way, sir, it isnt past year question, i take the question from BPP revision kit of 2016-2017 and it is question 18

[adamliew]

yes sir, i have watch ur VAR lecture, and i more understand after watch thx with appreciated, but when doing the question, i confuse again.

[adamliew]

do I need to read FM note together with watch lecture video ?

[adamliew]

hi, may i know how much of proportion of MVe and MVd in question 1? because i feel like i calculate wrongly for the MVe and MVd. it make the Wacc no much different

[adamliew]

for the theory question, if i redo all the pass year papers (latest 10 papers) will be sufficient or also need to do the revision kit ? if i do the old version of revision kit is that ok?

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