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97shoree wrote:Question 1 – Foreign investment
Haha question 3 on mergers was actually too simple for the calculation part. Can’t make more easier than that.
But the discussion part was challenging as three companies were involved altogether. He presented his scenario in a very traditional linear way. But the requirements was very odd that got my head rolling as the examiner wanted the perspectives from different companies on different matters not just strategic importance of being acquired. Considering there were 3. I actually wrote a from a Pov of a company that was not asked for.
He even asked what if two target companies merged that the acquirer is seeking to acquirer . I read that requirement twice before answering it. Like he seriously wants to know that as well
Lastly for treasury department, was asked in managing economic risk. Not conventional risk management and this question never appeared before. Economic risk is outside the realms of treasury department and discussion was to be carried on thT
97shoree wrote:Question 1 – Foreign investment
Joint venture and subsidy caught me off guard as well and I was prepare to leave it , as saw nothing like that in syllabus or past exam, but as I had time . Just thought about it and it was quite simple when you think the nature of the two.
Like can’t have transfer pricing advantages and tax saving. Also not being able to fully control having all the voting power. Power struggles . All such issues if operating as a joint venture..and similarly having more capital at your disposal. More synergy if operating as joint venture. Perhaps more expertise from.human capital
nataly1986 wrote:afmp4 wrote:nataly1986 wrote:
afmp4 wrote:To NatalyIf a debt is being used to finance. Then capital structure is changing
Come to think of asset beta should have been used. ba not Be. equity beta includes more risk due to debt. But as we were doing apv. We would discount cash flow under normal cost of equity Ba and then do the financing effect for apv . But I never got to that part as I skipped foreign appraisal from syllabus and stopped at basic Npv calculations.
Additional value created was 167 for merger question.
Gain to target was 74 under cash flow method.
Gain to predator was 54% initially to which examiner wanted to know. How much amount to be paid if 60% is to be achieved.
Can anybody confirm any of the numbers?
afmp4 wrote:To Nataly
To Nataly
Yes there was no issue cost, hence that became part of the assumption that we needed to list down.
The first part of apv was easy. The interest being paid on loan into tax rate and subsidy benefit was 3 percent if I recall correctly into 80%. Because tax was 20 %
The latter part of apv was difficult as we had to apply discount factor to both subsidy and tax benefit and then convert to US dollar. A similar question in pilot paper 2013 by the name of Tramont is there.
But as I practised one question of apv with a tax delay of one year. It automatically guided to calculate Apv under such condition and 6 marks gone down the drain..which can come back and haunt me. What a silly mistake exam pressure can impose.
To Nataly
Component price was given, simply had to convert to foreign currency. Yes the wording assured me there would be a loss and there was. I skipped the foreign appraisal thought it wouldn’t come, so had no clue what to do dealing with cash back to US. Learned 5 marks are for that . Dealing with component price back at US is the only tough thing in the question.
Do u recall was the tax being paid same year or later?
Anyways I’ve been restless on this. No point in recalling. Can’t change a thing now.Yeah I remember doing a silly mistake. The minimum offer that target was asking was based on listed price but we had to do our calculations based on cashflow value of target.
sarahcopeland wrote:Hi afmp4 – I got a loss in yr 1 but don’t think I did in yr 4 (but can’t totally remember).
Hmm ok thanks for the reply. Was tax being paid a year later
Theory in the paper:
Treasury’ s role in handling economic risk.
Benefits and drawbacks of operating as a joint venture instead of opening a sub.
Assumptions of Npv.
Environmental impact on conducting foreign operations.
Strategic importance of merger.
Counter bid to avoid a takeover.
Benefits and drawbacks of OTC compared with futures
Hi Nataly, did you get loss in year 1 and 4 on foreign operations ? edit: qoute didnt work
Dear Admin
Kindly delete my prior comment on this post as it relates to Afm and i accidentally posted here, dont want to jeopardize the feedback one is taking reading this and making true sense of FM
sarahcopeland wrote:I had q1 APV and foreign investment appraisal, q2 business valuation/acquisition and q3 foreign currency hedging.
I also found that I did not have enough time. There was so much to do in q1 that it left me short on time for q2 and q3. I just didn’t have enough time to think about all the info in q2 so attempted the theory parts, but missed the actual valuation part. I moved onto the hedging question that I just about finished, but then had no time to go back to the valuation question.i had the same exam as yours, did you get loss in year 1 and year 4 for foreign investment?
sorry to hear you couldnt finish the entire exam, i know this was an easy exam and u would be feeling missed out not to capitalise on it. However i found question 1 very easy flowing, mirroring the style of presentation of past paper, hence even all that exhausative information relating to each cash flow was there but it was so typical that it automatcally guides you into answering and i didnt feel like i was reading a lot but merely going through it, To be fair i did ton of NPV practice and was done with entire calculation in 30 mins. that too much practice also costed me as i screwed up easy 6 marks on APV, i had done an apv question with a one year tax delay that had a loss in first year, so when i saw loss in year 1 of our exam, it pushed me into solving apv with a one year tax delay, not realising that there that tax is paid in the same year
Easy exam, least challenging compared to all the past papers and could be done well with in time for once which is unheard of this exam, perhaps the examiner is finally mindful of our feedback. but i didnt do justice to myself with question spotting, skipped foreign appraisal and currency hedge based on past paper trend and they both came. Given the fact its cbe format now , multiple papers are published, instead of one universal exam, so anyone reading this, do cover all the syllabus and disregard question spotting based on past exams.
No easy pure knowledge based marks, every discussion element was tied with scenario.
Company made cold storage units only now i am thinking due to cluro fluro carbon that we read in science impacts negatively to the environment and the question asked about environmental impact that the company is engaging in, perhaps due to exam pressure i just couldnt make sense to it and went all out on land restoration that the company would fix at the end of project. so its a science based exam too lately, sigh !
To be fair there was no reason for currency hedge to come as examiner has always equally weighed in interest and currency on a particular 4 exam sitting stint, This surprised me the most.
Really feel sorry for those whose exam got aborted, i can totally relate the titanic effort this exam requires to be fit for an exam and to do it all again to keep knowledge fresh is nothing short of a nightmare, none of the prior acca exam required so much effort that i placed on this one
Ok i voted for OK not easy even though this was by far the least challenging compared to all past papers and could be done well in time, guess examiner is finally mindful of our feedback to make it possible in time . The reason not being easy as there were no free knowledge marks. The scenario had to be dealt with and discussion carried out
I screwed the Apv part ,there was no tax delay but i considered it.
Lastly i predicted foreign currency and foreign investment wont come, its biggest mistake to ever guess AFM , especially now CBE format is here, exams are different for candidates instead of one universal paper,
Some candiates got interest and real options those were my core strong, but due to guessing those marks gone down the drain.
ok, i was weak in complex maths so dont recall, was comfortable with finding one x not two. either way without understanding the equation which is a daunting task itself in my opinion, ill simply remember to add 1.
ok so i have solved 3 similar questions and noticed we simply add 1 everytime.
I tried to understand your question but couldnt, however i will explain the solution
In-case interest rate rose to 1.1%
Our capacity to deposit is 4.2 -0.3 + 1.1(increase as above) = 5%
Actually 5.3 % came out to be (4.2 +1.1) but we made an agreement with a bank of 5.02 %. meaning that we actually earned 5.3% but due to agreement which is lower at %5.02 and to fullfil that agreement because we wanted our liability of interest to be certain. We entertain our liability at 5.02, by giving the excess to bank, which is 5.3% minus 5.02% = 0.28.
In case you are saying FRa is till June but we are making agreement (before) as the dates dont match . Thats the whole point of hedging, we dont want to be uncertain what will be interest rate in January so make an agreement with bank before, so from Jan to June we will know our deposit will fetch a certain interest. In case we didnt hegde and interest rate dropped to 4% lets say in Jan, we would have lost on our deposit. but the whole point of hedging is to be certain of our cash flows rather to avoid a loss. Interest as in the question could have rosed to 7 % as well lets say, but its better to be safe rather than sorry
ok so the answer is stressing upon a dilution in control again, under a different circumstance. Thank you
