[ajaved5]

I got 6 for TERP. Then just added some debt interest, but for some reason I said chose debt which is obviously wrong as PAT for debt would be lower due to the interest.

[ajaved5]

I did.

[ajaved5]

.

[ajaved5]

I read somewhere, that if the project continues you don’t add working capital at the end and if does not then you add it back.

[ajaved5]

@mareeam said:
Pls what was npv value
I got about 3m
Did u add scrap value to d npv calculation

I got 2yr 7month for payback cal.

Pls what was NPV for that question

Yes would would need to add scrap value to the nav. Don’t remember my final answer.

[ajaved5]

@xanpech said:
I also inflated from year 1, I think this is correct though? As the cash flows represent the end of each year and no inflation had been applied to any of the figures.

I thought the same but I could be wrong, what would current/real terms mean?

[ajaved5]

@tonim said:
On NPV cash flow, you inflate by the 4%. E.g
£100 sales inflated at 4% would be
Y2: 100 * 1.04
Y3: 100 * 1.04 * 1.04
Y4: 100 * 1.04 * 1.04 * 1.04 etc.

You do not inflate year 1 as this is your base figure.

I got that wrong, I started inflation at t1. What about the residual value undiscounted at 5%

[ajaved5]

@tonim said:
I also got the working capital which initially baffled me.

When I reached the quick ratio question I couldn’t get an answer that was there, but then I re-read the question. It was asking for the quick ratio of the NEXT year, which included an additional debt of some sort.

Using this information I got an answer.

I got section C questions on CAMP and DGM which asked only for Merits and was worth 6 marks. I said that CAPM was universal for new project that companies are unfamiliar with because it looks at the current market and what the risk for a similar project it, which gives a good indication of how much the funding of such a project is currently costing. I went on the day that DGM was not as good as CAPM for the validation of projects, but it considered growth which should enable companies to consider future dividends for equity. I don’t know if I got any marks here.

I also got the question on Islamic Financing and I panicked so listed 4 with explanations – Sukuk- debt finance (irrelevant but oh well), Mudaraba (shareholders and agents), Musharaka (joint venture) and Ijara (lease finance) I also explained the concept of Islamic financing and probably spent too much time on this question (but I was pretty proud as I’d been studying Islamic financing that morning).

I also got the NPV question. I got a positive NPV. Depreciation calculation on a reducing balance at 25% works as follows:
Y1) 1,000,000 * 25% = 250,000 allowance.
Y2) (1,000,000 – 250,000) * 25% = X (don’t have a calculator).

Your final allowance is calculated by deducting the scrap value from the remaining balance in Year 4 (from the question). This is your remaining WDA allowance, this is multiplied by the tax rate to give you the final benefit. The amount I got was significantly high. I also put the allowances in the years that they corresponded to, rather than the next year as it was in arrears… was this correct?

I got a payback period of 3.25 years. I got this by doing a cumulative income chart and dividing the remaining negative balance by the total balance in year four.

I said that the project should be accepted purely from a financial perspective, however as the directors had a two year maximum payback period and would automatically reject this project.

On the next page I had to explain what they could do to improve their investment appraisal approach and I gave quite wishy washy answers on how they hadn’t considered new inflation rates and are likely to be outdate, that they shouldn’t just be considering the payback period and that they may want to consider other methods such as IRR, RI, or ROCE.

Please let me know if you disagree with my answers. It would be nice to know where I’m at. I got an awful section B foreign payments question which I pretty much just guessed!

I was diagnosed with tendinitis is my writing arm on Monday and sat two exams. I’ll be so happy if I pass them given my amount of effort ?

Section C DVM vs CAPM: I said how dvm considered growth and dividend and CAPM considered systematic and unsystematic risk, portfolio diversification, beta risk. Think the business in question went from one to to another, music player so CAPM was more relevant for specific cost rather then cost of capital.

Islamic finance I wrote ljara (lease) that benefits eg no initial cost, repair cost to lease etc. And musharak, sure I spelt this wrong but explained venture capitalist and how they help with finance and received percentage of profit.

Was payback not first converting profit into cf by dividing the depreciation each year and then doing cum cf? I got something like 3 year 8 month or 9 months. I was confused if I had to divide the .88 by 12 months to get the months.

Project should be accepted from npv point and reject from payback point as over 2 year target but npv superior.

They could improve their investment descion by using other investment appraisal methods irr, intergrating risk and uncertainty eg sentativity analysis. I also got the inflation rate out of date as historic average.

The Npv question I didn’t understand the residual value was not discounted by 5% what did this mean? I put the tax and depreciation but one year in arrears. I inflated up the cf from year 1, should it have been year 2? Used money cost of capital.

Section a and b was really hard so just guessed most of them. Hope to achieve a few good marks section C and section a and b to just bump be to 50!

[ajaved5]

What’s the answer to the question about realying on internal control reports from last year?

[ajaved5]

@dipatil said:
I dont think that the hourly paid was the correct one in the notes is mentioned that directos need to have sufficient time for the company i picked the option that said that they will get money according to their perfomenace and the long term succes of the company or sth like that I dont remember the wording exactly

If it relates to performance then they have a self interest threat. So, they need to be paid for the hours they put in eg hours. I’m sure a very similar question come up in a previous exam.

[ajaved5]

Thank you for your quick response.

I was just confused over the wording of deficiency and then them explaining control objective but thanks any way.

Sorry I meant CARCAP as in comparison, authorisation, reconciliation, computer controls, arithmetic, physical controls – are these used for control procedures.

Okay it’s just IEOU for TOC.

Thanks

[ajaved5]

Yes that is the question. Okay this is basically working out per day rather then per year.

Thank you for your help John.

Regards

AJ

[ajaved5]

The company in the question is called Corrie. Revision kit up to 2015

[ajaved5]

Does the pup or inter trading affect liability?

[ajaved5]

Makes sense.

Thanks

AJ

[ajaved5]

Thanks for your swift reply.

In general, questions talking about arrears and advance payments does arrears mean accruals and advance payments prepays? Or do we just take it as the literal meaning of arrears paying late and advance payment paying before due?

Just really struggling with the chapter.

AJ

[ajaved5]

Thanks Salah Uddin. I did finally working it out after posting here. I was getting confused with the months and the tax year and was just working from start of January which is wrong. I think you are correct that making a time line would be really helpful.

Thanks

AJ

[ajaved5]

Thanks for the answer John. I did notice that I spelt ration is the last sentence of the first paragraph so I edited it but didn’t realise about the others.

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