[BrianH]

For question 2 or 3 I think, the one where they asked if you should sell the equity, was there any point in calculating ratios when we weren’t given the industry averages for said ratios??

The Only info I really concentrated on & commented on was how we performed against the industry averages being given; EPS, DPS and Share price I think.

I also commented on our Be versus the industry average…& on how much wealth the shares were providing (div per share + cap gain)

Also we weren’t given PE average so probably no point in calculating for our company as there was nothing to compare it to?

Or maybe I am incorrect, not sure!!

[BrianH]

Ah yes of course, thanks

[BrianH]

many thanks Sir

[BrianH]

Great , thanks as always

[BrianH]

Great thanks

[BrianH]

If we are asked to explain how a delta hedge could be used to eliminate risk, & we are give info that would allow is to calculate a call and a put option, which should we use??

Thanks

[BrianH]

Actually I think i understand, is it because the managers don’t actually own the shares yet so they will only benefit from the capital gains in the share price during the vesting period, not the div income, so we remove the div from the Pa??

[BrianH]

Thanks sir, I await your response on the second part, I know you are extremely busy at the minute!

[BrianH]

Same question…when calculating the effect of the 1% reduction in the returns generated by the pools, I would have thought that we reduce the 10.5% by 1%, not reduce the value of $200m by 1%??

[BrianH]

Thanks

[BrianH]

Bpp book, ok thanks anyway 🙂

[BrianH]

much obliged

[BrianH]

Great, thanks!

[BrianH]

But for the Laceto question, the post acquisition gearing split 18/82 or 23/77 was used,for discounting the cash flows of the company about to be taken over, Omnigen

But it has just occurred that me that was maybe this was done as these were projected future cash flows that were being discounted, as opposed to past flows in the fodder question?

[BrianH]

Thanks sir – but in the pursuit question, when valuing fodder, the WACC (13%) is based on a gearing split of 90/10 e/d which is the gearing split of fodder (company being acquired) pre acquisition??

[BrianH]

In the same question, again looking at the wacc to discount omnigens cash flows at, bpp use the Laceto post acquisition gearing split of 18%-23%, to value omnigen.

When comparing this with a previous question, Pursuit 6/11, bpp used the debt cost and gearing of the company being acquired (Fodder) when calculating the WACC for valuing Fodder’s cash flows.

In both questions, the post acquisition gearing split was different from the target company’s gearing split, but in one solution the target’s gearing and cost of debt is used for valuing the target and the other uses the post acquisition split.

Sorry for the long explanation, but I wanted to make it as clear as I could.

Thanks a lot

[BrianH]

Thanks, I think I’ll stick with the formula sheet method!

[BrianH]

Thanks a lot sir

[BrianH]

Thanks so much

[BrianH]

Thanks 🙂

[BrianH]

In the same question, part c, I was a bit confused over why we wouldn’t discount the option escerxise price to PV, since we discount the Pa, the asst value?

Thanks

[BrianH]

Also, should the repairs of 1.2m not be multiplied by (1.025)^5 to factor in inflation, as again, we are given the cost in CURRENT PRICES?

[BrianH]

Same question, for financ resource f, the floating rate 6 yr loan, the cost if calculated as L+3 * (1-t)….no IRR calc done??

…is the IRR calculation not need here because the loan is floating whereas the loan in option b) is fixed??

[BrianH]

So would we include this negative cash flow (full depreciation amount) after we have already calculated the tax on operating flow?

[BrianH]

Thanks 🙂

[Author]

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