[Andrew]

Trishee, all of the practice Q’s I did ignored Fixed Costs if they were not relevant to the project. The Q said “Nominal Fixed Costs”, which meant they existed already because of the existing factory. The question would have stated “incremental” fixed costs they were to be included but I may be wrong. They always seem to throw a red-herring in an NPV question as a lot of the question is straight forward number crunching.

[Andrew]

Also used the 4% treasury bill as there didn’t seem any other option. For the CAPM, they gave us the risk premium which is equal to (Rm – Rf) in the formula Ke = Rf + (Rm – Rf).

Did anyone else get confused with the tax allowance in the NPV? It stated “can be assumed to be received in the year it is allowable” – but the Q also stated tax paid in arrears. I was taught to always align the payable/ allowable, so included all tax in Year 2 to Year 5?

[Andrew]

The Fixed costs in the NPV didn’t apply has they already existed independently, i.e. not incremental as the existing factory incurred them. Did anyone agree with this approach?

Tax was stated paid in arrears, so T2? Think my answer was $1.2m.

Paper was :

15 random MCQ’s
5 MCQ’s on Risk Management (Money Market Hedge, Forward Contract, Fisher etc.)
5 MCQ’s (memory blank!)
5 MCQ’s (memory blank!)

20 mark NPV, which included written based on incorporating risk into appraisal and difference between business and finance risk.

20 mark WACC, which included written on hard/soft capital rationing,

[Andrew]

@laura4789 said:
My MCQ’s were:
C
C
A
D
B
C
C
D
C
C
A
A
D
A
B
Not sure if they are correct. Would like to compare if anyone remembers there’s.
Thanks

Looks familiar. I remember a lot of C’s and not too many A’s.

[Author]

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