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What did you guys get for 2 additional performance measures in q1?
There was an info on number of potential customers, I realized it is of significance, however wasn’t sure how to incorporate it into a sensible measure and just mentioned that company needs to monitor closely the number of potential customers and conversion rate on sales contracts.
Development costs also seemed significant to me as company strives for high quality and innovation, but again, didn’t know how to incorporate it into a sensible measure, just calculated dev. Costs to sales ratio, suggesting that Boltzman spends more on innovation and therefore future success. ??Right to the point, roro! This seems to be what examiner is looking for. On previous sitting I tried to bring as much knowledge and theory as I could, I though I did well, but missed the pass by 4 marks. This time I’ll focus on making concise and straightforward points based on logic and common-sense. I’ll avoid delving in to much theory or calculations this time. i’ll let you know how it went.
Good luck
Roro, I thought of calculating EVA for subsidiaries too, however realized there is no capital employed figure for each subsidiary. So I think it was not required. However, I mentioned in comments and in conclusion of the report that calculating EVA for subs. would be a very good idea.
Abdullahmv thanks for the details.
Meaning WACC is:Equity: 15% x 100/130 = 11.54%
Debt: 6.5% x 0.75=4.875% x 30/130 = 1.125%
wacc: 12.665%Looks like your WACC of 12.59 is closer then mine of 13 something:-)
Good luck anyway.Abdullahmv, my WACC was 13 something %, I also weighted equity by 100/130 and debt by 30/130, but I think cost of debt was given pre-tax, therefore cost of debt for WACC was kd x (1-T).
Can you remember whether cost of debt was pre-tax?
I do remember precisely though, 30% gearing was debt to equity.I did q2 and q4. Is it only me or has anyone noticed how similar the scenarios were: both have a cost-leadership strategy, both have long-serving employees, both CEO’s are looking for introducing changes (one BPR, another Beyond Budgeting)?
At times I had to make an effort to make sure I am not writing the same thing in both answers.jibnaylor25, exactly. I had tough time figuring out the marketing expenditure. I ended up adding half of 7m to profits and half of 7m x 15 years to capital employed. The question said that this amount for marketing has been expensed since the company started? As far as EVA calculations are concerned, this kind of expenditure should be capitalised. But then I have got an enormous capital employed figure which then resulted in negative EVA.
I also provided another calculation as if without capitalising marketing expenditure resulting in positive EVA and mentioned in assumptions about the absence of amortisation rate and insufficient details for accurate calculations of EVA.
I’ll look forward to see the answers.It did say that no analysis of the current performance required. Instead I wrote about the deficiencies in current report format i.e. no historical data, only current vs budget, only few benchmarking (to industry aver.), no non-financial data, overloaded with financial data, to ties to the mission statement and strategy like through CSF etc
I have too got a negative APV in Q2. The NPV (disc. at all equity rate) I’ve got -4.9m, tax shield was +1.4m, subsidy +1.7m, issue costs -700k.
Thank you Sir, the revision notes are really good and concise.
I do still struggle understanding q4 part c in Jun2012 paper. The answer arrives to a 5 year VAR by multiplying the annual VAR by 5^1/2. Why not simply multiply by 5?
Appreciate your time and help.
I, personally, don’t think that capital needs adjustment for depreciation. It would be very complex and unrealistic for exams to substitute the amount of accumulated depreciation with the economic depreciation equivalent. You would have to know the PV of cash flows from your PPE items, and what if there is more then one item? I recon the lecturer mentioned that no way we are going to estimate Economic Depreciation in the exams. If we are given the figure we apply it to profits, because it relates to one year only.
Hi deepmaharaj,
As far as I understand, Accounting Depreciation has to be substituted with Economic Depreciation. Where we are given Economic Depreciation, we therefore add back Accounting Depreciation to profits and deduct Economic Depreciation from profits i.e. make a substitute.
For example: Profit: 50; Acc. Dep.: 20; Econ.Dep.: 15;
adjusted profit will be: 50+20-15=55 because Econ. Dep. is here lower then Acc. Dep. and is therefore considered to be a better reflection of actual cash flow.Yes, I think, we had to add sub’s fair values for working capital calculations because Angel’s opening balances had to be restated for this purpose. Closing balances should have already contained sub’s inventory, rec-bls and pay-ples.
However I still can’t figure it out what adjustment had to be done to renovation and GG?The goodwill answer should be before impairment, since they want g/w on acq. I think I got 8 and pointed this out in my answer, and then separately showed impairment. Otherwise I can’t think why else they were giving us the impairment amount.
Not sure if Q 5 was as easy as everyone says. Did you amortize the gov. grant?I have deducted contingent liability from S na in g/w calculation ( I assume it was found out by the parent company on acquisition and not yet included in S’s records)
Q2 I put loss from investment of 1300 in a separate line…The deferred consideration doesn’t require time apportionment as far as I understand cause it it is used in g/w calculation at date of acquisition and it comes due in one full year (31Dec12) anyway… But the discounted difference goes into finance costs ( time apportioned). – prove me if I’m wrong.
Q2 sales had to be reduced by 2 years worth of service grossed up ( 600 x 2 x 100/75). I know it now cause I got it wrong there – I deducted 3 years…Has anyone noticed an associate in Q1? What did you do with the dividend from the associate?
Cash payment of 1.76 per acquired share was a deferred consideration, which must have been discounted to npv by the cost of capital, I think 10percent.
9000shares x 1.76 / 1.1