[Danijela]

Yes I understand it is not relevant for the F9 exam, but it is for the real business application. I apologize, I was of the opinion that questions can be fwd and for real business application.
As a banker, when evaluating/comparing investments which we finance through LT loans, I should discount my CF’s from these projects (in order to see where is the best possible return for us), and I assume that this means (from my point of view) to discount my income realised from that particular project (meaning interest) and principle that I invest and which should be later repaid through installments….
And my (bank’s) WACC in that project in fact represents WA of bank’s cost of equity and cost of debt used for obtaining funds for this financing (my cost of debt is not related to the “interest rate” which I’m charging to a client)…
But then, to calculate the appropriate WACC of the bank is quite hard…
I do apologize if I’m writing to a wrong adress

[Danijela]

Dear John!
If bank finances a start-up real estate project through long term loan at 4% interest rate, and this loan should be repaid through e.g. 15 years amortisation from long-term lease of this RE, while calculating the NPV of the project from the bank’s point of view (how much would the bank earn from this loan), discounting should be performed for both principal and interest payments through years, or just principal? I’m of the opinion that here we are talking about the valuation of securities…

And additonal question, what should the bank use for discount rate? WACC of the bank at the time the loan is being contracted (since loan disbursement should last for 1,5 year), since the bank funds itself from debt and equity….

In case that we are calculating the NPV of the project itself, we should exclude the interest payment from discounting, and for WACC use interest rate of the bank and cost of equity of the Investor…

Thank you very much in advance!
Danijela

[Danijela]

Thank you very much for your quick answer!! 🙂
I was afraid that I’ve lost the “logic” in calculation technique :).

It is the mock exam 1 from the BPP revision kit valid up to June 2015.

Once again, thank you very much!!

Best regards!

[Danijela]

Dear Sir,

could you please help with the following Q19 from the mock exam (revision kit):

The US$/European € spot rate is quoted currently at 1.9612 – 1.9618 $/€. The 3 month forward rate is quoted at $0.0012 – 0.0006 premium in Europe. A US company is expecting to receive € 2.5 million in 3 months time and would like to hedge this using a forward contract.
What will be the US$ receipt in 3months time?
A) $1,274,730
B) $ 1,273,950
C) $ 1,270,123
D) $ 1,275,510

According to the answers form kit, the correct answer is under D).
However, I cannot get this number, my results is $ 4.903.000 (because I have multipyed EUR 2.5M with the fwd rate 1,9612, but in the answers EUR 2.5M was diveded by this rate).

Please if you can help.

[Danijela]

thank you very much! just to be sure, in case of taking total expenses, I should deduct interest expenses and other extraordinary expenses, i.e. I should only take opex…

[Danijela]

Dear John,

if you could please help me with the calculation of trade payables days in case of a shopping mall. I’m not sure what to use as a denominator (as the mall does not have COS; their business is lease of premises to tenants, and only purchases refer mostly to utilities and services (like facility management, insurance, marketing etc.).
If I’m not wrong, I should use a Cr turnover of the payables accounts?

Thank you very much in advance!
Kind regards,
Danijela

[Danijela]

54% thank you Open tuition!

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