[dazhong0703]

Dear tutor, I worry a bit that I left 10 marks not answered due to time constraint, can still to pass or not, or is it normal cannot finish all?
Thank you.

[dazhong0703]

Before the exam i did not have a good sleep, and i did not drink enough water. I feel i performed a bit slow, and left 10 marks not anawered, but still can hope to pass.

[dazhong0703]

Thank you so much for your kind help!

[dazhong0703]

https://opentuition.com/groups/ask-the-tutor-acca-p4-exams/forum/topic/eurozone-debt-crisis/

[dazhong0703]

“(b) Relationship between EVA and net present value (NPV)
If the EVAs for each year of an investment were summed over the entire life of the investment and then discounted, the result, in theory, should equal the NPV of the investment.”

For investment appraisal, when all PV each year NCF summed over the entire life of the investment, we get NPV. So what is the difference bewteen EVA and PV, pls?

[dazhong0703]

What does ““kicking the can down the road”, pls?
Thank you.

[dazhong0703]

Which is better in resolving finacial crisis, monetary policy or fiscal policy, and why?

Any difference bewteen financial crisis and debt crisis, pls?

Thank you.

[dazhong0703]

Sir, kindly explain the relationship between liquidity risk and solvency risk.
Thank you.

[dazhong0703]

Sir, pls explain the relationship between austerity, devaluation and stagnation.
Thank you.

[dazhong0703]

“Demerger or sell off can remove ‘co-insurance benefits from debtholders. “
What does this mean, pls?

[dazhong0703]

I am not answering you, but I want to express my opinion.
In this word, both production sector and banking sector are making profit, otherwise they do not exist. And their profit margin after risk adjustment should be roughly the same, otherwise the investors will shift their capital from one sector to another. Inflation represents the profit margin for production sector, and interest represents the profit margin for banking sector.
That is why future exchange rate can be predicted by both PPPT and IRPT.
John sir, pls correct me or add more valuable advice.
Thank you.

[dazhong0703]

I am mentally tired these days. Pls ask the tutor.
https://opentuition.com/groups/ask-the-tutor-acca-P4-exams/forum/

[dazhong0703]

Since debt has a credit spread, why did MM assume debt risk free? When degear/regear, we also assume debt risk free? The cause of debt crisis is interest too high!
Thank you.

[dazhong0703]

Will international trade, eg WTO, be important?

[dazhong0703]

[P&L]
Turnover 546
COGS (369)
Depn (52)
Adv (10)
Net int (26)
= PBT 89
Tax (27)
= PAT 62

Which method is correct to get adjusted profit for EVA, pls?

Method 1:
Turnover 546
COGS (369)
Depn (52)
= PBT 125
Tax30% (37.5)
= NOPAT 87.5

Method 2:
PAT 62
+Adv 10
+Int 18.2 <- 26x0.7
= NOPAT 90.2

Why different result, pls? Thank you.

[dazhong0703]

To simply I assumed no inventory, eg shipping company.
But I understand now, previously I assumed all sales are converted to cash, however some are credit sales, so incremental of working capital just ‘reversed’ those part of sales because they are not converted to cash yet.

[dazhong0703]

Because the day before yesterday, I saw a question when calculating WACC, the ans straight away uses Kd = Rd + (Rm-Rf) x Bd, never multiply (1-t);
Then yesterday I saw another question the ans given for Kd(post tax) is as above.
I see from GTG revision card, Kd = (Rd + spread)(1-t), so I think it was my former lecturer’s mistake by not multiplying (1-t).

[dazhong0703]

Securitization last sitting just came out, will be tested again this sitting?

[dazhong0703]

Again I have seen two views, today I did a question: Kd(post tax) = (Rf + spread) x 0.7
[Tax rate = 0.3]

[dazhong0703]

Besides, Kd = yield to maturity -> a weighted average of term structure of int rates (or Kd includes: Rf, credit spread, and term/period)
Previously, we learned that Kd = IRR, but IRR seems to be fixed. Does this confict with ‘yield curve’ theory, pls?

[dazhong0703]

I still don’t understand below statements, kindly elaborate more for: 1) who will suffer if debt issued at a premium, and 2) why debt will not be fully taken up and issued at discount if credit spread set too low. It looks like bank should bear the discount loss since the firm pays the issue cost. And it looks like to sign underwriting agreement is compusory since the firm does not specialise in finance than the bank, but the firm should protect itself to ensure debt fully subscribed. Thank you.

“(a) Advise on the coupon rate that should be applied to the new debt issue to ensure that it is fully subscribed.
(4 marks)

(a) The coupon rate on the new debt
The coupon rate should be the same as the yield for four-year debt at 6%. If the firm’s bankers have overestimated the credit risk and set the spread too high, then a coupon of 6% will result in the debt being issued at a premium in the market. If they have set it too low then the debt will not be fully taken up and the underwriters will have to issue it at a discount. The investment banks suggest that at a yield and hence a coupon of 6% that this would guarantee that the issue would be taken up by their institutional clients. On this basis the firm may wish to ask for an underwriting agreement to that effect although there would inevitably be a charge for this.”

[dazhong0703]

Why does the tax authority in UK allow less company profit, and therefore less tax revenue, pls? They should say something like “You cannot shift your profit to overseas, but should follow FRS / tax rules – charging price at market value.”

[dazhong0703]

Assuming no GST.

Suppose sales are 100 and costs are 30 – profit 70.

If there is inflation at 10%, the sales become 110 and costs become 33 – profit 77.

Profit increases 7 (or 10%) -> cash inflow

Working cap increases 7 (or 10%) -> cash outflow

So the net cash flow incremental is 0, isn’t it?

[dazhong0703]

What I mean is when I check past paper suggested ans for testing sensitivity or simulation, they always put in ‘other factors’ as one point. I just want to reproduce, but firstly I must understand what sensitivity or simulation analysis can improve. Especially for simulation, what probability, distribution, random variables, etc. very hard to understand. Could you elaborate some more within one or two paragraghs, pls? Thank you.

E.g.
Other factors
(i) Sandro Hotel inc should consider the accuracy of the cash flow projections, sales, costs, tax rate the realisable value of the asset. Sensitivity analysis or simulation analysis might be used to investigate the effect of changes in key cash flows.
(ii) The discount rate used was calculated on the assumption that Angus business risk will be the same as the business risk that Sandro will face in the theme park sector. This might not necessary be true.
(iii) No consideration is taken of the cash flows beyond the company’s four year planning horizon.
……

[dazhong0703]

If using Kd = Rf + (Rm-Rf) x Bd, there is no need to multiply (1-t) for Kd, isn’t it? Thanks.

[Author]

Posts