[dennissherpa101]

If a question states you are dealing with the purchase of a building, rather than the construction of a building then no SBA will be available unless the question explicitly states that it is able to be claimed. ( can you explain what this means I have copied this from the notes)

[dennissherpa101]

What I mean is what if we have 8k sales proceeds and 3k cost does for plant and machinery which is unusual then is the gain limited by 5/3(sales-6000)? or is it just normal gain calcualtion and also cost is 8k and sales is 3 k is the loss amount also limited.

[dennissherpa101]

Thank you sir, I did go through the lecture videos

[dennissherpa101]

Sir I have copy paste this line from acca technical article from their website. and I have gone through all the lectures .:)

[dennissherpa101]

sir one the reason was also interest rates. How can interest rate influence demand for exchange rate?

[dennissherpa101]

majority share holder have control over the dividend so they could get wrong valuation. and sir what does control have to do with choosing dividend or earnings for valuation?

[dennissherpa101]

Sir this is one of the point mentioned in the kaplan book but I just can’t seem to figure out why.

[dennissherpa101]

1) So SME cannot raise finance via issue of shares and placing since they don’t meet the criteria required to be quoted.
2) large unquoted companies could get quoted via placing or isssue of shares on the primary market. if they meet the criteria to be quoted. is this true sir my points

[dennissherpa101]

and also are unquoted companies and SME referring to the same thing ?

[dennissherpa101]

Sir is it not per exisiting share so why multiply by 2?

[dennissherpa101]

Sir so a small company can get quoted via placing?

[dennissherpa101]

so if it was 3 for 5 then we would multiply by 3 right sir?

[dennissherpa101]

Sir I have seen the lecture suppose today’s spot rate is Rs/$ 100 we are importing $1000 worth of Goods the risk is our currency value might decrease so we are having to end up paying more. sir the forward rate quoted would be more than the spot rate. say Rs/$102 in this rate I would still pay more than if I had exchanged today. So my question is the risk that the our currency will decrease in value more than the forward rate and we will loose way more?

[dennissherpa101]

Sir can I say economic risk is that risk due to economic condition of the country we are dealing with.

[dennissherpa101]

So sir one of the assumption for wacc was no change in risk(of the project or has the same level of risk as the company) however now since we are able to calculate effectively calculate return required for the change risk does this assumption still stand?(capm model)

[dennissherpa101]

but Sir doesn’t the gearing should be in relation to project and not the company who is planing to under take the project. and even if X mantained the same level of gearing wouldn’t it imply that they have also raised debt finance and capm woud not not measure cost of equity if debt finance is also used for the project

[dennissherpa101]

Sir for the example (from the lecture) why do we assume that the gearing of the project will be as same as company even if the project has different gearing wouldn’t we still be able to calculate the cost of equity? This is what I mean.
Example 2
X plc is an oil company with a gearing ratio (debt to equity) of 0.4. Shares in X plc have a à of 1.48.
They are considering investing in a new operation to build ships, and have found a quoted shipbuilding company – Y plc. Y plc has a gearing ratio (debt to equity) of 0.2, and shares in Y plc have a à of 1.8.
The market return is 18% and the risk free rate is 8%. Corporation tax is 25%
Calculate the project specific cost of equity.

[dennissherpa101]

Sir so cap m measure rate of required by investor( cost of equity) with gearing(of the project) they would want a higher rate which we would calculate using the complicated looking formula. and that cost of equity would form a part of wacc calculation. is this correct?

when can using cost of equity(capn) used as discount rate. if no other sources finance is raised?

[dennissherpa101]

It says the finance is not project specific.
sir can you also explain this line it is therefore not the marginal cost of the additional finance but the overall average cost of all finance raised that is required for project appraisal.

[dennissherpa101]

sir should we not just consider the marginal extra cost. example the share holder would want 3% extra so should we just not consider the 3% extra?
If at the beginning they raised equity and the share holders required 20%that would be the cost but is now they raise debt @6% why do we take the whole 20% and not the extra cost that arised from taking in debt?

[dennissherpa101]

can you kindly make this clear to me sir

[dennissherpa101]

But if longer operating cycle sir inventory is higher receivables is higher and working capital is higher and if working capital is higher liquidity is also higher. I am having this confusion for quite some time now sir I dont quite get where I am getting wrong.

[dennissherpa101]

if the operating cycle is longer does this mean that liquidity is high even though cash is commming late?

[dennissherpa101]

Sir can we have not used wacc/ cost of capital since both of them would be discounted at the same rate and would would still be cheaper than the other. My text book say it is done reflecting the risk level to the lender providing finance to the company but I do understand what this means

[dennissherpa101]

okay sir so what would be the reason that we use after tax cost of debt in lease vs buy but cost of capital in replacement descion? and also financing does not always mean raising money?

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