[drey7000]

@michelmichel said:
54 at my forth attempt!!!
I am so happy to be through with this paper, yet it was probably the most interesting one for me after P2.
Guys, do not believe those who speak about perseverance, the key thing is to finally understand the examiner’s requirements and expectations.

65 on my first attempt. Yeah, exam technique will definitely take you a long way, but I also suspect that the level of English used significantly contributes to one passing or failing.

If the examiner struggles to understand the message the student is trying to convey, or he perceives that it lacks a level of professionalism (slang language, illegible handwriting, no argument structure, and even poor grammar or spelling), then the student will have a much tougher time passing. Furthermore, I’d say always attempt every question and every single mark and never go over the stipulated time. If you run out of time, move to the next question and then go back to it if you finish early.

[drey7000]

I did the report for question one something like this:

For proposal one, ungear equity beta with current capital structure to get about 0.85 I think. Then use the asset beta in proportion to the assets that were sold for the manufacturing division by using simultaneous equations. MV of debt was about 105, discounting at credit rating plus risk free rate. Anyway, under this proposal, the wacc was higher cause of the higher weighting of equity.

Proposal 2 increased debt and assets and the overall income. Wacc was lower, and CoE was calculated simply by using the equity beta given of 1.21. Cost of debt was 6.2% tax adjusted (same as proposal 1), and we had to find MV by discounting at risk free rate plus the rating given which gave a MV of debt to be 100.01, so rounded to 100. I believe wacc came to around 9%.

I recommended to either staying as is or choosing proposal 2 if their intention was to take on more projects, although prop 2 increased gearing to 49%.

I think I went on to screw up part a and b considerably. They weren’t hard, I just wasn’t expecting them and they threw me off. For part a I explained the relationship of volatility of cash flows inherent to a business and the increased risk of defaulting from financial risk, but it was all rubbish I made up, doubt it’s worth 2 marks.

[drey7000]

Ridiculous paper. Time pressured and so boring. The exam and the subject has such great potential to be interesting, yet somehow the examiner utterly ruins it with the style of the questions.

In question 1, did we really need to know about the owner settling into his seat as the plane flew over the mountains? What utter rubbish, it’s like the examiner started writing a bad a novel and halfway through realised its supposed to be an exam paper.

Really unimpressed with this paper and this subject. I do not feel I did well, and I don’t think it should be this difficult, as in reality it adds very little real world value to an accountant. It’s not like business people think “oh, a stakeholder, I should consult mendelows matrix to ensure I am effectively dealing with them”. What a joke, these things are common sense which an accountant is supposed to have, we shouldn’t need to learn stupid models and matrixes for them.

[drey7000]

Got a 67%, a bit annoyed as I was hoping for a mark higher than 75 considering how hard I studied and it has been my favourite one so far. I panicked too much in the exam, that’s for sure. Oh well, at least it’s done and I move onto the Ps. Well done to everyone who passed, and those who didn’t, don’t lose hope!

[drey7000]

@alexanderrobert1989 said:
Lead payment is at the spot rate then you apply interest to it because you are assuming you need to borrow it. Every past exam I have looked at that is the way to do it.

Usually and in the exam it was the most expensive option I think?

But with that logic, wouldn’t you apply interest from the borrowing rates on the forward contract too? What you said sounds right, don’t get me wrong. I’ve just never encountered a question asking for a lead payment, and it seems to me that if you don’t apply borrowing interest rates to it. Usually you pay interest over a period of time, and leading implies you pay right now, so no time has elapsed, so how can you calculate interest if you don’t know when you’re actually paying back the bank? Essentially what you’re saying is hedging without depositing it into a foreign account, right?

[drey7000]

@irhammohammed said:
heard paper was very easy

Clearly you haven’t done the paper yourself.

Don’t you think that what you said is pointless in terms of contribution? You really should have some respect for the fellow people who have actually done this exam, as opposed to making condescending comments.

[drey7000]

Q1a. Gearing calculation. 4 marks. This one took me particularly long to work out, somehow I got a bit confused. I believe is was 38.5% D:E.
Q1b. Discussion on previous question. 6 marks. I calculated interest cover would have gone down (4.6 times if I remember correctly), and gearing would have gone up to about 58% I think. Spoke about how they should consider using equity finance and that the competitors are probably using more short term debt as their interest cover is high comparison to their level of debt.

Q2a. Forex. 5 marks. Hedging most expensive, forward 2nd most, and leading (500,000 pesos x spot rate) cheapest.
Q2b. Pros and cons of futures. 5 marks. I basically said they’re forwards which can be traded and discussed the pros and cons.

Q3a. Receivables management. 6 marks. Really kicking myself on this one for forgetting to include the increase in profit, so I got a negative figure.
Q3b. Foreign receivables management discussion. 4 marks. I mentioned that the main risk is bad debts, and ways of countering was export factoring and export insurance and some discussion on those. Didn’t mention transaction risk though, didn’t seem relevant.

Q4a. NPV. 10 marks. I forgot to inflate the working capital. I inflated selling price, variable and fixed cost. Some are saying FC shouldn’t be inflated but I’m quite sure every past question inflated FC. Discounted using 11%, came to something like 1122 positive I believe. I’m also not entirely sure what the examiner meant by calculate in nominal terms, never came across an NPV question worded that way.
Q4b. Capital rationing. 5 marks. I discussed hard cap, i.e. economy wide and company specific; and soft cap, internally imposed such as budgets etc.

Q5a. WACC. 10 marks. Also kicking myself for this one. I forgot to calculate the WACC before. I think it came to around 11%. Interest on bank loan had to be tax adjusted, the loan notes had to have their IRR found, the new loan notes (bond?) had the cost of debt and market value already given. And of course equity, the number of shares was 12m/0.50 x 3.45 I think, definitely excluding reserves cause its market value.
Q5b. Dividend policy. 5 marks. I think I messed this one up as I spoke about the dividend valuation model and the limitations of the figures involved in it. I didn’t even mention M&M, but I think I put something in regarding the signalling effect. From what everyone else said, I think I went off point.

As for MCQs, I know I got a lot of As in the beginning and q15 and q20 both had me stuck for some time. In fact, I couldn’t arrive to any of the answers for no. 15 and 20, they drove me mad. The MCQs seemed OK, but I had a habit of feeling like I did OK in them and messing up big time. Quite concerned about this one.

[drey7000]

@yazanasad said:
Hi guys,

Can i just check on how you did ABC?

Did you guys just apportion the costs to the numbers given i.e., 1/2.5 1.5/2.5 for first cost pool 24/48 etc for second cost pool and 1/5 and 4/5 for the meal costs?

Or was there something more to it?

Thanks

You had to multiply the meals, appointments, etc by the number of procedures, add them together (A and B) then divide by the total cost for the cost pool. That way you get the cost/driver.

After that you work out the over head costs by multiplying the $/hour, example the one of meals I believe was 1 meal for A and 4 or 5 meals for B.

For procedure A, my ABC came to slightly less. And for procedure B, slightly more expensive, about $100-200

[drey7000]

Link please? Can’t seem to find it anywhere!

[drey7000]

Well again, our product is new to the market. The other product which was researched was not, so perhaps it may have been a better indicator of the future elasticity.

Nika, don’t worry too much about it, in such answers you are marked for relevant points. If you gave your reasons a good argument, then you should still get marks. The way I interpreted the question is this: show the examiner that you know what market skimming is and then give your reasons why you think it would be bad or good for this situation

[drey7000]

Nika, I believe the price elasticity research was done on a SIMILAR product, not the same one.

Since the product itself is innovative then there’s a chance that the price is not elastic, therefore, market skimming can be used during the early stages of the product life cycle.

That is what I said anyway, and of course the more obvious things like covering the heavy advertising expenses that go with market skimming, the research & development costs and trying to break-even as quickly as possible.

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