[Elena]

Could anybody tell me how should we take into account interest on debt in APV, Q1:

Is it to be deducted out of operating profit in the base case NPV (and discounted by all-equity rate)? How then the tax rate could be applied to the profit AFTER interest?

Or is it to be included in “other costs” (and discounted by the free-rate)?

What is the rule and the logic of it?

[Elena]

Could smb tell if where will be available all answers on the paper and when?

[Elena]

The part 1 was really a disaster. I”m not a native english speaker so it took lots of time just to understand what is the meaning of the questions! They were unusual and strange, as for me. Now I”m trying to remember at least one of the questions from part1 and I can”t((

That is my last paper in the fundamentals level and only a miracle will help me to pass)
Sorry for offtop)

From the part2: one of the latest question

“The profit before tax is about 2.3 mln. The development of a new product was capitalised at a sum of 0.5 mln. The criterea for capitalization was not met. The CFO refuses to make adjustment because thinks the error is not material. How this situation will affect the audit report?”

I answered, that the error is material and it is pervasive (the PPE is overstated, the expenses are underestimated and the profit is overestimated). So the adverse opinion should be issued.
What do you think?

[Elena]

@jmmyjimmy said:
thanks, my reply was shares as well.

i remember section b question about money market vs forward. i had answer around USD 3k…

there was also the question about investors, who behave rationally regarding the news on the company. does anyone remember given options?

Yes, about 3.177 smth like this.
I chose “the prices will NOT react on the announcements”
(I suppose for the semi-strong market the prices WILL react, and the aim was to choose the incorrect answer; other options I do not remember unfortunately)

[Elena]

@kanchandhankar said:
I read on open tuitions in a reply by John Moffat .
when we are calculating Wacc on mv , mv of equity effectively already includes the reserves

Yes, I suppose you are right, it is very logically !
Was my mistake.

[Elena]

@kanchandhankar said:

I chose the same (ordinary shares as the most risky).

[Elena]

@kanchandhankar said:
I remember doing same way

Why did you use 9% ?
We should calculate the increase rate for dividend:
today’ dividend = 0.20, 5 years ago dividend = 0.17.
rate approximately = 4.1% (0.17 * 1.041^5 = 0.20)

Am I not right ?

[Elena]

@kanchandhankar said:
One Mcq was about working capital element
1. I chose sales wasn’t working capital element.
2. Other Mcq about calculating cash cycle .
3. There was one with redeemable preference share part of equity ?
4. In q 31 with Wacc reserve to be included or not .?
I didn’t .

1. agree
2. inventory + receivables – payables.
3. I put “NO” because logically it is exactly the same as debt.
4. I added reserves to equity, i.e. included.

[Elena]

@aagshin said:
The same question is also interesting for me. i calculated for 10 years. There wasnt enough space in my answer blank for 10 years but I did it))))
Dont know right or not)) Was it suppose to be for 4 years??

There is no need to use 10 years. The depreciation is linear,
so NPV of tax benefit = 50mln / 10years * 25% * annuity@10years.

[Elena]

@aagshin said:
Wasnt it closing receivable?? I choosed closing/sales*365=57. with average receivables it made 72 I think. I choosed 57. Am i right?? if not, why?

I suppose it should be the average receivables. It’s more logic, the closing balance we take when we don’t have the information about the average.

[Elena]

does anyone remember the answer for the ROCE:
smth like “company should not undertake the projects with ROCE less then the average of the company” ?

[Elena]

@limweikiat said:
Hey guys, what’s the answer for the commercial paper question?
It was something like: 40 days, 365 days a year, $10000 $9967

as I remember there was 45 days, 9938 and 360 days, so:
10000-9938=62
62/9938=0.624% for 45 days
360/45=8
1.00624^8=5.1%
(the figure may be a little different but the calculation was like this)

[Elena]

Agree with the “customers will buy cheaper abroad” and 2.4 years for the payback.

What was the answer about the risk for purchases abroad (economic / transaction / translation)? I chose “economic+transaction”.

[Elena]

Much more easier then the previous one. The previous was really inadequate and I’m glad that the ACCA administration has made improvements in the last version.

[Elena]

About shadow price just remember how to calculate it:

1. we know the contribution if we have the initial quantity of the resource;
2. we calculate the contribution if we have the initial quantity of the resource + 1 unit (nothing else changes, i.e. the price of the additional unit stays the same, it is not free of charge).
3. substracting 1 from 2 gives the “shadow price”.

So the real price to pay for the additional units = its initial cost + shadow price, and the answer comes to 56.

If I’m wrong please make me correct or please publish here the same question from BPP mock exam with the decision.

[Author]

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