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I was thinking the magistrate court is the correct answer but I was wrong because the correct answer states that it is county court (could you explain why?)
Since small claims are heard in the magistrate court < 5000 pounds BUT this question does not take that into the account. And I do not know why. Please explain why it is county court and not magistrate court?
Sir, is it true that Fisher Model that is used to calculate discount factor (i.e. interest rate) has already taken inflation into account & when we discount yearly cashflows they are also discounted for inflation?
If cashflows are inflating at general rate of inflation which means that sales, variable cost & fixed cost all are inflating at the same general rate then real cashflows can be calculated by taking the net operating cashflows & divide them by general rate of inflation?
BUT if cashflows are inflation at specific rate of inflation which means that sales, variable cost & fixed cost are inflating at different rates so how do we calculate the real cashflows into this situation?
There was a past question where examiner has used this technique where all net operating cashflows were inflating at different rates (i.e. specific inflation) and to get the real cashflows he divide the nominal cashflows with the general inflation rate to get the real cashflows BUT is this correct way? You said in your lecture that is not possible in case where operating cashflows were inflated at different inflation rates!
Please explain!
What I have said about compound interest & effective interest is the same thing along with the information about the effective interest that I asked before the given example is also correct?
Thanks for your answer sir. That means a lot 🙂
Yes, I have seen your lecture on this.
But I am still having problems with questions involving opportunity cost. I am unable to identify them at first completely, and secondly, the calculation of lost contribution is also difficult to calculate for me.
Can you please give me an example that involved opportunity cost based on limited labour hours?
As regards to the opportunity cost or lost contribution is only relevant when we move material or labour from the alternative project for which the material & labour is employed and moving material & labour from that existing project will cause a loss and therefore it is the relevant cost because we have to leave another project so that we can employ the material & labour into the new relevant project?
Could you please tell me more about monetary policy & fiscal policy that what effects does it have on the economic sectors if any of the policy is adopted by the government and how does it affect the exchange rate?
How these policies are used to tackle growth in the economy & inflation?
And please explain whether raising the interest rate is favorable to the government or lower interest rate is favorable? And how it is defined whether to raise it or lower it?
What I meant was in my second question that WACC that we calculate in the exam will be the same or exact in real life or it might be higher or lower in real life?
Like actually WACC is calculated as 10% but in real life, it would be exact 10% or it can be 11% or 12% which will increase the cost of the company. What do you say!?
As regards to Option A; I have two questions that:
1) You said that retained earnings may have been invested (but invested in what exactly in positive NPV projects?)
But even if the company has invested the money in projects then it might not reduce the retained earnings since they have already been invested?
2) And if the dividend is paid out from retained earnings then it might also reduce the retained earnings at the year-end?
But the ratios that I provided in my last response are all correct or not to calculate return on investment if the information was given in the question relating to them?
However, as you said different ratios can be calculated depending on the information given in the question.
Secondly, I assume that my second query related to Capital Employed / Equity / Net Assets are all being the same thing is CORRECT (let me know please)
I appreciate your effort. May you have the best of life!
Sir, you did not say whether:
1) Financial risk can be calculated with the Gearing ratio AND Business risk can be calculated with the Operating Gearing (Contribution / PBIT)
2) What exactly are we looking for when calculating Operating Gearing?
3) Is it correct that with Operating gearing we are looking at unsystematic risk of the company?
Thank you! 🙂
Sir, could you please respond to these questions:
1) Do we have to make an assumption that short-term borrowing is used for short-term assets (current assets) & long-term borrowing is used for long-term assets (fixed assets)?
2) Is it true that in the exam we’re either given the increase in short-term borrowing & long-term remain constant OR we’re given short-term borrowing to be constant & long-term borrowing is increasing [OR examiner can ask both increase in short-term & long-term borrowings in a question?]
3) If we’re given that both short-term & long-term borrowings are increasing, then how would we identify whether the company is using Aggressive Policy or Conservative Policy to finance its assets?
I have few questions related to WC Financing & Investment. Please could you clear out my doubts that I put in points. I would be Thankful! 🙂
[I was attempting to question Wobnig Co from BPP kit where we’re told that long-term is $4000 which remains constant & overdraft of $1500 which was increased immensely from one period to another]
1) Seeing this we’re pretty sure that company has raised short-term borrowing (overdraft) to finance its assets. BUT how do we know that the company has invested this finance in short-term assets or long-term assets?
2) Since the long-term borrowing is constant but we can see the increase in fixed assets which is $15,284 in current period. Is it correct that we have used short-term borrowing to finance fixed assets?
3) On the other hand, short-term borrowing is increased immensely which is $1500 in current period & we can see the increase in current assets which is $5,349. Therefore, we can see that company has short-term borrowing used to finance current assets.
4) Do we have to make an assumption that short-term borrowing is used for short-term assets (current assets) & long-term borrowing is used for long-term assets (fixed assets)?
5) Also, there is an interest expense given in SOPL of $355 which has increased from the last year! BUT again how do we know whether this interest is caused by the increase in short-term borrowing or it is caused by long-term borrowing?
6) Is it true that in the exam we’re either given the increase in short-term borrowing & long-term remain constant (like in Wobnig Co) OR we’re given short-term borrowing to be constant & long-term borrowing is increasing [It is either this or that – Is that correct?].
If we’re given that both short-term & long-term borrowings are increasing, then how would we identify whether the increase in interest is caused by the short-term or long-term borrowings!?
It may be a silly question to ask but I want to ask anyway that we receive or pay overdraft interest on a monthly basis (Is that correct?) If we are one month late to pay the overdraft interest we will be charged a penalty fee with the due interest.
I am having a little misunderstanding about M&M’s theory with tax and without tax. Please do correct me where you think I am incorrect below:
M&M theory (no tax):
This theory suggests that WACC remains fixed throughout the level of gearing. The more the company geared up the more the cheaper debt benefit can be achieved. The increase in the cost of equity is offset by the cheaper debt of borrowing by the company. Therefore, there is no optimal level in the no-tax world.(I don’t understand that how the cheaper debt borrowing can be beneficial even though there is no tax assumption in this theory)
M&M theory (with tax):
This theory suggests that cheaper debt employed by the company will always cause the WACC to reduce to a lower level because of the tax relief on interest payments of debt. Therefore, higher gearing is better.There is no much of a difference in both theories presented by M&M except the tax factor. (true?)
I understand what u said. Can you please comment on this what I wrote is correct or not!
In case of overcapitalization, working capital will be HIGH which has the following indicators such as::
Inventory, Receivable, Cash will rise
Payable & Overdraft will fall[There will be also an increase in working capital from one year to another because company has over-invested]
Current Assets will rise while Current Liabilities will fall
Current ratio will rise along with the Quick ratio because of the increase in current assets overall
Net Sales working capital will fall too
Sales to Non-current asset ratio will rise
Long-term Borrowing will also rise[Because they all will cause the working capital to rise. Therefore, they are symptoms of overcapitalization – correct?]
In case of overtrading, working capital will be LOW which has the following indicators such as:
Inventory, Receivable rise BUT Cash will fall
Payable & Overdraft will rise[There will be also a decrease in working capital from one year to another because company has under-invested]
Current Assets & Current Liabilities will rise
Current ratio & Quick ratio will fall because of the decrease in current assets overall
Net Sales working capital will rise too
Sales to Non-current asset ratio will rise
Short-term Borrowing will also rise[Because they all will cause the working capital to fall. Therefore, they are symptoms of overtrading – correct?]
Thanks for your reply 🙂
Sir in your response above (one before last response) u said we can earn normal & abnormal returns on weak efficient & semi-strong efficient markets. So, there arise few questions in my mind such as:
I have read on some website that we can make NORMAL gains on weak & semi-strong form efficient market BUT WE CAN”T make ABNORMAL gains on them. [Please Correct me here]
1) We can make normal & abnormal gains in weak form efficient as you said by studying public information BUT we can’t make normal & abnormal gains by studying & analyzing past trend movements [Correct?]
2) Semi-strong form efficient, HERE we can also make normal & abnormal gains by privately held Information BUT we can’t make normal & abnormal gains from Past Trends & Public Information [True?]
I APPRECIATE YOUR WORK! Sorry for putting forward like this, But I needed to be clear! 🙂
Sir, There is a specimen MCQ on Market Efficiency and I am not sure about the answer that why it is considered NOT EFFICIENT AT ALL.
(Question) Gurdip plots the historic movements of share prices and uses this analysis to make her investment decisions.
(Solution) states that “Gurdip is basing her decision on technical analysis which means that she believes that stock market is not efficient at all.”
Please explain what does technical analysis is used for? [Is it used for looking at PAST TRENDS of the shares to identify the future expected MARKET VALUE OF THE SHARE to gain abnormal profit?]
And please also mention the fundamental analysis for what it is used for exactly? [Is it used for looking at the information such as Financial Statements, Reports, Company Prospectus, etc?]
These terms are really annoying!I understood your answer 🙂
BUT SIR, it has made my statement 2 correct according to the situation that “if the material is in stock [100kg] but it has no other use & no alternative then the material relevant cost would be [purchase cost + opportunity cost]”.
Purchase cost here is the 100kgs material that we needed for the contract & opportunity cost that we lost of 100kgs by selling them off as scrap.
CORRECT?
Yes, I have watched your lectures thoroughly. 🙂
(Question)
If company ABC needs 200kgs of material X where they have 100kgs currently in inventory. Current Puchase Price is $22/kg AND it has scrap value of $15/kg*Material X is no longer used and has no alternative use in the business.
(Question end)According to what you’ve said that “if the material is in stock but it has no other use & no alternative then the material relevant cost is [scrap value] which is opportunity cost”
BUT the relevant cost is $3700 including purchase price for the 100Kgs at $22 plus opportunity cost for 100Kgs at $15
CONFUSED here!
Yes, you are right that the question did mention that they have limited capital to invest and hardcopy & softcopy rationing which I had no idea what are these (before I watched your lecture) except that hardcopy limited rationing is used when there are external factors that are limiting the options to invest where softcopy rationing is where the company has put a limit to invest on itself. Am I correct?
Please advise what should I write for this question in the exam where I do not have to calculate anything but rather discuss. Please help me discuss this question.
I have both Kaplan & BPP kit but capital rationing is all about calculating rather than discussion in the KIT.
