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I keep seeing a differing answer to mine regarding the WACC, more specifically, the preference share cost (Kp).
I remember in the exam thinking it was quite high. I know my WACC Calc’s wuite well, and know its the nominal% / MV. From memory it was higher than the Ke, which I thought was odd. Only seen a few people who had the same as me. What did everyone do who got different?
Things I noticed which people are asking about:
the money Market Hedge question – the interest rates were given in 6 months, so you did not need to calculate them. That nearly got me stuck until I saw.
The WACC calc – I got quite a high preference share Kp, as it was the nominal % over MV, I got a high Kp than the Ke. I was very confident with my WACC calcs and that’s what I got. Cant remember the overall WACC however marks wise it does not matter a huge deal, it is the workings before.
The MCQ’s were horrid though, some were pure guesses, others were calculated guesses.
Rights issues I talked about:
Issuing shares to existing holders for a discount price.
Issued at same mixture as holdings as to not dilute ownership of company.
Do not change shareholders wealth unless they decide to do nothing.
Easy way to obtain finance for a company.Rationing:
Hard Rationing – external factors. Banks not lending, recessions, lack of assets to provide as security etc.Soft Rationing – internal factors. Company investment policies, other policies which may stop an investment being allowed.
Overall I believe I passed this exam, however the MCQ’s were really difficult as they ask things which never really come up in tuition or revision.