[goeswhatever]

@skyisthelimit said:
You use the spot rate given and subtract the basis from it… because you are given spot and seven month rate but you need to find six months’ rate so that’s how you calculate the lock-in rate… or am i wrong?

oh yes, theres lock in method to use…I totally forgot about it. damn…

[goeswhatever]

@skyisthelimit said:
Spot rate minus the seven month contract rate given? And from that calculate the unexpired basis?

but what do u subtract the basis from? u need the spot rate in 6 months time right?

[goeswhatever]

how did u guys calculated the basis since the 6 month spot rate wasn’t given?

[goeswhatever]

I made a mistake of referring to the PID for the first question when I talked about the negative cash flows in the middle years. hope I wont get penalized for that…

@tomrichardson92 said:
I applied SAF to the first question, most of my financial answers obviously fell under the Acceptability heading. Kicking myself this morning as I failed to write about the negative cash flows in the middle years of the project. I was preoccupied with linking back to the case study so mainly concentrated on the overall profit margin of the project. Also tried to link any potential change in gearing as a result of the project back to the case study as they’d indicated debt to equity levels were to remain constant. Would have been easier if they’d given us a balance sheet. I hope not writing about the negative cash flows in the middle years doesn’t come back to haunt me. I had plenty of qualitative reasons as well so hoping I scored highly there, it was of course straight forward to comment on the generic strategy of diversification into road construction etc.

[goeswhatever]

Yea, it felt like whatever I prepared were thrown out of the window, as the questions were completely different from the 2 specimen papers. If anything, it was more like an audit paper than “Strategic Business Leader”. Such a disappointment.

[goeswhatever]

I see. I finally understand now. Thank you very much for the explanation!

[goeswhatever]

Thanks for the reply. However, I am referring to the calculation of the market value of equity for the COMBINED company, which states: “The combined company’s tax allowable depreciation is expected to be equivalent to the amount of investment needed to maintain the current level of operations. However, as the company’s sales revenue increases over the four-year period, the combined company will require an additional investment in assets of $200 million in the first year and then $0·64 per $1 increase in sales revenue for the next three years.”, in which in the answer only accounted for:

1) 20% operating profit margin,
2) less off 20% tax (of the operating profit)
3) less off $200m of additional investment
to derive at the FCF of the year.

[goeswhatever]

I see. So if i assume that the issue costs are paid out of existing cash, the shortfall of the amount needed to be raised to finance the investment will be assumed to be taken out from the cash reserves of the company, since the actual amount raised – issue cost will be lesser than the amount required?

[goeswhatever]

Thanks sir. For 1st question, I meant if we need to include the issue cost as part of the tax benefits calculation.

For e.g. Company needs to borrow 10mil, issue cost is 1% of gross investment raised. Therefore issue cost = 101k. When calculating the tax benefits (say tax is 20%), is it 20% of 10.101 mil or just 10mil?

Thank you.

[goeswhatever]

Thank you sir for the prompt reply, and sorry for posting in the wrong forum.

Whatever you explained is what I understood from the sentence as well. However, based on the Sample Mar/Jun 2018 questions & answers in the official ACCA website, the first question on Chikepe Co included this said statement in the question and totally ignored any TAD in the tax calculation in the answer given!

Im so confused!

[goeswhatever]

Thanks sir! Will do!

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