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Congrats to Sheryar on the 94% am glad (hoping it was due to open tuition) that Open Tuition gets the recognition they deserve, to laura and all those who didnt pass you will just listen to all the lectures and do the revision lectures and i am extremely sure you will pass
Hi Andrea, there was a question done by john on the revision lectures that tackled leading, regarding the forward to quote you ” But with that logic, wouldn’t you apply interest from the borrowing rates on the forward contract too? ”
Why we dont apply interest in the forward exchange contract is that we have already pre agreed the rate with the bank to be paid at a later date hence we would borrow at that date to pay the payment and would not make economical sense to borrow now and deposit it and wait for 6 month to pay at a fixed pre assigned rate as borrowing costs are more than depositing
Sorry hope i am making sense, wish u and everyone else on OT the best and more importantly we all pass(hopefully)Thank you, for the reply didnt inflate the values even though was inclining to do so
Hi John, I have been able to get the question that i am referring to would really appreciate it if you could elaborate on it and if you have the time perhaps you could do it?
Argnil Co is appraising the purchase of a new machine, costing $1·5 million, to replace an existing machine which
is becoming out of date and which has no resale value. The forecast levels of production and sales for the goods
produced by the new machine, which has a maximum capacity of 400,000 units per year, are as follows:
Year 1 2 3 4
Sales volume (units/year) 350,000 380,000 400,000 400,000The new machine will incur fixed annual maintenance costs of $145,000 per year. Variable costs are expected to be
$3·00 per unit and selling price is expected to be $5·65 per unit. These costs and selling price estimates are in
current price terms and do not take account of general inflation, which is forecast to be 4·7% per year.
It is expected that the new machine will need replacing in four years’ time due to advances in technology. The resale
value of the new machine is expected to be $200,000 at that time, in future value terms.
The purchase price of the new machine is payable at the start of the first year of the four-year life of the machine.
Working capital investment of $150,000 will already exist at the start of the four-year period, due to the operation of
the existing machine. This investment in working capital is expected to increase in nominal terms in line with the
general rate of inflation.
Argnil Co pays corporation tax one year in arrears at an annual rate of 27% and can claim 25% reducing balance
tax-allowable depreciation on the purchase price of the new machine. The company has a real after-tax weighted
average cost of capital of 6% and a nominal after-tax weighted average cost of capital of 11%.
Required:
(a) Using a nominal terms net present value approach, whether purchasing the new machine is financially acceptable.Dear John, would like to convey my gratitude as well if i do pass its because of the Grace of God and your lectures
it just doesnt make sense why they would not publish the question papers as well as the answers
Thanks John, what does after tax cost of capital mean, do we discount the tax savings on capital allowances and the profit after deducting the tax or we dont include the tax computations as the WACC is after tax
sorry leading wasnt cheap as they was a finance cost for leading to borrow the amount of money. the forward exchange contract was the most reasonable option
Dear Sir,
In the mock exam there was a question asking the following
“RI CO Has in issue 6% redeemable bonds. quoted at 120% ex Int.
which of the statements is consistent with the above information”
i can not calculate the redemption yield, please advise how do we calculate redemption yield?Thanking you in advance.
kind regards and wishing you the best