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@libratype said:
return point 200 000+ 1/3 75000=225 000sorry you are right it was typo…
@aneelraja said:
hello again,
i do understand the the rest, but to calculate the spread u need variance of cash flow, transaction costs and interest rate . And either i was stupid or i was confused but i didnt saw these figures any where in the question.
And i am more confused because it was an easy Q (if i had the figures).spread was given as 75,000 so did not need any transaction cost etc to use the formula.
Minimum level 200000+spread 75000 = 275000 Upper level
Return point 20000+1/3 of 75000= 250000
Cash to be transferred out when hit upper limit = 50000 (I mentioned it in discussion)@royyston said:
Hi for Q4 did anyone get Ke= 12%, WACC= 10% and new Ke = 14% and new WACC = 10.3%? ThanksI did the same… So we both are either right or wrong…;)
@ochieng said:
the p/e qn required us to compute the current earnings given the earnings of 3 prior years. earnings thus grew by by the square root of 4300/3000)-1 which gave me about 19.6percent. used that to compute the current earnings and multiplied the earnings by 5 to get the mkt valueWell I said if the earings were forecasted as with 3% growth. So if the earings of 30,000 in Year 1 including the 3% growth so the current earning must have been 30,000/1.03=29126 and use that in PE vaulation as 29126×5=14563 Hope I get some credit for it 😉
nenor said 3 minutes ago:
Wasn’t return point 1/3 spread+lower limit, i.e. 225?
you are right It was typo on my part. I did get 225.
Question 1:
Project 1 NPV 1614
Project 2 : Machine 1 EAC 89 (I guess) machine 2 105 ( I guess) Machine 1 should be purchased
Then Sensitivity/Probabality Analysis duscussion
Question2:
find if over trading with ratios to compare
Had to skip working capital financing/investment due to time pressure.
Miller orr model: Upper limit 275000 and return point 225000 what it good for that overtrader above.Question 3: SME conflict with shareholder comparing with large one.
Mudaraba if it is OK for forward contract?
PPP calculate spot rate : 1.963 I guess. Discuss theory.
Forward vs money. which one to choose in question. (left it No time)Question 4: PE valuation- I think I messed up- $3000/1.03*15=436893 (don’t if thats how it was supposed to be.)
Dividend valuation: Ke= 12% g=3%? and no dividend? just left it 😉
Calculate WACC: current 19% and after debt 14% (hope its OK did’t degear if needed Just could not see anymore 🙂 panicking )Hope I pass will be glad with 50
Its definitely an error. just ignore it.
when you spot an error it means you know the stuff. 🙂Working capital is only use to support the investment on day to day operation. and the balance is incremented (topped up) every year if there is an inflation involved. The working capital is not needed when the project finishes that’s why it is in Positive then.
In other case it is called “Additional Investment”
Look for question carefully for this trick..There is one Kaplan mock exam with answer here. (if you have not seen it already)
https://opentuition.com/groups/f9-financial-management/documents/🙂 looks like you have not studied the text book… doing revision only…;)
There are FOUR valution methods
1)Asset Based => Book Value – NRV – Replacement cost
2)DVM = Po=Do(1+g)/Ke-g
3)PER= MV= Profit After TAX x PEratio
4)PV of free cash flow = [Operating Cashflows-Tax+Tax relief-Capital Exp] using WACC as DCF rate [find real rate using fisher fomula (r=(1+m)/(1+i)-1)
then deduct the Debt = MVNo 4 is the superior method to be used.
anyway NRV = minimum market value
Replacement cost= Maximum market value (incorporating income generated by the asset)You do not do DCF use when using PER
DCF is used for PV of current cash flow – Debt
It explains
“the LAW OF ONE PRICE” [PPP]
& the
“The difference between Spot Rate and forward rate is = Difference between Interest rates of those 2 countries”[IRTP]which proves the
International Fisher Effect [IFE]
and
Spot rate = Expected Change in spot rate [Expectations Theory]..summarising bridmw asnwer..
Factoring is going into a contact with FACTOR
Factor takes charge of ledger..
Debtor will know that factor is involvedInvoice discounting is One off case..
Debtor may not know the third party (factor)you don’t rank them individually then.
add investment required & NPV of indivisible project
match it to capital available.
whichever generate More NPV is chosen.Stripping Asset = Asset Bassis (NRV)
Keeping Asset = Asset Bassis (Replacement Cost)Minority stake & shareholder point of view = DVM
Majority Stake = Earning Based–> DCFRemember that bit: there is no right answer for this. Valuation is not science it is art 🙂
hope this help it narrow down a bit for you..
because it is
Investment PLUS residual Value therefore TWO elements hence you get average DIVIDED by 2
think basic maths 🙂@cporteus said:
I thought it was OK on the whole. I was a bit surprised to see the probability question 1, but was personally very pleased as I’m a maths graduate so found these easy marks.Some of the written parts I wasn’t that sure what they were getting at, or how the marks would be divided so erred on the side of writing too much rather than too little so may have waffled on too long on these. I felt more time pressure than expected.
Did people work out the market value of the bonds on question 3 (I think)? My gearing remained the same as I left the bonds at par value but felt that I should have tried to evaluate them in order for the gearing to change.
I better comment on this while I still remeber some question 🙂
Period 1
The expected cashflow was 10,000 – 500= 9500
period 2
10000
on probabality basis
net cashflow after period 2 was 3900 (i think)
can’t remeber what was the 3rd or 4th part.
how did you do the prob cacultions?q2:
it was my last question (left it in middle 🙁 no time)
trainee errors were not counting for inflation rate mostly..
did not included general inflation in interest payment etc.
included dep.. no included wda instead
fixed cast included 200 of develpments cost etcq3
cost of debt I calculated was IRR 5.21%.
cost of capital – gived 12%
bond market value 4400
capital MV 4.1×10000= 410000
wacc 11.34%.interest cover 2.9 i think
gearing 9.5%q4
what was th q4? 🙂I attempted 3 and half altogether and hopping for 50% 🙂
