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The figures that relate to discount rates in ‘real’ exam questions , live mocks etc will always be accepted within a range of answers.
This is due to exactly what you have said some candidates use tables, some use formulas either themselves or by using calculators. All with give a slightly different answer.
Watch John’s videos on IRR
You will either understand or not, if not just accept and move on from this 2 mark question
Think about a u shape
When there is an outflow followed by inflows and then more outflows, with two changes of sign and therefore potentially two IRR’s.
If it is an outflow first, then the curve will be u-shaped.
If on the other hand it was an inflow first, then it would be an inverted u-shape.
So again, having two internal rates of return (IRRs) indicates that the cash flows change signs more than once.
In this case, the cash flows are negative at time 0, positive at time 1, and then negative again at time 2.
Therefore, the NPV will be positive below the lower IRR of 10% and will become negative above the higher IRR of 25%.
Thus, for the project to have a positive NPV, the cost of capital must be more than 25%.
The project in question has two internal rates of return (IRRs) at 10% and 25%. When a project has multiple IRRs, it indicates that the cash flows change signs more than once, which is typical for non-conventional cash flows.
In this case, the sum of the undiscounted cash flows is positive, meaning that at a 0% discount rate, the NPV is positive. As the cost of capital increases, the NPV decreases.
So:
The NPV is positive when the cost of capital is below 10% and also when it is above 25%. Between 10% and 25%, the NPV is negative. This creates a U-shaped curve when plotting NPV against the cost of capital.
The NPV curve crosses the horizontal axis (NPV = 0) at the two IRRs: 10% and 25%. Therefore, the NPV is positive for costs of capital less than 10% and greater than 25%.
The correct answer is A) more than 25%. This is because, at any cost of capital above 25%, the NPV will be positive, while it will be negative for costs between 10% and 25%.
U-shaped graph illustrates the project is viable at both low and high discount rates, but not in the middle range.You will get marked accordingly to OFR
So if you made a mistake the marker will follow the error through.
You will receive partial credit for those components.No this is unlikely but if you did have a case of a negative operating cash flow resulting in a tax saving, this is effectively a cash inflow for the project. This means that instead of paying tax, the company benefits from a reduction in its overall tax liability due to the negative cash flow.
The two options that are consistent with dividend irrelevance theory are:
A. The value of a company is determined solely by the earnings of its investment decisions.
C. No transaction costs are incurred in selling shares.Option D is incorrect because differing rates of taxation on dividends and capital gains can affect investor preferences and thus influence dividend policy, which contradicts the premise of dividend irrelevance theory.
Apologies for the delay
Putting a comment is acceptable
BUT we prefer Fav or AdvC. The credit period allowed to customers is reduced
This would actually decrease working capital because it reduces receivables as customers pay their debts more quickly, leading to less cash tied up in accounts receivable.
D. The credit period taken from suppliers is increased
This would also decrease working capital because it increases payables, which are current liabilities. An increase in payables means that the company is delaying cash outflows, but it does not increase the net working capital.
https://opentuition.com/acca/pm/planning-and-operational-variances-part-2-variance-analysis/
If a variance is under the control of the organisation it can be called an Operational Variance, whereas, if it is not under the control of the organisation it can be classified as a Planning Variance.
Operational variance a variance in which non-standard performance is defined as being that which differs from an ex-post standard.
Actual versus revisedPlanning variance a variance caused by ex-ante budget allowances being changed to an ex-post basis.
Revised verusus budgetThe high-low method is not applicable here because it typically estimates variable costs based on the highest and lowest activity levels without considering fixed cost step-ups.
In this case, the fixed costs change at a specific production level (15,000 units), which requires a more precise calculation using the equations derived from the budgeted costs.
Since the variable production cost per unit remains constant between 10,000 and 20,000 units, we can determine it from the budgeted costs at these levels.
For Level 1 10,000 units = Total cost of $81,900
For Level 2 20,000 units = Total cost of $126,060
The fixed costs increase by 15% when production reaches 15,000 units. Therefore, we can find the fixed costs for both levels of production. Which means 0.15 so the formulas are something like:
FC + 10,000V = 81,900
FC(1 + 0.15) + 20,000V = 126,060Solve the equations simultaneously
Calculate the total cost for 16,000 unitsHave a look at the ACCA Formula Sheet given in the exam.
And then have a look through the textbook to see what is not on the sheet.
There are a lot not given that you have to know:
ROI = (Net Profit / Cost of Investment) x 100.
Gross Profit Margin = (Revenue – Cost of Goods Sold) / Revenue x 100.
Efficiency, liquidity, investor ratios like:
Debt-to-Equity Ratio = Total Liabilities / Shareholders’ Equity.
EPS = (Net Income – Dividends on Preferred Stock) / Average Outstanding Shares.
Etc …We calculate the interest saved at the same rate as the overdraft interest because it allows for a direct comparison between the cost of borrowing through the overdraft and the savings achieved by reducing the overdraft through advances received from the factor. When advances are received, the company saves overdraft interest, which is typically at a higher rate.
Calculate the new earnings (profit after tax)
You start with profit – $55 million.The interest on the bank loan that will be redeemed is calculated as 50 * 1.5 * 0.08 = 6
Tax so 6 * 0.8 = 4.8
New earnings after tax 55 + 4.8 = 59.8Total of shares in issue 100m + 50m = 150m
Then 59.8/150m = 0.399Because it asks for:
What is the estimated value of an KualaCo share?
A share means equity
Share value is calculated by dividing a company’s total equity value by the number of outstanding shares, or more simply, by multiplying the number of shares owned by the current market price per share to find the total value.
To approach make or buy questions with a limiting factor, follow these steps:
Identify the Limiting Factor: Determine what resource is limited, such as material, labour, or machine hours.
Calculate Costs: For each product, calculate the variable cost of making it in-house. This includes direct materials, direct labour, and variable overhead.
Determine Savings: Calculate the savings per unit by subtracting the variable cost of making the product from the purchase price offered by an external supplier.
Calculate Savings per Limiting Factor: Divide the savings by the amount of the limiting factor required for each product. This helps in ranking the products based on their contribution to savings relative to the limiting resource ensuring that you maximise the use of the limited resource.
Consider Fixed Costs: If there are direct fixed costs associated with the products, assess whether they should be included in the decision-making process, depending on their relevance to the specific scenario.
By following these steps, you can effectively analyse make or buy decisions in the context of limited resources.Rank Products: Rank the products based on the savings per limiting factor. Start with the product that provides the highest savings per unit of the limiting factor.
Make Decisions: Based on the rankings, decide which products to manufacture in-house and which to purchase from external supplier. ensuring that you maximise the use of the limited resource.
Consider Fixed Costs: If there are direct fixed costs associated with the products, assess whether they should be included in the decision-making process, depending on their relevance to the specific scenario.
This is a make or buy question not a simple limiting factor question
Because it clearly states
An external supplier has offered to supply units of Natural, Fruity and Luxury for $11, $17 and $25 per unit respectively.
So you have to consider the cost of buying it externally versus the variable cost of making it.
Watch John’s video and then return to the question
Convertible loan notes
After-tax interest payment = 6·5 x (1 – 0·26) =$4·81 per loan note
Conversion value = 11·09 x 1·065 x 8 = 14·84 x 8 = $118·73 per loan note
The conversion value of $118·73 per loan note is greater than the redemption value of $100·00 per loan note and, as shareholders are assumed to choose the option that maximises their wealth, conversion is expected to occur.
Then use IRR to find cost of debt.
What are you struggling with?
You cannot expect us to do a complete question for you
Where is the question from …do you not have an answer to work through?
Watch John videos for assistanceIf you still require help please let me know….what it is you need guidance with.
