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Q1 seemed quite unbalance for 6 mark to calculate Macaulay for bonds with coupon and for bonds/loan amortizing for 5 yrs (too much time to do the CF of interest on amortizing loan) – interest and equal installments, I wonder what was they wanted to test, if you know the model you know it for coupon and amortizing.
For an expert level I thought they would like to test our capability of providing strategic advice but instead I crushed my brains and my fingers on number crunching…while only residual time was spent on interpreting the figures (not that I was not capable on analyzing but did not have time to do that especially in Q1 – attempt lastly.
Overall I did not find the exam intellectually challenging, it was quite easy. Here is the summary how I remember
Q1: lightly leveraged company that undergoes 2 potential projects both involving borrowing EUR 1245 mio (figure might be dif but size is correct) 5 yrs to either
buy shares (traded at USD11 per share) and then cancel them off or invest in a venture, to calculate the existing bond (5,2 coupon 3 yrs) current value considering that the external rating will fall from A to BBB due to borrowing and post tax cost of capital 12%, then to calculate the new bond coupon/yield considering the the current gov yld and margins all 6m
Then for 6 m Macaulay for new bond with coupon and amortizing for 6 marks;
Impact on FS, EPS and Gearing of the two scenarios for 11 marks
Impact of the above issues on company, shareholders, equity holders..etc for 16 points
Appraisal of one of directors intention to increase borrowings as a takeover defense and for tax saving – 6 points.
Q2 calculation against a given target of NPV, IRR, MIRR, VAT 97,5 confidence level and comments on how these models are considering risks, 25 marks
Q3 Pure ration analysis, B/S an P/L given, dividends, share price and for 20 marks analysis. It was supermarket chain ranked 3rd into the market and also requesting to indicate what are the other info needed for completing the analysis, all of this for 3 ys
For 5 marks to indicate what are the main sources of finance available for this co (the cash increased in the past 3 yr).
Too time pressure exam all in all.
Cross fingers for you guys, I hope we pass!The 3% difference of provision was material for PL, the loan is material by nature due to related party, and the first one was immaterial stand alone but in aggregation with other material misstatement should have been provided to adjustments. The audit opinion qualified “exept for ” as not pervasive but material, basis for qualified opinion paragraph included after opinion.
Anyhow very time pressure exam, including too much theory for 11 marks, tested twice the external expert/auditor.
Q1 took me more than 1 hours & 30 min to cover all the issues. I think GW on stand alone basis would score 5 marks min.
Not an easy one, I might add