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Well, I wasn’t getting any of the answers either… I didn’t waste much time on it, I just chose the closest one. Either way, we will see on 15 October…
@badare said:
That is exactly what I got for the project specific cost of capital.I got the same as well… except, I wasn’t sure if I calculated the irredemable share market value correct… I calculated it as follows -> 65/100 x 250 … hope it’s correct.
I found the paper OK. Section A multiple choice was so-so. Section B had one scenario in relation to exchange rates (money market hedging, future forward rate and etc.), one in relation to the EOQ model, and one for a business valuation. The first section C question was to calculate the cost of equity using the CAPM method and a proxy company. It then asked us to explain three problems with a high gearing level and lastly, we had to discuss the risk-return relationship of debt and finance and comment on the financial aspect of the scenario. The second question was to compare lease and buy options, EAC or replacement period and to discuss four reasons as to why NPV is superior to IRR.
For sections A and B I felt OK, I obviously guessed some but they were a lot like past exams and BPP revision kit. For the first section C question I was ok with the method of ungearing and gearing, however, I had trouble calculating the market value of irredeemable shares. I had some OK points for the other parts of the question. For the second question I got borrowing of the asset to be less costly… I was wondering whether I shall include the interest foregone by the lease but I only included the lease payments. For the replacement period, I calculated the NPV but I calculated by the number of years and not the annuity factor. My conclusion was that it should be replaced every four years… I still hope to get some marks on it…
And that’s it from me…
