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Sir pleasure is all mine 🙂 just saw a message on the screen from opentuition regarding fund. I don’t have anything to do for opentuitiom, as i don’t possess anything that i can give to benefit you to the extent you did to me. I’ll try my level best to do the little i can do. Stay blessed 🙂
Sir, you are too good. I don’t really have the words to thank you. I got your reply an hour before going out of home for exam. Felt so blessed 🙂 wrote the question at night before sleeping. Afternoon 12pm was my exam, waited till 10 am for your answer and thought you wouldn’t reply but then you did.. You are amazing sir. May God bless you with the Best. I still can’t believe you do all this for free. I really have no words to praise you.
sir i have watched your lectures earlier also, and Relevant Cash Flows for DCF Taxation (example 3) video again now. i can’t watch at the moment any other videos as i am left with very less time. i have exam tomorrow and with god’s grace and your kind assistance i have understood almost the whole syllabus but just confused with the timing of tax allowable depreciation. i have finally concluded with this performa. please make changes to the performa if it’s wrong. at the moment i can learn it as a performa only.
if asset purchase-end of year. it is T0
capital allowance calculated at T0
if no delay in tax, relief in T0
year delay in tax, relief in T1if asset purchase-start of year. it is T0
capital allowance calculated at T1
if no delay in tax, relief in T1
year delay in tax, relief in T2please reply. sorry sir for disturbing you so much.
sir, tomorrow is my f9 exam. hope to get a reply before tomorrow.
i got these lines from your explanation to a query in P4 tutor page.” There is no such thing as year 0.
0, 1, 2 etc are not years but points in time that are 1 year apart (so that we can discount in whole years).
Time 0 is the start of the first year.
Time 1 is the end of the first year and start of the second year
Time 2 is the end of the second year and start of the third year, and so on.Unless (obviously) told differently, operating flows (revenue, expenses) occur at the ends of years, so the first years revenue is a time 1, the second years revenue is at time 2 and so on.
Capital allowances are always calculated at the end of the accounting period in which the asset was purchased.
If the asset was purchased on the last day of the previous year (time 0), then the capital allowances would be calculated immediately (even though they were only bought on the last day). Therefore if there is no delay in tax then the first tax saving would be at time 0. With a 1 year delay in tax, the first saving will be at time 1″
so sir when the question says that asset was purchased on 31st December 20×4 it means that the asset was purchased on last day of year and hence time 1 or time 0?
as written by you it’s year 0. but you also wrote above that year zero is start of first year and year 1 is end of first year so shouldn’t the purchase of asset be considered at year 1?also, if the question says that tax is paid in the same year and has no delay. so the tax should be on which year???
But sir If the dvm price is an after expansion share price then why would we compare it with market share price which is a price BEFORE BOTH expansion and right issue took place and give justification for it :/
comparing it with TERP (as this is after right issue) or PE share price (after both right and expansion) wpuld atleast makea sense. I am confused :/
Also, since we used previous year dividend and calculated dividend growth also with previous year’s data ,which were before expansion, i think the dvm share price is before expansion. If i am wrong then please tell me why would we compare it with market share price.Sir, the question dartig co is included in the bpp kit mock exam 2 (latest edition book).
In part c the answer compares share price using PE with share price calculated using TERP. This made sense to me as terp share price is before the expansion and PE share price is after taking into account expansion plan.
The answer also writes an alternative way if we were asked to calculate effect on total shareholder wealth and not just per share price.
So as in the first method here a similar approach should be used but it seems different.
They compare: (total shares before right issue x market value) with (total shares after right issue x PE method share price – investment amount)
This didn’t make sense to me. I would rather compare (12.5m shares x terp share price $2.4) with (12.5m share x PE share price $2.6 less $5m investment)
I don’t know if i am wrong or right, but both my and book method gives same answer, is it a co incident? If i am wrong please explain me why bpp book did it in that way, i can not get meaning of those figures.Also, The part d asks to calculate share price using dvm and also discuss the difference in current share price with that calculated through dvm.
Firstly, The dvm share price is 2.6 which is same as calculated using PE, will it always be same or this was just a co incidence?
Secondly, the share price we calculated using dvm, is this share price after proposed business expansion or without taking its effect?Ok, for conversion premium calculation: We shall find difference of it with market value of bond by calculating npv using best option (either redemption or conversion)
So when the best option is conversion we’ll find market value of bond on the basis of it, and compare it with current market value of shares the bond can be converted to.
I.e market value of bonds (using conversion option) – simple market value of shares the bond can be converted to
Right?Sir, since you wrote above that the conversion premium is:
the difference between the current MV of bond, and the current MV of the shares that the bond can be converted to.
Then it means that first we’ll calculate market value (suppose it’s 150$) of convertible by calculating npv using best option (either redemption or conversion).
Then calcuate PRESENT VALUE of conversion value (suppose 5shares x 80$ = 400$ future value and pv is suppose 200$)
Thus conversion premium will be 200-150= 50$.
Am i right?I need to know whether simply current market value of shares that bond can convert to will be used or they should be converted to present value and then be used?
Finally understood after taking so much of your effort 🙂
So,
No change in the sensitivity margin calculation of scrap value & initial investment as tax doesn’t effect them right?
And for discount rate sensitivity also, no change.. Simply based on IRR.
Am i correct in all these?Referring to my previous message: Chapter 6 of kaplan (investment appraisal under uncertainty) has a test your understanding (1), where sensitivity of initial investment, selling price per unit, variable cost, sales volume, fixed cost and discount rate is to be calculated. Want to figure out how would the answer change if there was a tax of 30%.
According to your past reply, pv of tax on the sales should be deducted from the pv of sales and then used as denominator. And similarly pv of tax on the variable cost should be deducted from pv of variable cost and then using it as denominator.
So i am assumung that it’ll be same for fixed cost too as it’s a a cost like v cost.
Need to know if for sales unit it’ll be as i stated in my previous inquiry or not.Sorry sir for disturbing you so much. Just need to summarize now. I jave exam om Friday 🙁
we deduct the pv tax effect from the pv variable under consideration to find sensitivity margin. Am i right if i consider it in the following way:
Variable could be-> selling price, variable cost, fixed cost.
Suppose the pv amount is 100 for each of the variable, in calculating present value of a specific variable (denominator) we will deduct pv of tax 30 from them. Right?Now if we were to calculate sensitivity margin for sales volume, we divide npv with pv of contribution. Suppose If contribution pv is also 100 then again we’ll like above deduct pv of 30 tax from it right? Same rules apply?
Will wait for your response.. Just need to know if the methodology is correct.it’s really confusing me, i can understand somehow why present value of tax has been deducted from the calculation of present value of sales. What i understood is that: as the project npv (numerator) has the tax effect so it’s effect on present value of sales (denominator-present value of factor under consideration) should also be accounted for. Now if we were asked to calculate sensitivity margin of variable cost, what would have been done?
Tax% x pv of variable cost = a number.
Discount it using pv table and then add this figure to the present value of variable cost ? I.e. same as for sales but here we subtract and for sales we deduct? Am i right in these steps?
Actually there’s no such example in the kit or past papers that’s why it’s confusing.
Thanks in advanceSir i have watched your videos again yesterday and yet didn’t get it cleared as i was sure that kaplan text book does include growth in earnings yield method. That is what confused me and moreover the question i referred to has both dvm and earnings yeild 🙁 a common data is given for both the questions (including 3 other) and 233 no. asks to calculate business value using dvm and the very next question asks to calculate business value using earnings yeild mehod. But since you are saying that growth shouldn’t ever be imcorporated in any other method except dvm so i won’t rely on Kaplan book 🙂 I’ll consider it wrong 🙂 it’s clear now 🙂 thank you so much for your precious time sir.
sir actually only in the kaplan text book (page 686) there’s a text which says that “to incorporate earnings growth in the earnings yield formula” the method used is:
earnings x (1+g) / earnings yield – g
they also have a test your understanding 3 in same chapter 20 (business valuations & market efficiency) which is same as the objective question i asked about. and they, although using earnings yield method, incorporated growth in the formula like i wrote above.
sir why is kaplan text contradicting your lectures, notes, bpp kit :/Oh ok got it now. Thank you sir. Need to know this too:
234 objective question (bpp kit-latest edition=> cbe style OT case Close Co (12/11) )
There’s an earnings growth rate given and value of company using PE method including earnings growth rate is calculated as: earnings x (1+g) / earnings yield – g
But the answer completely ignores the earnings growth and uses the usual earnings/earnings yeild formula.
Why is it so?
And sir by the way, To ask this kind of questions further inside a topic, do i need to open a new topic or this way is fine too?i dont know if this alone will help you but you can go through it as i guess that’s all you need to know.
https://www.accaglobal.com/my/en/student/exam-support-resources/fundamentals-exams-study-resources/f9/technical-articles/market-matters.html
the article is relevant for f9.Oh sorry now i remember that for annuities and perpetuities we always use money method. Sorry for asking you sir.
Respected sir,
Kaplan book- chapter 20 test ypur understanding 6 asks to calculate value of equity using discounted cash flow. To discount the cashflows the wacc rate (16%) is given and an inflation rate (6%) too, using fisher formula in the answer a real rate is calculated. But the question doesn’t ask so. Are we supposed to do it becuase the question states an inflation rate and thus it indicates that the wacc used is money rate?Oh ok i didn’t know about the copyright issue. Sorry Sir 🙂 and wow i am so glad that i understood the whole question because of you explaining me the “meaning of buying back bonds”. I am so glad that i came across this site. Little bit sad, that i didn’t know about it my whole journey of f1-f8.. I can not do anything for such a generous act of opentution team but can just pray for them, their life and their success. Thank you once again sir.
Oh ok will just take the market share price x no. Of total share = equity as denominator ! Thank you so much sir for responding to a dumb like me 🙂 stay blessed 🙂
I am sorry, i am doing f9 paper and i just noticed that this forum relates to p5. I am actually new to this website and so not good in using it. As such there’s nothing named eva in f9. And i have exam after two weeks so don’t want to confuse my poor self 🙁 i just need to know that in calculating gearing for f9 paper (debt/equity) when it’s asked to calculate using market values will i also include premium in the numerator (given in sofp) or the market share price will be representative of all?