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In response to number 6. Here is how I see the picture.
Let’s say 10 shares are in listed company initially
Now it is going to be reversly l taken over by another company when it issues new shares let’s say 40.
Now those 10 initial shareholders start selling. As there would be less number of shares per value of the company. The value of company per share would actually rise. As the denominator is less now.
Plz correct me where am I going wrong
5 ) In part (d), candidates were required to discuss how the risks categorised may be managed. This part of the question was generally not done well. Candidates often did not discuss beyond the TARA definitions and few candidates suggested practical measures other than insurance. Some candidates mixed up the TARA model, others made vague suggestions on how to manage each risk.
5) September 2019
In determining the project’s APV, many candidates correctly calculated the financing side effects or were given OFR marks based on the method applied. Some candidates mistakenly discounted the financing cash flows using the all equity cost of capital, instead of using the company’s normal borrowing rate.
No, studied from book, although I raced through your 2 relevant lectures to find the answer. May be this point was in some other lecture that I did not play. Although I do watch your entire lectures when I struggle a lot.
Somebody said just do the opposite. If basis are positive deduct them and if basis are negative add them in the relevant section of the answer. I tested this assertion and it came out true.
I think that’s what your answer is suggesting to right
Thank you Mr Moffat for taking the time out to explain even though u could have suggested me to rewatch the lecture and keep my ears open for it. Truly grateful.
Yes, I am clear on discounting to present value aspect chosing either of them,
But additionally I was wondering, could we have taken a loan out in US dollars at 5 percent and funded the foreign investment instead of taking a subsidised loan at 6 percent. Ignoring the additional details in question. For understanding sake only. All things equal
Yes foreign exchange forward rates not interest
But the pair is given. Even though one is applicable. Sometimes examiner gives the pair instead of the applicable.
I know there is a reason associated with chosing the relevant rate from the pair, but leaving that aside.
I have observed whatever fra rate that is shot against the foreign currency results in more value. Is the applicable one from the multiple questions i solved. Is that so?
I hope, u get where I am trying to get at now. It’s basically to figure out which rate is applicable from the pair, not anything else
@johnmoffat said:
No – they are not yet available.Dear Mr Moffat
kindly paste the link of the afm bpp guess. think should be available now
Thanks for your valuable insight, however just this last bit of query left, purely for understanding purpose even though the question didnt say so.
If all things equal. we could have deployed 5%?
(ignoring the liability being discarded and have to borrow in gamala as the question says )
Yes I wanted to know what I stated is correct or not.
Sorry i didn’t I didn’t make that explicit.
Thank you for assurance
Expression factor I meat if they were the same instrument being expressed alternatively
Glad that’s not the case. I know what a t bill is. Tried google for 10 year govt debt. Didnt get anything spot on. Could you please explain what a 10 year govt loan. Is it another form of funding to govt as the name implies or something else. T bills go through Treasury. How do these circulate?
Dear Mr Moffat
Could you please request other members to make there own post for questions
Yes I am familiar with the workings of the apv. my question was somewhat else. Let me rephrase.
Instead of calculating apv . If we calculated the new wacc based on further borrowing.
The resulted npv would be the same as apv?
Lastly question related to calculation.
In all the example so far the term of the loan matches the life of the project. What if the company is unable to negotiate a long term loan or debt and the debt is repayable after 5 years instead of 10 yrs which is the life of the project. How would this impact the calculation
Another question that just popped in. We stress the fact that high level of debt if raised would render the current wacc useless hence Apv. Wouldn’t be the same thing if capital structure changes through equity as well. If a company pumps in ton of equity by issuing new shares. Current wacc would also be not applicable for discounting purpose