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Pass 64% first attempt by self study but kind of disappointed tbh as this is my lowest score to date and was expecting 70+… Now just 1 paper left…. APM in abt 50 days and I’m just abt to start?
Yup I just realized I only considered operating cash flows and additional investment …forgot the tax(silly mistake cos I was at the 45 min mark doing this question so I kind of rushed through it in order to stick to the time allocation of 49 min for a 25 mark q)
Overall I found that the paper was not as tough as I was expecting it to be given the pass rate of 33-38%.
Q 1 Pretty straightforward NPV calculation with a lot of calculations….but I forgot the training costs…damn hope I only loose 1 or 2 marks….the NPV I got was $9m+
The real option of Honua they made it easy for us so that we didnt have to calculate d1 and d2 as these were given in the question….Pa is the PV of cash flows foregone if option to dispose is taken ie year 3+4 which I got 36m(wrong again because I missed the training costs) …value of put option i got 2.2mQ2 The effective interest on options I calculated as 5.07%…..the interest rate swaps i explained briefly but I couldn’t do it….I still don’t have a clue how to do it….I hate interest swaps …was hoping for FRA or futures.
Q 3 WACC before demerger 9.42%, post demerger 9.8%….then the part where I felt really smart for cracking it
I think we had to calculate asset beta of sport division to find cost of equity to discount FCFs….first I ungeared equity beta of 1.24 to find asset beta of whole company
then since they told us that asset betas of formal division is 60% weighted at 1.something and sport division is 40% ….so essentially 1.24=(0.6 x Asset beta of formal) + (0.4 x Asset Beta of Sport)….this is basically reverse engineering the combined ungeared beta calculation when there are mergers…..so the asset beta of sports is the equity beta since there is no debt…then cost of equity is calculated using CAPM….and ke is WACC since there isnt any debt so i considered this to be discount factor ..I got 500m+ as value of Poynins using FCFs.Confident about passing but really regretting forgetting training costs in the NPV calculation….goes to show how time pressured this exam is.