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@killip123 said:
You did the same as I did in the exam… the $6.5m NPV was for the whole project life, so didn’t need to times that by the 7 years, just needed to do the square root of 7 x 1.3^2 and divide $6.5m by the answer to give the number of standard deviations (approx 3.44) 6.5/3.44= 1.89 in the table – which is 0.4706. Add 50% to give 97.06% confident cashflows won’t be negative.I’m kicking myself now as it was 4 easy marks wasted.
I did it differently:
VaR = N (confidence level) x s x square root T
for confidence level 95% the number of standard deviations is 1.645 (from the tables)
s – annual standard deviation of project returns
T – number of years
So VaR = 1.645 x 1.3m x Sq.root 7 = $5.66m, which is potential monetary loss and is below the project’s NPV of 6.5m
So at the given level of confidence the project is worthwhile.Q1: doing APV I got negative base case NPV and even adding tax shield and subsidy effect the total APV was also negative. Seems incorrect. Did anybody get the same result?
Passed 68%. This was 3rd attempt. I would not say that Dec.2015 exam was difficult comparing to previous sessions. I expected that there will be foreign currency consolidation and IFRS 15 question. And they were in the exam!