[singh25a]

Q1 was indeed tricky but was doable. 15 marks unattempted :/, overran on q1. Upset ! I think Q2 was the best of the lot, which could make up for the losses in other questions. Not impossible to pass, but I could scrape through if a decent attempt was made at other questions. Examiner! Plz be kind.

[singh25a]

@fard786 said:
Increasing debt was proposal 2 is not it?
Please enlighten me on this.

Hello.

I guess we are on the same page. I recommended proposal 1 because proposal 2 increases the financial risk, & also increases the cost of equity for investors,that would be it’s downside.

Also proposal 1 would yield an additional 6% return because 30 % reduction in assets would have lost 9 % of after tax return but the 30% reduction would have been sold at 15 % after tax, that was my justification. I screwed up wacc under proposal 1, I used the right method, but didn’t consider the 70:30 ratio to calculate asset beta. Hope that doesn’t cost me too much.

[singh25a]

@kolkleen said:
something like that; the part to be sold off was 30% and they gave the asset beta. the part to be retained was 70%. you first find the asset beta of the company as a whole then find the asset beta of the part of the business retained. you then find the equity beta using the capital structure. then ke and wacc. I think the marks were small for all that number crunching

Hello

I have actually followed the same method of calculating asset beta of the whole company & then the asset beta of the business retained, but I have deducted 0.65 beta asset which was given , directly from the beta asset of whole company without considering the 70:30 ratio there. What’s ur take on that ? I was actually getting a higher wacc because of this.

[singh25a]

Yes I was referring to yesterday’s exam. It’s bothersome.

We were given 3 companies with their respective Profit after interest & tax, initial expenditure, & dividends paid. We were asked to determine their dividend policies , their Advantages & disadvantages & suitable calculations. So hence my question on Dividend payout ratio.

[singh25a]

Hello.

With reference to the dividend policy question in the exam, I have calculated the dividend payout ratio on the basis of dividend capacity, since dividend capacity indicates the amount of distributable dividends, will I be able to secure marks on that basis ?

[singh25a]

For Q2 dividend policies for the 3 companies, the dividend payout ratio will be determined on the basis of dividend capacity ? ie- PAT- Inv. Expense ?

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