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@accalegend said:
y2 x 1.25 y3 x1.25^2 …This is the same approach I have folowed.I am sure the question said that the sales and the costs are prior inflation so I inflated them. Guess we need to just wait and see the results!
@tancw95 said:
It’s okay, man. 😉For the sales, what I remember is increase by 25% each years(y2-y4), but did not mention to be increase with inflation.
What I did is y2 x 1.25 y3 x1.25^2 …
Not sure I am right because it could be understand as x 1.25 every each with no square.This make my npv higher (exactly 777).
Weren’t the sales given in the question for each year but prior inflation? Don’t remember the 25% increase….
@tancw95 said:
I thought the question only mentioned first year R 800 m and then increased R 90m each year.Did the question mention the working capital is to increase according to sales?
Anyone can confirm it?Workinc capital did not increase according to sales. The incremental wc was 90m each year but I am not sure now whether it was in $ or R. Does anyone know?
@bococonnor said:
Folks reading the comments here, lots of us in the same boat….I’m slowly coming round to having to do this again. Realistically I knew that the minute I stopped writing on Friday. I ran out of time but attempted anything I knew or could fumble together a guess for! One such topic I had a faint recollection on was yield to maturity. I did the question as I was comfortable on the narrative sects. I read an answer for a question in the bpp kit that calculated the YTM by doing an IRR calc. I did the same in the exam. Am I right/ wrong….nothing much in the kit and there’s a formula in google that I haven’t seen before!Also re q1 and the 4 marks available for presentation. These are pretty crucial for me to have even a mathematical chance to pass…like a lot of people I didn’t finish q1 but started sect b by labelling my report correctly and doing a short note on how I was going to prepare it as I knew I wouldn’t finish. I.e. Background and discussion points in the main body and calcs in an appendix which I started to do….will I get the 4 marks or am I dreaming??
There is a technical article on the bond calc. A yield curve needed to be obtained from the government bonds. MVs were given together with coupon payments for government bonds for individual years. You needed to calculate the yield for one year first, then use this yield to calculate the yield for second year and so on. For example 105 (MV) = 108 (coupon with principal) * (1/(1+r)). r = 108/105 -1 = 2.9%. This is the yield for year one. Then you needed to calculate yield for year two. For example 103 (MV) = 2 (coupon) * (1/(1+0.029) + 102 (coupon with principal) * (1/(1+r)^2). And so on. I recommend that you read the technical article as it is very well explained in there.
Does anyone remember how the exchange rate was quoted for NPV calc? I think I automatically assumed the cash flows of the subsidiary were less in $ so I multiplied them by 0.2….. but now not sure if this was correct.
Also, was the working capital supposed to be inflated? I did not inflate it and used 90 for each of the three years but now I am thinking it should have.
I thought I did quite well but now I am really confused after reading all the comments. I started with Q3 and I found it quite straightforward. A few nasty bits but nothing terrible if you have practiced international NPV’s. I got however a positive NPV and everyone here says they got a negative NPV so I am really puzzled.
Then I went onto Q2. Yield curve needed to be calculated first using the government bonds. MV and coupon was given so we needed to calculate the yield. It was something like 105 (MV) = 108 (principal and coupon paid in year 1) / 1+r. So this reads 108/105 -1 = 2.8% (please note I am making the numbers up as I don’t remember the figures). Then 2nd year needed to be calculated using the same principal. So for example 102 (MV) = 5/1.028^1 + 105/(1+r)^2. This can be rearranged to (105/(102-4.86))^1/2 -1. The same calc needed to be done for year 3 to get the 3 year required yield. Then you just calculate the MV of the bonds using the 3 year yield calculated for year 3.
Q1 was bad and I didn’t do well. I calculated FCF for the target using PBIT then deducted tax, added depreciation and deducted investment. Then did the growth model to get the value of the target using cost of capital. Then I deducted the BV of the bond (there was no cost of debt info so used BV). Think I got to 1.26 per share.
To get to the additional value, I used the P/E ration and calculated price using target PAT plus synergies. Don’ remember what I got to.
I then got stuck as I could not figure out how to get the new acquisition value of the bidder. As soon as I got to my car after the exam it struck me that there was something about dividends. Was dividend model supposed to be used there anyone? It would make sense. I didn’t get much further than this as I got really stuck on this. Wrote some assumptions, did a bit of report to get at least 1/2 marks for the layout and calculated gain for target for the cash offer.
I am still hopeful as I felt quite good after attempting the two questions. Did anyone else get a positive NPV???