Forum Replies Created
- Posts
Good day sir, may i know why the answer has mention a line in the report area under IMPACT OF CONEJO CO that coupon rate for new bond is lower than existing bond is because the interest rate is lower so they dont have to issue higher coupon rate…
May i know how the concept work sir….
Is it like if the market interest rate is offering a return of (5%) then coupon rate needs to be higher(6%) to attract bondholders to buy their bond, since maybe in the question the market rate is already low(3.4% example), so conejo dont have to issue much higher coupon rate to attract bondholders to buy them?This is because bondholders will compare and see whether conejo is giving higher return or the market interest rate is higher by the bank?
Good day sir, may i know for :
1) Asset based sukuk is like sukuk holder will pay some money to SPV and SPV will then use the money to buy an asset so that seller can get the collect money immediately. Then ownership will be transfer from seller to SPV. Then SPV will give it as lease to the seller back. Since it is lease, so the seller will pay rental SPV. Once SPV collected the money, they will distribute it to the sukuk holder back.
2) Asset-backed sukuk is the same concept but just that instead of SPV buying the asset from seller and giving back for lease to them but this method is like SPV will use the money received from Sukuk Holder and buy leased asset . Meaning asset which is already generating income by giving it for lease. SPV take over the ownership. So the income generated from leasing will be distributed to sukuk holder.
Is my understanding correct sir ?
a) Asset-backed sukuk – What does they mean by (As the obligor is the lessee, the sukuk holders have recourse to him if default occurs)
b) Asset-backed sukuk – If the returns fail, the sukuk holders will suffer the losses is it?c) The purpose of both type of sukuk is to provide immediate cash collected from sukuk holder to finance seller/issuer of the asset?
d) For Asset-backed sukuk the portfolio of asset will be sold by whom? seller just like Asset based sukukGood day sir, the difference between yield and YTM is that yield is for ONE year actual return based on the coupon return and market value of the bond. So bond holder can see their actual earnings in the year.
On the other hand YTM is the average return to bondholder if they hold it till maturity of the bond. Maybe first year the yield could be 6%, second year 7.2%, third year is 7.4% and forth year is 6.7% so the IRR (YTM) will be around 6.8% (for example). So YTM is like what investors will get in average of yield if they hold it till end of the bond matures…
To calculate the MV or rate of return, i can use few ways:
1) (coupon rate * par value)/MV = Rate of return
2) Present value formula
3) Future value formulaMay i know what i have written is correct sir? 🙂
Good day sir, i have few doubts sir on this question:
1) The reason why we didnt include interest saved, return on investment, savings from other loan… is all because question wanted immediate impact. However if they wanted after 1 year impact then i will need to include all profit after tax impact just like Ennea Co question?
2) Usually we do need to include the other loan savings too right sir (9%-8%), however since immediate impact so no need to include that as well. It means if they said its immediate impact only the profit from disposal of EV club only need to be take into consideration.
3) May i know why loan note savings were done based on the coupon rate(10%)? Since the market value was given so i can find the rate of return by ($10/$96) so i will get 10.42%
Oh my god, i not sure how i overlooked that point sir.
Thank you for pointing out to me sir. 🙂Good day sir i just notice the percentage but usually when percentage are given for example 15% when calculating time we can put it as 0.15 but why this question we need to put additional percentage 0.15%, it means it will be 0.0015.
I have notice in this question only the rate of return is applying like this…Good day sir, may i know how for proposal 3 interest saved on lower coupon the answer is showing $136,000 because i am getting $13,560,000 ;( i have calculated several time but i not getting the value {$113m * 0.15(1-0.2)}
Sir, again for the capital structure, the reason why for WACC in NPV we have used 40/60 because the capital structure of the company is expected to change, we cant use the same WACC if the business risk/capital structure has changed or about to change right sir, that is why we find the latest WACC to discount it ?
However, for APV usually we will be given a proxy company to find the BA from ungearing the BE, since this question has given the BE which is related to the investment, so we ungear it to find BA and then through CAPM we find the KE to discount it (assuming it is purely equity finance). The reason why 50% was being used to find the tax shield is because that is the original percentage of debt financing for the investment. We will only need a proxy details if there were absence for our own investment details, that is why we find related companies but this question has directly given the own investment detail which is more accurate than using a proxy company detail.
Did i get the points right sir?
Good day sir, i have three doubts about this question.
1) May i know why to calculate the tax shield we have used 50% debt instead of 40% debt?
Because i went through other students queries and sir suggest to assume the 50 % debt and equity investment as a proxy company, treat it the same way as we treat a proxy company2) My second doubt is that in the question they have said ‘Working capital may be assumed to be constant during the four years.’ Usually we will include it in each year into small outflow figures and collect back the total amount in last year but in this question we did collect the entire amount in last year but why we didnt had the splits of outflow figures from year 0-3.
3) Lastly in this question, we dont have to include a loss on disposal or add the balancing allowance because the question as mentioned ‘the after tax realisable value of the investment as a continuing operation is estimated to be $1·5 million (including working capital) at the end of year 4’.
Since out NCA is cost ($4.4 million) – Accumulated depreciation ($3 million) = Residual value ($1.4 million). Out of $1.5 million we removed $0.6million for working capital so we left with $0.9 million so we are getting a loss as we are selling for lesser value than residual value ($1.4million). The reason why we didnt include a loss on disposal or add a balancing allowance is because $0.9 million is after tax which means it has already added the balancing allowance. Is that correct sir?Sir, it means if in question said market value is same as par value, then it means coupon rate = ytm (POINT A). So that is only why i can take coupon rate as ytm. Another point sir said it needs to be irredeemable (POINT B). It means both POINTS needs to be together in the a question then only i can take coupon rate as kd before tax or even with either point i can take coupon rate as my kd before tax?
Good day sir, related to Tampem Co i realise there are very less about it in online. I would like to know the answer for it but unfortunately i cant find the final answer anywhere. Sir have discuss the question before in any free lecture?
Yes sir i have watched the free lecture, i am actually confuse at the term because sometimes kd before tax is considered as YTM, sometimes risk free rate plus with credit spread is kd before tax, sometimes coupon rate is kd before tax.
Because as i know coupon rate is the a fixed rate of interest payment bondholder will receive each year. On the other hand YTM is the rate of return bondholder receive if they hold it till the maturity.
Too many technical terms is making me confuse actually 🙁Good day sir, i have a doubt related to business risk and financial risk for systematic and unsystematic risk.
As i know systematic risk is a broader risk which could not be diversified away but it could be hedge in other ways as compared to unsystematic risk which could be diversified away.
Business risk can be categories under systematic and unsystematic risk. However my doubt is can financial risk be categories under systematic and unsystematic risk or just under systematic risk?Good day sir, usually to calculate tax shield for APV question we will take the debt amount multiple with KD before tax also known as YTM. If the rate was not given then i can use risk free rate. However if question has given risk free rate and kd before tax, it means at first i can use debt amount multiple with kd before tax however for discounting part i can either discount it using kd pre tax or risk free rate right sir?
The answer will be different but it is still acceptable right sir?Good day sir, usually when we want to find Cost of equity, we use CAPM method however the beta normally will use equity beta which means with the presence of business and financial risk from debt and equity financing used in the company. Thus when calculating KE we need to take in consideration of both risks in CAPM formula?
If a company has only debt financing or equity financing, beta in capm will only include its own risk. But if financed by equity and debt, then the ke should have the impact of both risk? Is my understanding correct sir?Equity beta = business and financial risk (debt and equity financing)
Asset beta = business risk (equity financing solely)Because in Coeden Co, we have used the equity beta (0.92) to find ke through CAPM instead of asset beta of (0.75).
yes sir, i have watched it and from that i got a clearer understanding thats why i wanted to confirm with sir whether what i have understand is correct or not. I wanted to understand the overall relationship between the bond price, interest rate and also the duration so that i could understand better when i read the answer from the exam kit.
Thank you so much for confirming on my understanding sir 🙂Good day sir, since the home country is selling packaging material to foreign subsidiary. This brings to a intercompany transactions. We have included the expenditure for foreign subsidiary part. But why didn’t we include it as an income for home country(special packaging material)? is it because it was sold at cost and no profit were earned in home country, that’s why we no need to calculate it?
Good day sir, for GNT Co(part b) i will like to know is my understanding correct or not.
Par value = Market value if coupon rate = rate of return. So if market value (total present value of future cash flow) increase means the rate of return is reducing. Vice versa.Rate of return/yield/ yield to maturity/interest rate is the market discounting factor that can be used to find market value of the bond now.
Please do correct me if i am wrong sir, thank you in advance. 🙂