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I hope i did not loose more than 2-3 marks to be honest from the 10 mark WACC.
For the other part of equity and debt i wrote that with equity financing shareholders will have their shares diluted and this would cause issues etc.. and for debt financing i talked about the possible setbacks of high gearingThank you for your reply. I did not see that it mentioned a year. Was your WACC question about the directors views which linked with M&M tax theory and traditional theory? What additional reasons you wrote for the debt and equity financing?
Come on people someone reply to me!
Whoever had WACC as their question 32 (second C question) please let me know how did you calculate the convertible debt!
As per the scenario, the convertible debt was to be converted to 20 shares if i recall correctly or redeemed at nominal value (100). The odd thing about the convertible bond was that it was the first exercise i have encountered that it did not say how many years until conversion or redemption which i found very strange and unnecessary!@hannahbrown
Was your WACC question the one with the three types of costs? Equity, bank loan and convertible?
Was it written that the convertible was for 3 years?
I did IRR for the convertible and found around 11%Hello. My exam part C second question was WACC. There were three types of costs. Equity shares, convertible bond which had redemption value so i assume it was a redeemable one and a bank loan.
How did you work out the convertible bond cost? I did IRR however since there was no indication on how many years this convertible was to be redeemed or converted, i discounted the redemption value and the after tax interest with year 1 discount factor.
Also for the bank loan there was no indication for either its market value or its nominal value so with what denominator did you divide the after tax interest to find the cost of debt?
sukhic wrote:For those with the Section C WACC & NPV questions, how did you find sections A & B?
sukhic wrote:For those with the Section C WACC & NPV questions, how did you find sections A & B?
Hello. My exam part C second question was WACC. There were three types of costs. Equity shares, convertible bond which had redemption value so i assume it was a redeemable one and a bank loan.
How did you work out the convertible bond cost? I did IRR however since there was no indication on how many years this convertible was to be redeemed or converted, i discounted the redemption value and the after tax interest with year 1 discount factor.
Also for the bank loan there was no indication for either its market value or its nominal value so with what denominator did you divide the after tax interest to find the cost of debt?
How did you calculate the cost of the redeemable debt? I found the redemption value and then i discounted the cash flows (MV) + conversion value + after tax interest (based on 5% and 10% to find NPVA and NPVB in order to do IRR and i found 11%
Hello i cant remember how much i got for each individual cost however i think i got WACC 16% something and for the redeemable debt there was no indication for how many years so i discounted the redemption value and the interests with year one discount factors! I then did IRR based on 5% and 10% discount factors and got 11% cost of redeemable.
Also for the bank loan i used the market value used for the bonds in order to calculate the cost of debt because it did not mention either the nominal value of the bank loan or the market value! It was the first time i saw a question not mentioning the years for the convertible loan and no market value for the bank loan
