[Wei Bing]

I scored 84 for my F9 and average of 70 for all other 4 P papers, but P4 is so so difficult and time pressured to me.

Just aim for a pass this time.

[Wei Bing]

@hassan1123 said:
I thought this exam was proper time pressured.

Q1) This was a managing stock question which required to analyse the impact a proposed discount would have on the cost of ordering (CO), Cost of Holding (CH) and purchase price. I do not think it required to use the actual formula which had the square root involved, rather just calculate: CH = CH x Q/2 and CO = CO x D/Q and purchase price. The end result was that the discount was more prefered as you get a reduction in cost. This question was very similar to a pass exam question. I did not get part b when they asked about the tresury department? did anyone understand that? I just wrote about why it is important to hold cash?

Q2) This was a business valuation question. The way they worded the question was tricky, but I think they were asking for the Net asset valuation model after taking into account the reduction in recieveables etc so it was the liqidation basis. Then The earning yield method, as they gave this percetage in the question. Which is earning/earning yield. the last model was the DGM model. Part B required to say the disadvantages of using a cash basis model? was this just evaluating Dividend growth model?

Q3) was a complete write off. I did not understand any of it. I thought they were going ask a money market hedge question and compare it to a forward but did not expect a full on theory question. I just wrote that the ways to reduce risk were things such as matching concept, lagging and leading etc not sure if that was right?

Q4) Evaluating the use of debt finance. I calcuate stuff like the interest cover once taking into the account of the 8% interest of the 20M raised and made a revised income statement based on the increase in sales and stuff. Then calcuated new gearing, and EPS? thats all, am not sure if there was anything else? EPS Rose so it was an increase in shareholder wealth? there was no info on the share price so it could not be calcuated? or could it? there was no P.E either.

Q5) what a complete write off. They did not give any cost of capital!! I am assuming this question wanted us to do an NPV calcuation based on the five years. There was no corporate tax caculation as there was no operational flow (Sales less Fixed cost & V.C given) therefore, it was just the tax relief obtained from leasing and the lost scrap and lost W.D.A that was obtained from year 2 to 6 even though it was a five year life cycle, the tax was paid in arrears as stated in the question. The overall affect was lease was better. The discount factor to use was 10% subtract the tax of 25% which makes it 8%? But it was debateable if you was suppose to use the fisher equation as there was inflation involved? I am not fully sure about this because it would of been (1+8%) x (1+4.5%) = (1 +i) i being the nominal cost of capital. But in the equation the inflation part needs to be a general rate, but in the question it was specific to the buy option. so I do not know!!

Multiple choice question: It was defo the cost per student that was not efficient, this is because cost is relating to economy (i.e cheapest price objective)

R.O.C.E and the other one – it was neither.

Q1 – it was just transaction and economic risk because it was dealt in a foreign currency. Translation was not the answer because that would mean it would have an effect on the balance sheet, but the questions stated that this was netted of to nil at the end of the year. so it was no effect.

Really struggled on the question which asked to evaluate the % obtainable from the note to maturity? any one else choose 5.1%? the options were either 1%, 5.1% or 7.99% or 7.5% or something?

The multiple choice questions were to hard and worth to much of the paper. one slip up and it basically costs you. hate them!!

Hope that helped!!

Hi,

Thanks for sharing your information and refreshing my memory, let me share my information as well.

Q1. EOQ: Discount is preferred. Centralized treasury department is covered by BPP. Benefits include: centralized liquidity management, cheaper bulk borrowing, better investment opportunities, smaller pool of contingent fund, able to hire treasury expert, better foreign exchange risk management.

Q2. Agree with your part A. Part B, disadvantages of DGM include constant dividend growth rate, constant cost of equity, cannot be used for companies not paying dividends.

Q3. Part A: The FRA offered by bank is 4.5%. If interest in 3 months time is higher, bank pays the company, if lower, company pays bank
Part B: Interest payment in 9 months time is subject to foreign exchange risk. If euro strengthens against dollar, the company lose out. If euro weakens, the company gains (it is likely that euro will strengthen as the forward rate is quoted at premium). This can be managed by forward contract, or money market hedge (then I briefly explained the forward rate that can be fixed now, or use spot rate, convert into euro and deposit for 9 months).
Part C: Explain interest rate parity, purchasing power parity, and expectation theory.

Q4: Redo balance sheet and income statement after the expansion, then calculate financial and operational gearing, interest cover, ROE, and EPS and compared with industry average. I concluded that the expansion by loan note is financially acceptable as it can increase shareholder wealth without increasing financial risk too much.

Q5: I used 8% as discount rate, but I think the correct rate to use is 6% (8% X 0.75). Time was not enough so I overlooked it.

Hope we can do well!

[Wei Bing]

Passed with 91%, self study with BPP.

[Wei Bing]

Hi,

I also do not understand why do we need to debit COS.

I saw on another book, the treatment according to the book would be (if I interpret it correctly):

Dr Sales 250,000
Cr Purchase 200,000
Cr Investment in associate 50,000

The book is: Consolidated Financial Statements, International Edition, by Professor Tan Liong Tong, pg 363 (https://books.google.com.sg/books?id=-Wd3AAAAQBAJ&pg=PA363&lpg=PA363&dq=Elimination+of+unrealised+profit+in+sales+to+associate&source=bl&ots=DTE53XtDmn&sig=FkADxO4ZodMnAyy8fwZNk0qyfI0&hl=en&sa=X&ei=deSTVMSIBKO2mwXEy4DADQ&ved=0CDAQ6AEwBDgK#v=onepage&q=Elimination%20of%20unrealised%20profit%20in%20sales%20to%20associate&f=false)

Please advise, thanks so much.

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