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Hi
Got negative NPV of about $900,000+ for phase one. Phase two – calculate value of option to delay. NPV 0 also threw me but IN140,000/140,000 is zero so focused on rest of formula. Had to use Black-scholes formula and calculate N(d1) and N(d2) – I got stuck on whether the 140,000 had to be discounted as its the value in y5, but went blank. NPV of option to delay I got $66m.
Highest offer is NPV of Phase 2 less phase 1 negative NPV.
Q2 – very happy when I saw it so was 1st choice but when it got to answering it I completely forgot how to calculate the value of the comany using the dividend payout value and ended leaving it out completely?
Q3 – Used FCF to calculate MBI. Final recommendation was for them to ask the MBI company to buy the company from them as between the $199 they are already “paying” for it and as they are already making a loss on the assets, I thought it is the best deal – IF they are confident that the industry will not recover.
All and all it was not bad. The paper was fair and I believe if I studied a little more it would actually have gone great – only had 6 days in total. Wrote P3 on Thursday and that paper was fair too but I had terrible exam tech and think I messed it up pretty badly…. P4 felt better.
Hi John,
We knew it was better at 96.00 because we already calculated it. Even though it was not the best option and therefore not the one we would have selected, the question around the collar followed on that. I was looking at the calculation from a ‘worst expected case scenario’ and which option would minimize the possible cost payable if it materialized.
I was viewing the purchase of the put and the sale of the call as two completely separate transactions and under the assumption that we are trying to mitigate the cost if what we are expecting to happen, happens.
Your statement above (‘the maximum must be higher than the minimum’) clarifies it to me however as I was not viewing it as ‘one’ transaction.
Thank you for the assistance! I appreciate the time spend. I have not had a lot of time to study so I am trying to ‘understand’ things rather than just ‘learn’ them and it bugs me if something does not make sense.
Enjoy the rest of your day! 🙂
Just a correction to the above – we are borrowing money 🙂
Written before my first cup of coffee…Hi John,
I understand how the collar works, but what I dont understand is when we already calculated that the 96.00 PUT option is better (we are lending money), why when we create the collar, do we use 95.50 as our PUT and 96.00 as the CALL to create the collar?
Using 96.00 as the put and 95.5 as the call gives us lower finance charges than doing it the other way around as stated in the examiners answers (even with the higher premium).
Sorry if I am wasting your time by not seeing something that is obvious 🙁
Hi sorry – I have come across it before therefore I thought it was a principle being applied.
An example would be June 2015, Question 4 (a)
Thank you
I have been scratching my head about this one. Watched the lectures again and also some on youtube… Still could not understand where I was going wrong as I felt like I had a firm grasp of the subject.
Just realised that I was adding the 30/40 basis points as 3/4% instead of 0.3/0.4% – no wonder I could not understand where the examiner got his 0.8 from… Lets hope the brain works on exam day…
Showing your steps above helped – thank you!
It was bezarre. Wasn’t fully prepared so was a bit nervious.
Looked at Section B first – just to select quetions I was going to attempt – and at first glance struggled to decide because I felt good about all 3. Marked 3&4 for later and started on Question 1…
So ‘the importance of planning your answers’ were drilled in as of the UPMOST importance so I followed the 10 steps… Well I PLANNED my answers so well, I never got time to write them. Time somehow got completely away from me and before I knew it I was almost 2hours in and haven’t even started on the letter.
Decided to quickly get q3 and q4 done – they looked pretty straight forward the first time I looked – and then whatever time I have left I can try and get as much done of the letter as possible – planning is done afterall….
Skipped “planning” the last two questions – clearly the wrong approach for me – and started with Q3. But, it must somehow have changed from when I first looked at it, cause now it makes no sense at all?
Already behind the 8 ball, no time to change question now, I slot some things down, leave about a million empty pages (as I’m going back later ofcourse) and start on Q4. Magically this question also looks different now? Was sure I could have “ethical theoried” the crap out of it before the exam?
As I was plotting my answers down, knowing as I am writing them that they are all kinds of wrong and not at all what was asked, I hear 15 minutes left….
Ok-leave it. Try the letter! Get SOMETHING down! Introduction paragraph done – now to start slotting in the theory from my planning – times up?!?! What?? All a conspiracy!!!!
My first ACCA paper. Not the worst paper I have ever written – just the worst I have ever written a paper?.
First time I’ve ever experienced complete brain-shut down-I normally test really well. Must have really lived myself right into that mining town from Q1….
It was bezarre. Wasn’t fully prepared so was a bit nervious.
Looked at Section B first – just to select quetions I was going to attempt – and at first glance struggled to decide because I felt good about all 3. Marked 3&4 for later and started on Question 1…
So ‘the importance of planning your answers’ were drilled in as of the UPMOST importance so I followed the 10 steps… Well I PLANNED my answers so well, I never got time to write them. Time somehow got completely away from me and before I knew it I was almost 2hours in and haven’t even started on the letter.
Decided to quickly get q3 and q4 done – they looked pretty straight forward the first time I looked – and then whatever time I have left I can try and get as much done of the letter as possible – planning is done afterall….
Skipped “planning” the last two questions – clearly the wrong approach for me – and started with Q3. But, it must somehow have changed from when I first looked at it, cause now it makes no sense at all?
Already behind the 8 ball, no time to change question now, I slot some things down, leave about a million empty pages (as I’m going back later ofcourse) and start on Q4. Magically this question also looks different now? Was sure I could have “ethical theoried” the crap out of it before the exam?
As I was plotting my answers down, knowing as I am writing them that they are all kinds of wrong and not at all what was asked, I hear 15 minutes left….
Ok-leave it. Try the letter! Get SOMETHING down! Introduction paragraph done – now to start slotting in the theory from my planning – times up?!?! What?? All a conspiracy!!!!
My first ACCA paper. Not the worst paper I have ever written – just the worst I have ever written a paper?.
First time I’ve ever experienced complete brain-shut down-I normally test really well. Must have really lived myself right into that mining town from Q1….
