Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › ACCA AFM exam was – September 2021 Exam – Instant Poll and comments
- This topic has 41 replies, 19 voices, and was last updated 11 months ago by
ranganaherath.
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September 10, 2021 at 8:01 am #635022
opentuition_team
Keymaster- Topics: 1098
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September 10, 2021 at 5:03 pm #635336tbm13
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I had the following questions:
1) Company wants to build some construction.
Pros and cons of using debt
Get asset beta based on equity beta from competitors (calculate market value of debt and equity; adjust asset beta for one company 20:80).
Calculate yield and market value of debt
Calculate equity beta, gear
Calculate market value of debt and equity
Calculate WACC
Write report (but there wasn’t much to write???)
(I did not have to calculate NPV or APV… or did I miss that???)
Explain why APV may be better than NPV
Can they use securitisation on the new construction for future investment?
2) Hotel company bought restaurant company, it’s not doing well.
3 options:
Shut down
Restructure
Sell
Explain what MBI is
Show balance sheet after restructuring
Create valuation with FCF and growth model
Talk about MBI: how much do they need to raise; what valuation
How would company decide what to do?
3)
Multilateral netting: show table and cash flows
Forward and money market: simple calculation
Explain when to use forward contract vs money market
What policies does company need for derivatives
September 10, 2021 at 5:08 pm #635339paczi88
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sorry I duplicated my answer
September 10, 2021 at 5:09 pm #635341paczi88
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Hi I had question about securitization of assets 6marks
NPV calculate APV calculate and pros and cons
ReportInterest risk hedge and calculation options/ futures/ FRA
25marksSynergy after merger
Question about treasury function centralisation (company is considering foreign investment) what factors would affect centralisation
25marksSeptember 10, 2021 at 5:17 pm #635344shaguftahyder
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You got really nice one! I wish i had this
Mine was difficult?September 10, 2021 at 5:18 pm #635345shaguftahyder
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@tbm 13 you got really nice paper! I wish i had this
Mine was difficult 🙁September 10, 2021 at 5:20 pm #635347shaguftahyder
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Paczi88
Same
But Q3 was differentSeptember 10, 2021 at 5:29 pm #635351paczi88
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Mine was ok but chances of passing are remote second attempt…
September 10, 2021 at 5:48 pm #635361japan
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What was the cost of capital and cost of equity and they mentioned rf will be the bond a ytm what was this ?
September 10, 2021 at 5:58 pm #635367ranganaherath
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I had the same paper.
Did you use the M&M formula to calculate the asset beta of the wind power business using the S Co cost of equity ?
What was the APV you got?
Also for the interest rate hedging
What was the one which gave the best effective rate? For me it was the forwards followed the futures and then the options
September 10, 2021 at 6:01 pm #635369japan
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Yes FRA give rate of 4.75 then forward 4.80 and option 4.912
September 10, 2021 at 6:15 pm #635378daiem
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Q1
-Factors to consider for debt finance compare to equity finance
-Estimate average asset betas
-Estimate cost of debt, cost of equity and cost of capital
-Justifies and i think advise on estimate calculated above
-Apv vs npv
_Secutisation of income i think
Q2
Hedging payment if interest increase to 4.4%
-FRA, futures and options and recommendation
FRA lower and options highest
-Value at risk for Npv
-Centralized treasury dept
Q3
-Calculate expected sales and
Impact on FS and EPS
-Comment on directors view not to improve liquidity and to keep NCA i think
Feasibility of selling division and if co. Agree to it something like thatSeptember 10, 2021 at 6:21 pm #635383shoban
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was unhedged better than the option for the interest rate question?
September 10, 2021 at 6:29 pm #635386bhaskaravijay
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Hi i had the same set of questions. In the question 1 I don’t remember this question- Factors to consider for debt finance compare to equity finance. For how many marks it was asked?
I think I overlooked it and might have missed it. I completed the whole paper except that one Anyways the time would not have permitted me to write that question.
Kindly reply
September 10, 2021 at 6:42 pm #635389daiem
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I think it was for 8 mrks
Apv vs npv 6 mrks
Discussion on estimates 6 mrks
Estimate asset beta 7 mrks
Ke kd and wacc 13 mrks
Secutisation 6 mrks
Professional mrks 4 mrks
Can someone check if this is correct for Q1September 10, 2021 at 7:24 pm #635396pacmq
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How did you guys answer about the revised cost of equity for question 1?
I used only the figures of Forttu Co
I ungeared it to obtain the systematic risk and then regeared according to the required company’s MV of debt and equity to obtain equity beta of the required company. Then I computed the revised cost of equity. Anybody came up with the same solution?September 10, 2021 at 7:36 pm #635401lkleponyte
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What expiry date you used when choosing futures. I was so confused, transaction is 1st of Sep so at first at picked December’s futures then I went for September, thinking that it expires at the end of the month, leaving 1 month unexpired basis.
September 10, 2021 at 8:05 pm #635415japan
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Same here one month unused basis and September future contract unused basis was 0.25*1/5= 0.05
September 10, 2021 at 8:07 pm #635417japan
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I have used both competitors but i think i have done wrong
September 10, 2021 at 8:48 pm #635430Luke
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You used fra 4-9 or?
September 10, 2021 at 9:21 pm #635439japan
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Yes and i think it is correct and inc by 0.7 means 3.7 less 4.4 inc in libor
September 11, 2021 at 4:39 am #635455tbm13
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@lkleponyte
“What expiry date you used when choosing futures. I was so confused, transaction is 1st of Sep so at first at picked December’s futures then I went for September, thinking that it expires at the end of the month, leaving 1 month unexpired basis”
That sounds correct to me.
September 11, 2021 at 4:41 am #635456tbm13
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@pacmq
“I used only the figures of Forttu Co”
You had to use both companies. I think the question said 50:50 weighted (rather than by market value).
Forttu had the complication that their business was 80% other and 20% construction. So you had to adjust the figure.
September 11, 2021 at 4:44 am #635457siwela1
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Hiii did it have extra info regarding the competitor that we did NOT need to use …the info on the division which was not the scooter maker??
September 11, 2021 at 5:17 am #635458ranganaherath
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Generally when selecting the futures or options expiry date we go with the one that’s closest to expiry after the transaction date right? So I went with September since the transaction was on the 1st of September and it said that the basis reduces to zero and expiry is at the end of the relevant month.
For contracts I got 38
For the premium I got around 18,000 odd and the effective rate was lowest for forward but I mentioned about the counterparty risk when giving a recommendation
September 11, 2021 at 5:39 am #635459ranganaherath
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@siwela1
They had info about 3 companies
The main company Zhichi Co or something which was looking into getting into the motor scooter industry
Liyu Co which already had the asset beta given but 60% of the business was motor scooter and 40% was wind power business
Then S Co which was involved in wind power business. Which only had the cost of equity given and it’s debt to equity ratio of 20% to 80%
To my approach was to find the asset beta of the wind power business using the ungeared cost of equity (Kei) using M&M 2 formula. It was a real headache finding the value when using spreadsheet and having no scrap papers to work it out.
Then used the Kei to find ungeared beta (asset beta) using the CAPM formula and took that as the asset beta for wind power business and then used the appropriate ratio of 60% to 40% to find the asset beta of the motor scooter business. And then used the asset beta to find the cost of equity since they say Z Co is all equity financed asset beta is equal to equity beta so I assumed that and used it in the CAPM formula to find the discount rate.
It was way too much work for 6 marks I should’ve simply assumed some figure and gone about with it. Would’ve helped me save some valuable time to spend in the last question but that is ACCA for you. Hold us up in the 1Q but it was my bad I should’ve gone with an assumption
September 11, 2021 at 5:47 am #635463dee05
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The exam was fair but couldn’t even write the report,that makes me sad.
Qsn 1 NPV APV calculation of DF using the proxy CO’s Betas which required some ungearing and apportioning the Ba per department or business unit
Section b
IR hedging and business valuationSeptember 11, 2021 at 5:52 am #635464dee05
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We wrote the same exam,it was fair but time did beat me in the exam. Left the decentralization question and VAR question plus could not even finish writing the report. Part 1a question skipped it also due to insufficient time
September 11, 2021 at 6:04 am #635465dee05
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Hey,did I fail to read the question? Because it wanted the discounting factor assuming that the project is all equity financed, which meant that there was no debt hence we only had to use the Ba to calculate ke ungeared.my thought
September 11, 2021 at 11:28 am #635517japan
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No of contract are 35
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