ACCA AFM exam was – September 2021 Exam – Instant Poll and comments

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

Hi I had question about securitization of assets 6marks
NPV calculate APV calculate and pros and cons
Report

Interest risk hedge and calculation options/ futures/ FRA
25marks

Synergy after merger
Question about treasury function centralisation (company is considering foreign investment) what factors would affect centralisation
25marks

@tbm 13 you got really nice paper! I wish i had this
Mine was difficult 🙁

Mine was ok but chances of passing are remote second attempt…

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

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 that

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

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?

Same here one month unused basis and September future contract unused basis was 0.25*1/5= 0.05

You used fra 4-9 or?

@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.

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??

@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

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

No of contract are 35