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I answered only 12 the same as you but I know straight away that I didn’t know the answer about Gordon’s model (completely forgot about it), savings for annual discount and few other I guessed. I also know now that I answered wrong the question with the answer about interest rates eliminating balance of payment deficit. So I know straight away these answers I have wrong. I didn’t choose random walk answer either. So difficult to remember now.
My answers are 1d 2c 3a 4c 5d 6c 7b 8b 9a 10b 11b 12a 13d 14a 15c 16b 17a 18d 19a 20a 21a 22b 23a 24a 25b 26b 27a 28a 29b 30d
it looks like I may have only 12 of them right max which means only 24 point. I have no chance to pass it then.Could you tell me the exact npv answer?
if you remember@caspian087 said:
production capacity is 850 000 unit per year.
Investment cost is 3 200 000 $.
unit price is 3.1 $ (with 3 % inflaton)
variable cost per un it is 1.1 $ (with 6 % inflation)
Fixed costs are: 110 000, 205 000, 330 000 and 330 000 $
After tax cost of equity is 10%
corporate tax is 20%
reducing balance dep. rate is 25%
Depreciation tax allowance could be claimed at the START of first yearCalculate NPV and comment on acceptability
Hi April I have only 9 correct according to your answers.in parchasing power theory I select both the echange rate risk and inflation.dont either it is true are not morover I must correct 11 mcqs to pass paper accordingly my calculation.
The Fixed costs in the NPV didn’t apply has they already existed independently, i.e. not incremental as the existing factory incurred them. Did anyone agree with this approach?
Tax was stated paid in arrears, so T2? Think my answer was $1.2m.
Paper was :
15 random MCQ’s
5 MCQ’s on Risk Management (Money Market Hedge, Forward Contract, Fisher etc.)
5 MCQ’s (memory blank!)
5 MCQ’s (memory blank!)20 mark NPV, which included written based on incorporating risk into appraisal and difference between business and finance risk.
20 mark WACC, which included written on hard/soft capital rationing,
Also used the 4% treasury bill as there didn’t seem any other option. For the CAPM, they gave us the risk premium which is equal to (Rm – Rf) in the formula Ke = Rf + (Rm – Rf).
Did anyone else get confused with the tax allowance in the NPV? It stated “can be assumed to be received in the year it is allowable” – but the Q also stated tax paid in arrears. I was taught to always align the payable/ allowable, so included all tax in Year 2 to Year 5?
Andrew, are you sure about the fixed costs? They were even nominal, so I don’t think your point is right ???
Trishee, all of the practice Q’s I did ignored Fixed Costs if they were not relevant to the project. The Q said “Nominal Fixed Costs”, which meant they existed already because of the existing factory. The question would have stated “incremental” fixed costs they were to be included but I may be wrong. They always seem to throw a red-herring in an NPV question as a lot of the question is straight forward number crunching.
Nominal means they were already adjusted for inflation (i.e there was no need to inflate them!) That, to me, meant you had to include them as they were
What if i have got my figures right in the npv question but i have made a error in totalling of the calculation?
In my opinion, I don’t think all the marks are for the final answer! Remember you had to calculate different figures, so I think the marks are spread out
@syntyche97 said:
Could you tell me the exact npv answer?
if you rememberseeing here comments, i am getting a bit sceptic about my NPV answer. It was more than 1.6 m $ (with a incremental fixed costs and tax depreiation benefit starting from the year 0
I got the figures. But while totally my present value i made a totalling mistake. Thats why:/ rest i adjust the sales, variable cost, took the fixed cost and rest was tax allowance and tax calculation, which i computed on arrear basis.
Hi all,
Below is my calculation for NPV section, could you have a look at that. For depreciation (paid at the Start of first year so I added it back in yer 0)
Depreciation
Year 0 1 2 3 4
Beginning balance 3,200,000 2,400,000 1,800,000 1,350,000 1,012,500
Depreciation -800,000 -600,000 -450,000 -337,500 -1,012,5000 1 2 3 4 5
Sales – 2,714,050 2,795,472 2,879,336 2,965,716
Variable cost – -991,100 -1,050,566 -1,113,600 -1,180,416
Contribution – 1,722,950 1,744,906 1,765,736 1,785,300
Fixed cost – -110,000 -205,000 -330,000 -330,000
Profit before tax – 1,612,950 1,539,906 1,435,736 1,455,300
Initial investment -3,200,000
Tax expense 0 0 -322,590.0 -307,981.1 -287,147.1 -291,060.0
Depreciation 800,000 600,000 450,000 337,500 1,012,500 –
Tax benefit 0 0 120,000.0 90,000.0 67,500.0 202,500.0
Net cash-flow -2,400,000 1,612,950 1,337,316 1,217,755 1,235,653 -88,560
Discount factor 1 0.909 0.826 0.751 0.683 0.621
Present value -2,400,000 1,466,318 1,105,219 914,917 843,967 -54,989NPV 1,875,433
Same answer.
@sokty said:
For divisible project:
Project PI
D 3.1
A 3
E 2.8
B 2.6Project C and E are mutually exclusive, so E ranked 3rd, so we don’t choose C (although it is ranked 4th according to PI), and total maximum NPV is $13.3m.
@hangnguyenx20 said:
Same answer.Which way around did you calculate your PI? I went NPV/initial investment and got decimal values eg 0.5 etc
My final ranking was D,A,B,C
The examiner does it npv divided investment. So i did the sameway as you. But i think the ranking still comes the same.
@humayunzuberi said:
The examiner does it npv divided investment. So i did the sameway as you. But i think the ranking still comes the same.Can you remember what the figures were for investment and NPV – for project A, for example?
What i can tell you is, i did npv divided by inital investment. Ranked the projects. Then made investment scheduale, took project E as it had a higher npv than project C. Then for the remaining investment for the project ranked last, i multiplied by the decimal figure i got from the ranking. And i even checked it on the open tution, its npv divided by investment. But i guess anyway you do, you would get the same ranking.
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