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How did you deal with the working capital in Q #32?
It was 1.5 million in current terms iirc and then inflating at 6% I believe
So I worked out the Wc needed
1.5 million (year 0) , 1.59 million (year 1)……
Then you need to work out the incremental cash flows as this is what goes in NPV
So year 0 (1.5 million), year 1 (90k), ….. With the full amount +1786000(1.5×1.06^3) being paid out in year 4- Topics: 29
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Ah yes!
I did the same.- Topics: 29
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Did anyone else hear Mr.Moffat’s voice in their head during the exam? 😛
@suf23 said:
How did you guys answer the CAPM Q in Q #32 (part B)?I stated that as the risk profile of the business was changing that CAPM would be a better approach than WACC as it accounts for the systematic and company specific risk to determine the required return demanded by investors
@dskinner83 said:
Not sure I did this correct, but I worked out the change in the average balance on the supplier’s account and then multiplied this by the overdraft rate to get the extra finance charge which would be incurred by paying earlier.Then I added on the admin cost, and took off the discount that would be received in order to get the overall benefit. I can’t remember the exact figure I ended up with.
It threw me a bit, because I’ve done more questions on the benefits of offering a discount, as opposed to taking one. Hopefully I picked u pa few marks!
That should be correct! I calculated the revised level of AP by using the purchase costs AFTER the discount. This question was similar to one of the questions in 2007 paper or some where. There was one in Kaplan revision kit too.
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The 20k saving on EOQ, was the demand not 500k?
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Do you remember what number was your NPV?
@dosalva1 said:
CAPM USE FOR ONLY ONE PERIOD. THIS PROJECT HAD MORE THAN ONE PERIOD.Wow this slipped my mind! But CAPM could be used for each future period, provided that its variables are assumed to be constant. I guess you could write the assumption as a disadvantage,,
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Samir wrote it out:
“It was 1.5 million in current terms iirc and then inflating at 6% I believe
So I worked out the Wc needed
1.5 million (year 0) , 1.59 million (year 1)……
Then you need to work out the incremental cash flows as this is what goes in NPV
So year 0 (1.5 million), year 1 (90k), ….. With the full amount +1786000(1.5×1.06^3) being paid out in year 4”@suf23 said:
@accastudent1986Do you remember what number was your NPV?
If you’re referring to the written question in section C then no because i worked to the nearest $ and it got messy lol i remember the technique was something like;
Investment (T0)
Net trading income (Sales less variable and fixed costs ($500k/pa) all inflated from T1 to T4)
Tax payable (20% of above from T2 – T5 [maybe should’ve been from T1 – T4])
Working capital (starting T0 and repaid in T4)
Scrap value (T4)
Tax Relief (20% of 25% of NBV of investment from T2 – T5)
Net cash flow (sum of the above)
DCF (12%)I think that even if tax flows should’ve been from T1 to T4 i will still scoop up a fair few marks from my answer to this question as i got most of the technique right (hopefully).
@dskinner83 said:
MY NPV was something like 12 million, which I thought might be a bit large, but I couldn’t see anything obviously wrong.The only bit I wasn’t sure of was the working capital – whether to inflate it again to year 4 levels before paying it back, or pay back the year 3 inflated amount.
I ended up inflating again, but like I say, really wasn’t sure.
You didn’t have to inflate it again. The recovered amount should be the year 3’s inflated total amount. But your NPV was kinda close to mine and others here (I got 11m plus or some thing, so your other workings should be correct) the maximum mark you’ll lose might be a mark 🙂
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I did the same, except the tax part.
Yeah, you get marks for each part separately, so it is def possible to get the bulk of the marks.How you calculate for MCQ she are value of convertible to find … It was 3 % and cost before tax 10% with tax 30 % … Do we need to deduct tax from both the figures like 2.1 and 7 % ?? I tried doing with 2.1 but didn’t work … Similar question in case too ….
@gtavicecity said:
16 mcq where we had to calculate forwrd rate i think ans was D. 2nd was transaction risk. 3rd one was curency futures. 4 I think None. I chose D. 5th I think A , as options can be used for interest managementWhy did you choose currency futures? My answer was currency swaps as swaps are only for borrowings and the company wanted to hedge it’s receipt (if I remember correctly?)
@san28 said:
How you calculate for MCQ she are value of convertible to find … It was 3 % and cost before tax 10% with tax 30 % … Do we need to deduct tax from both the figures like 2.1 and 7 % ?? I tried doing with 2.1 but didn’t work … Similar question in case too ….I don’t incorporate tax into the calculation of market values, as interests are tax deductible only to the company and not to bond holders. Hope you’ve chosen the right answer anyway 🙂
What was the mcq correct answer for the market value of the 3 % convertible loan note?I coudnt get it.
@complicated said:
Why did you choose currency futures? My answer was currency swaps as swaps are only for borrowings and the company wanted to hedge it’s receipt (if I remember correctly?)Due to the fact that a loan note being held by the company was mentioned and I couldn’t see any other question using this piece of data I assumed that a currency swap could be used against the interest on this borrowing. So currency swap CAN be used according to me.
@ch305 said:
Due to the fact that a loan note being held by the company was mentioned and I couldn’t see any other question using this piece of data I assumed that a currency swap could be used against the interest on this borrowing. So currency swap CAN be used according to me.@ch305 said:
Due to the fact that a loan note being held by the company was mentioned and I couldn’t see any other question using this piece of data I assumed that a currency swap could be used against the interest on this borrowing. So currency swap CAN be used according to me.Oh no I could have overlooked this then 🙁 unless the question did specifically ask for hedging the receipt. What did you choose then and why?
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In Section C, Q32, NPV Question, it stated that investment as well as WC was at the beginning of the first year of operations so I understood that should go to YR1 instead of YR0, anyone with the same?
For the discount I think I got a saving of £2,000
Current interest saving was 10,000
Revised interest by pay early 5,000
Difference (5,000)
Admin fee. (500)
Discount I think was. 7,500
Saving of 2,000EOQ I got a saving 8,200 ish
I got a massive NPV on question 32
I got 9.45 for the dividend growth, on the mcq regarding working capital I said dividends were least likely,
Section b Mcq I think on the interest rates I chose 1.566
Found the section A Mcqs difficult
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