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At least for me, Easy exam but very poor time management.
Correct me if I am wrong?
Question 1- A) Business risk and finance risk relations
B) Proposal 2 recommended due to it was bring WACC down.
C) Huge saving on proposal 1 due to less interest payments but still suggested proposal 2 because of future investments and growth etc. Lots of assumptions like CAPM, New beta Calculation Risk free rate, Tax rate, Market value of assets on sale etc.
Question 2- GOD!! I wasted hell a lot of time, Made so hard for myself.
Part-A)Futures-I divided $payment/future rate, and then divided by LOCK in Rate.
Sell/Short futures 55 contracts 5 months one
OTC Options- Nice and easy- Premium were already calculated 🙂
Buy Call options 6month expiry then showed the worst outcome. This time I multiplied the strike price with $payment.
B) Advantages using OTC options over future-GIVE AWAY
Flexibility, No binding, If things goes wrong we can always throw the options
C) Easiest question in the exam-
Mark to Market- Futures trading Open daily and close daily, Open next day again etc etc Calcuate the profit/loss accordingly-first 2 days was a loss and then 3 day was profit (I think)Question 4) F9 Level Straight forward NPV
Sensitivity analysis Selling price to decrease 9.33% to bring NPV down to zero.
Few other recommendation like IRR, MIRR and VARPlease correct me if you think anything mentioned above is wrong??
Thanks
KazMine came Positive. It might be wrong as I only had just 25 minutes left to do the last question 🙁
No mine came positive as well, I can’t remember but did this question Have duration as well? Or was that q3
No I promised myself I wouldn’t do hedging unless it came up in Q1, as I was afraid or getting bogged down. But when I seen part b and c of Q2, I wanted to do it!
I think duration was end part of a in Q4
Fingers crossed we have all done enough, I know some of the theory I put down is not right. I found last part of Q1 tricky. This has to be the hardest exam in ACCA for me
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@karanpreetrobin said:
At least for me, Easy exam but very poor time management.
Correct me if I am wrong?
Question 1- A) Business risk and finance risk relations
B) Proposal 2 recommended due to it was bring WACC down.
C) Huge saving on proposal 1 due to less interest payments but still suggested proposal 2 because of future investments and growth etc. Lots of assumptions like CAPM, New beta Calculation Risk free rate, Tax rate, Market value of assets on sale etc.
Question 2- GOD!! I wasted hell a lot of time, Made so hard for myself.
Part-A)Futures-I divided $payment/future rate, and then divided by LOCK in Rate.
Sell/Short futures 55 contracts 5 months one
OTC Options- Nice and easy- Premium were already calculated 🙂
Buy Call options 6month expiry then showed the worst outcome. This time I multiplied the strike price with $payment.
B) Advantages using OTC options over future-GIVE AWAY
Flexibility, No binding, If things goes wrong we can always throw the options
C) Easiest question in the exam-
Mark to Market- Futures trading Open daily and close daily, Open next day again etc etc Calcuate the profit/loss accordingly-first 2 days was a loss and then 3 day was profit (I think)Question 4) F9 Level Straight forward NPV
Sensitivity analysis Selling price to decrease 9.33% to bring NPV down to zero.
Few other recommendation like IRR, MIRR and VARPlease correct me if you think anything mentioned above is wrong??
Thanks
KazThe question asked about OTC vs exchange traded for options. Your answers are quite good tho
Yh Hopefully we get at least passing marks
I dint even see last part of q4 properly LOL .
Well I am a Forex trader myself. It would be shame if I dont do hedging question.Felt the paper was manageable imo but damnn my preps weren’t good enough. . So messed it big time & by the time I came to the easy ques 2 I just had 15 mins to do 🙁 goner 🙁 too bad this kind of easy paper won’t come in march :((((
I had 55 contracts for both.. I also had both future to sell and option (put) as the contracts where is euro and we had to sell Euro and buy $.
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I couldnt think through question 2 cos of time pressure so I tried to attempt Q4 which I really should have selected from scratch. Any chance they will pick my best two?
For the valuation question what value did you get for the two scenarios?
My FCFE workings calculated no gain from acquisition based on 25% premium on market valuation?
Probably messed up!
Since the Rates were other way around this time Euro/$ 0.89.
You will have to multiply the strike rate with the $payments, Therefore, you would want to protect yourself from paying more (As rates go up) so Call options. However, it was OTC, you could not trade on it so you had to show the worst outcome. (But I may well be wrong)
It war really very easy exam. Q1 stuff around Wacc and asset betas. Q3 easy calculation around fcfe and market value. You even dont need formula sheet for this. And Q4 – it is really simple question from old good f9 (before mcq).
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@md4vies said:
For the valuation question what value did you get for the two scenarios?My FCFE workings calculated no gain from acquisition based on 25% premium on market valuation?
Probably messed up!</blockquote
For me scenario 1 gave a gain but scenario 2 gave a loss. i wasn’t sure if we were also to calculate premium on FCFE or on just the market capitalization. as confused as to maximum price. discussed some behavioral finance in this question. the multiplier I got was 6 which grew to 7.2 for scenario 1 and 6.6 for scenario 2. wasn’t sure if we were to then mutiply this by the combined FCFE. I just did what I thought was reasonable and added the two. for question 1 how did you evaluate the effect on after tax earnings and balance sheet of proposals 1 and 2
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@md4vies said:
For the valuation question what value did you get for the two scenarios?My FCFE workings calculated no gain from acquisition based on 25% premium on market valuation?
Probably messed up!
i got 7.2(1500+170) + 50 as the value of the combined company in scenario 1
and 6.6(1500+170) + 20 for scenario 2. dunno if I’m rightIs not it suppose to be put option as we need to sell euro to buy $ For hedging question.
I thought the contacts where based in € on the contract sizes tho?
The initial spot was calculated as €/$ also but I converted to $/€ to match futures.
I seen cc in € so assumed PUT. As selling €. ran out of time so had to rush through so I have maybe misread.
Cant remember but I thought there were no Contract size in OTC and OTC was a quote from a private bank and they had given the chargeable premium (which was already calculated in $)
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@karanpreetrobin said:
Cant remember but I thought there were no Contract size in OTC and OTC was a quote from a private bank and they had given the chargeable premium (which was already calculated in $)you are correct
I got them exact figures- this was P/E tho was it not?
The fcfe valuation was 170 * 1.049 / (0.14-0.049) = 1,959.6
Market cap of the company was I believe sound 2,300 including the premium so I calculated that it wasn’t worthwhile.
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@md4vies said:
I got them exact figures- this was P/E tho was it not?The fcfe valuation was 170 * 1.049 / (0.14-0.049) = 1,959.6
Market cap of the company was I believe sound 2,300 including the premium so I calculated that it wasn’t worthwhile.
yea I got that as the FCFE valuation too. didnt even link it to P/E ratio as I just took it at face value. i think I made an error in not including premium for FCFE valuation. I only included premium for the for the market value option (share price x number of shares). How did you determine the maximum price?
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