*** ACCA P4 December 2016 Exam was.. Instant Poll and comments ***

As we are selling euro to buy dollar dont we need to buy put options Even though there was no contract currency for options.

The base currency was in Euro; which will be sold to obtain US$ hence put option. Anyway, I stand to be corrected by the experts.

The Q4 was straightforward though. I had a positive NPV .

You are correct on everything but put option.
I try to simplify- since we are multiplying if rates goes down (which is put option) we will benefit because lower rates multiply with $ payments lower outcome.
On the hand, we are only bothered if rates go up (call option) we will loose out money- higher rates multiply with $ payments-higher outcome.
So which one would you pick now? Obviously call?

I think you will only loose a mark
Obviously you multiply with the $ payments which was the main trick.

I think you should as long as you calculated premium with spot rate and $ payment @ both strike prices (one after another). There was no contacts involved in this bit. You just had to show the worst outcome.

Did any one find the asset beta for hotel and holiday package department using 70% proportion to work out the equity beta using new capital structure after selling repairment department.

I calculated the maximum price as the MV before to Mv after acq. I believe that that I missed something out as the figures I got did not look right as they were below the premium required by the company.

Not feeling confident with my answers as I felt I was rushing each question. P4 is a tricky customer.

was the NPV above $7million ? as well as the futures? $6.7million or something close?
And the current WACC 11.06% , first proposal 14.67% and second proposal 9.88% ??

Please anyone will be clear is it a put or call option to use?

@fard786 said:
Did any one find the asset beta for hotel and holiday package department using 70% proportion to work out the equity beta using new capital structure after selling repairment department.

something like that; the part to be sold off was 30% and they gave the asset beta. the part to be retained was 70%. you first find the asset beta of the company as a whole then find the asset beta of the part of the business retained. you then find the equity beta using the capital structure. then ke and wacc. I think the marks were small for all that number crunching

Paper was not hard at all u r right bro time ruined me in Q4 i only put the discount rate and time was over arthmatics consumed all my time in Q1 and then in Q2 examiner was very unfair in marks allocation may pass at 50 or fail at 49 god knows

@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 VAR

Please correct me if you think anything mentioned above is wrong??

Thanks
Kaz

@kolkleen said:
something like that; the part to be sold off was 30% and they gave the asset beta. the part to be retained was 70%. you first find the asset beta of the company as a whole then find the asset beta of the part of the business retained. you then find the equity beta using the capital structure. then ke and wacc. I think the marks were small for all that number crunching

Hello

I have actually followed the same method of calculating asset beta of the whole company & then the asset beta of the business retained, but I have deducted 0.65 beta asset which was given , directly from the beta asset of whole company without considering the 70:30 ratio there. What’s ur take on that ? I was actually getting a higher wacc because of this.

@singh25a said:
Hello

I have actually followed the same method of calculating asset beta of the whole company & then the asset beta of the business retained, but I have deducted 0.65 beta asset which was given , directly from the beta asset of whole company without considering the 70:30 ratio there. What’s ur take on that ? I was actually getting a higher wacc because of this.

may just miss 1 mark on that. Your follow on calculations and conclusion will be marked based on the own figure rule.

Silly mistake from ny side…didnt calculate any asset beta….assumed kd same as coupon rate of 6.2%. Any idea how many marks i could lose? ?