*** ACCA P4 June 2017 Exam was.. Instant Poll and comments ***

I got $2.88 too and I know it was wrong… I spent ages trying to find the discount rate for debt and figured out on my way home….. the question gives the coupon is 5%, book value is $60 and financing cost is $4.5m, should we use the 5% as discount to get the Vd?

after the panic in part (b) I couldn’t concentrate to get the share for share for part (c)…..

put down some calculation for Metaxi’s cash flow but I wonder if they are useful for the marker….. sigh….

do we need to use the debt value!! hahaha that’s so bad,
I calculated the value of Darma by deducting its cash out flow and add the inflaw and then apply the growth formula!
and fo the combind I added 366 (value of Metaxi) and the new PE ratio(using its new profit after adding 1,25m )

then the difference is the additional value
0.33 of the additional value is for Darma, so 0.33*additional value over 4.58( the price of the share of Metaxi)
this is the additional shares

Akthough this is what I did, after finsihing all this I CROSSED all the three lines explaining everything becase I got confused ahaha, but then I marked beside it with a tick indicating it is not crossed.

3.5% for Darma, for Metaxi I calculated the value by multiplying the shares by their price
80m shares * 4.58 = 366.4m

I have never understood the ‘Free cash flow’ method to value a company..

FCF = MV of Co ?
FCE = MV of Equity ?

Always hated this topic business valuations, partly because there is no lecture OR revision lecture on this topic, nothing, just notes & also because i just feel it doesnt fit right into P4, its more accounting than financial management… and just that had to come in Q1 !!!!!!

I knew in the exam the technique, like i knew we had to first get the FCF for Darma then calulate the MV of Debt from the redeemable bonds & subtract > then we get the MV of Equity > therefore the current Share price, but I just went blank! I am tired of this paper, should have passed it 3 sittings back when i got 49!

My 5th attempt at this paper, I dont know what to do anymore?!!

Q4 is interest rate future, option and collar, pretty simple if you practice enough.

Q3 NPV, although there are some tricky part on inflation, but I don’t think there is any issue if you have done some complex investment appraisal e.g. pilot paper 2013 Q1

Q1 a) is about the reason why acquisition fail and step to avoid it. should be no problem to most student as it is been placed at front of chapter. whereas the step to avoid i just putting up some opinion against the reason to fail.

b) test on valuation of company including synergy, synergy part is a bit tricky, I just add up the additional value allocated to Darma shareholder to current value of Darma to arrive at estimated share price they willing to pay, from there, calculte how much M need to issue to D shareholder.

afterward they ask percentage of gain in SP under cash or share exchange, which require some numbers compute earlier.

last the question ask about some dividend policy if M decide to use cash payment, where the free cash flow to equity need to be compute and comment accordingly.

overall i will say it’s fair and not much silly question in June.

Does anyone remember what was the question b 3?

I did the last question q4 on the last few minutes and i think i missed the main information and started the question incorrectly 🙁

Can you please tell me how the loss from future was calculated? i assumed 1 rate and continued with the calculation, but did not see we were given the new spot?

Also, what discount rate did you use for the calculation of overall company value based on FCF in Q1?

I thought I did quite well but now I am really confused after reading all the comments. I started with Q3 and I found it quite straightforward. A few nasty bits but nothing terrible if you have practiced international NPV’s. I got however a positive NPV and everyone here says they got a negative NPV so I am really puzzled.

Then I went onto Q2. Yield curve needed to be calculated first using the government bonds. MV and coupon was given so we needed to calculate the yield. It was something like 105 (MV) = 108 (principal and coupon paid in year 1) / 1+r. So this reads 108/105 -1 = 2.8% (please note I am making the numbers up as I don’t remember the figures). Then 2nd year needed to be calculated using the same principal. So for example 102 (MV) = 5/1.028^1 + 105/(1+r)^2. This can be rearranged to (105/(102-4.86))^1/2 -1. The same calc needed to be done for year 3 to get the 3 year required yield. Then you just calculate the MV of the bonds using the 3 year yield calculated for year 3.

Q1 was bad and I didn’t do well. I calculated FCF for the target using PBIT then deducted tax, added depreciation and deducted investment. Then did the growth model to get the value of the target using cost of capital. Then I deducted the BV of the bond (there was no cost of debt info so used BV). Think I got to 1.26 per share.

To get to the additional value, I used the P/E ration and calculated price using target PAT plus synergies. Don’ remember what I got to.

I then got stuck as I could not figure out how to get the new acquisition value of the bidder. As soon as I got to my car after the exam it struck me that there was something about dividends. Was dividend model supposed to be used there anyone? It would make sense. I didn’t get much further than this as I got really stuck on this. Wrote some assumptions, did a bit of report to get at least 1/2 marks for the layout and calculated gain for target for the cash offer.

I am still hopeful as I felt quite good after attempting the two questions. Did anyone else get a positive NPV???

The question did mentiond the finance ministry had accouned the interest rate may drop by 0.5%

spot is -3.6+0.5 = 3.1%

As you are borrowing, you sell future now at 95.92 (not sure is it correct as i can hardly remember). Later you buy future at 96.78 (100-3.6+0.5-0.12).

In here you made a loss $ 186,750 (83 ticks x $25 x 90 contracts)

For Q1 i dont think the FCF of M is used for overall company value to ascertained synergy, but instead it is used for calculation of dividend capacity.

the additional value can be computed by using the expected value of Darma after acquisition (PEXearning) minus Current value (computed using FCF of Darma/COC and minus debt)

I know exactly how you feel, I experienced the same feelings when I tried this exam. Have been studying up to migraine status and felt I had an understanding of the topics and when I saw the questions is like I could not at the spur of the moment answer many areas asked. I saw questions today which was not covered in that manner by my tuition or even the online help and under exam pressure you do not have the luxury of reasoning it out, is either you know or you don’t know and you just have to move on.

@taxman123 said:
Why would you go on calculating percentages when the question asked you to calculate the costs?

i assume that by percentages you went on to calculate the effective interest rate after the hedge? Which was not necessary in this question.

Also, did anyone else find that both options were not to be exercised? So the cost for options was their premium only?

Effective rate is also the cost lol. It’s just the way the Kaplan tutor went over it.

Yeah none of the options were to be exercised. As it was to protect against an increase in costs, the fall meant you don’t need them :). So cost was just premium paid and the spread and the current spot rate.

For the collar, the buyer of call options at 96 would exercise it for a wee gain. Put option would lapse.

ok,

Q1, it was FCE and we had to calculate the required return on reinvestment based on the forecast reduction of the reinvested cash flows of 10% (b) and the forecasted revenue growth of 6% and i found it to be 60%! i wrote down it’s too high but went on the calculate the Ve using FCE (i also deducted interest x (1-T)) but i did my working of interest in 1 line, and i’m not sure if the examiner will realise what figure is what! i had no time!

Futures question was too easy. Embarrassing for P4 level. By reading some comments above i realised i left behind the b part of Q3 for 5 marks! silly me! i must have done the npv and went on with Q1…

Q1
(A) why acquisition fail and how to ensure acquisition do not fail.
(B)(i) estimate Dharma co current value and estimate additional value created from the acquisition.
(Ii) estimate number of share exchange for the share exchange offer method.
(iii) calculate percentage gain for the cash and share exchange method
(iv) discuss the shareholders reaction and state assumption
(v) estimate cash available from operations to fund cash payment method
(vi) impact of reduction of dividend

Q2
(A) calculate the bond value when AA and when BBB
(B) Reasons credit rating was downgraded by credit agency
(C) impact of the downgrade in credit rating on the ability to raise finance

Q3
(A) investment appraisal and assumptions
(B) drawbacks of 2 transfer pricing method – 40% contribution and at cost

Q4
(A) 3 interest hedge method
(B) ???
(C) ???