*** ACCA P4 June 2018 Exam was.. Instant Poll and comments ***

It is a disaster. First question is bsop. I didn’t expect that. I didn’t study this part at all bcoz my lecturer told me it already out last march. Question 2 fcff is a complicated one. I seriously don’t know what they want. Question 4 int rate hedge. It is okay, just i dont know how to do swaption. I think i fail this bad time. First time i fail so hard.

I calculate WACC as the company wanted to have a mix bt debt/equity of the engaged company.

I calculated the Ke of the Ruva company using MM2. with the rest of the data I calculated the WACC. it was around 7.2% I took 7% to make it easy looking at the tables.

No sure if i didn’t ok, I haven’t seen this way in any other practice books. I also took the incorrect cost of capital first so I have to re-do my calculations on the exam. big deal specially because my answer look messy and dirty 🙁

What did you guys think of the exam?

The compulsory question was almost exclusively from this technical article.

The second TA on real options.

https://www.accaglobal.com/lk/en/student/exam-support-resources/professional-exams-study-resources/p4/technical-articles/real-options.html

I didn’t remember clearly about all info provided about discount rate by the question… but based on my member which might be wrong.. the question provides the equity beta of a business that engages in business activity similar to project E and says that management team believe it can use this equity beta… so I used such equity beta to calculate Ke based on CAPM, then used Kd and capital structure data of the targeted company provided in the question to calculate WACC. I got 8.8% if correctly remember, and used it to discount all cash flow of project E, except for cash outflow i.e. initial investment needed by phase two as the question says 5%, Kd of targeted company should be used here…..anyway, the NPV I got for negative NPV for both phase one and phase two, which I felt odd and probably made mistake somehow….. anyway, I hope I can pass:-)

The question gave us the ungeared Ke. So we need to use the MM formula to get the geared cost of equity. With Ve = .60 and Vd =.40.

Then we need to find the WACC using the above proportion 40/60.
Long story short WACC was 11% me thinks.

For heding I did calculated 49 contracts ..based length of time which was 7 months so 7/ 3 * 105000000/500000

But suddenly I changed it to 6/3 because I realise that heding risk is only for 6 months 1 June to 1 Dec

I don’t know how much I will score or lose

No it should be 7/3 . The borrowing is for 7 months.

So I put 42 contracts …but I m afraid how much will I lose

@adurich most probably only one mark.

@adolf121 said:
The question gave us the ungeared Ke. So we need to use the MM formula to get the geared cost of equity. With Ve = .60 and Vd =.40.

Then we need to find the WACC using the above proportion 40/60.
Long story short WACC was 11% me thinks.

Mine was the same using 11%.

For delay option for PV of future cashflow. I use the figure and 11% and by until anunity table of 6 year. too.. How to use 5% when it is cost of debt . That why question ask to comment on CFO belief.

Yeah I actually did 49 contracts but ..I mixed the period of loan and hedging risk period which was 6 ..so I cancelled 49 and put 42 instead ….ahhhhhh I m feeling so sad now

Well I used same discount factor 12% on phase one ..

But also I assume the market return as it was not given..so I assumed it be 10% …so when I wasted much time calculating I realised that it would be around 12% anyway ….so I just assumed that examiner wants us to use the same project specific discount rate as this is the only project asked about ..but phase one only !!

Well these are my own thinking and assuption I m not saying these are correct but I assumed things alot ..so that I could move on in the paper .so much time pressure ..I also did not complete one optional question which was qs 2

So I really don’t know but I enjoyed doing the paper !!