AFM*** ACCA P4 March 2018 Exam was.. Instant Poll and comments ***

For what seemed to be straight forward questions I think it was a shame not to have done well. Panic city. Did anyone get the equity value of the target to be 1,556m? And was the combined equity value lower than the equity value of the main firm? Best

Also my APV was negative both before the finance impacts and after. As losses were around 50m in the first two periods, they more than absorbed all subsequent profits... I.e. i had a zero tax bill for the whole project. Anyone else? Thanks

This is fair P4 exam and should be the standard. The only challenge should be time management. I wasted valuable time on areas I knew and didn’t utilize time allocation properly. My combined value for both companies (Forroso and Chipeke) was $14,551m. Also my synergy (additional value) was negative and not beneficial. Don’t know if I’m right. Question 1 was fairly easy. One could go a good shot at all the questions, but I did it last so I had to spot questions where I felt I needed to earn more marks. I just hope the approach was right. I did question 3 and 4 as optional.

Anyone calculated WACC for APV in second question? how did you do it? were anyone able to regear beta equity that ungeared from Harmony beta (or dont know what was the name of the company at the end)?? about questions. What I remember were: 1. a) switch from organic growth to acquisition. directors discussing how to acquire new entities. the same industry or new industries? or the same industry but new companies. b) option pricing c) i) equity value of acquired entity ii) equity value of combined entity iii) discussion about calculations d) explanation of terms like: mandatory bid, equal treatment of shareholders, poison pil, crown jewelery when defending against takeover bid. 2. Adjusted NPV calculation 17 points and b. specific discussion (dont remember) 3. Black scholes, 4. a) Forex Hedge VS money market hedge (9 points) multinational holding company, netting of payables receivable against group companies. (7 point calculation and 3 point discussion) c. Transfer pricing.

I got equity value of the target company something between 1500 and 1600. Combined equity was greater than the one of the acquirer. APV was positive and it was some substantial value . I think i had taxes in year 3 and 4.

@zero0 said: Anyone calculated WACC for APV in second question? how did you do it?

I use M&M proposition 2 formula as they had given you the regeared equity and you needed to find the ungeared cost of equity, ke^i using Ke= ke^i + (1-T)(Ke^i-Kd)Vd/Ve and then discounted via that for the base case NPV.

Just calculated ungeared cost of equity from MM formula . For that calculated values for equity and debt first. And then used that to discount cash flows.

Thanks a lot samirrules, I had ungeared and then stucked :) forgot about MM, so just used 13% in order to proceed with calculation

Do any of you guys remember what cost of equity you got using MM for the APV calculation?

Do you remember what discount rate you calculated with the MM formula?

@simsima786 said: Do any of you guys remember what cost of equity you got using MM for the APV calculation?

9% I think, seem to remember that number.

I think I got 9% too for ke

9%

The exam was fair, the only problem... Bad time planning again... I cant get use to the strict time allocation and this was my third attempt

This is my 4th attempt at this paper and it seemed the easiest so far, but that could well be due to all the extra hours studying I’d put in. I just hope for a pass, this is my last exam,. I got 9% but it’s probably only worth 3 or 4 marks. Also I forgot to add depreciation back into which ever question it was we had to deduct it on. I left a couple of questions unanswered, couldn’t remember what a posion pill was.

In Q4, did anyone use the mid-spot in calculating the lock-in futures price? I think my brain was fried by the time I got to this point rushing to stay within my time allocation. I agree fair exam but we shall see. Good luck everybody

This is my 2nd attempt, and I have to say that it's much easier than the previous one. However, time management is always a problem. I tried to answer all, but not enough time to complete, not even to look back to recheck what I had done. I just hope I did enough to pass. It seems that it is a fair exam to everyone. I guess the examiner must be stricter in giving marks, so that the pass rate should be around 30% as usual, is it right?

This is my 4th attempt n last paper, agree paper is easy this time. Hopefully can gain pass mark to end my acca life. Q1 my combined company equity value greater than both individual company equity value, even after deduct the purchase premium still added value to Chikepe shh. Anyone remember what wacc to use for the combined company? Mine like 8.84 but seems like not correct for this. Q2 my npv with -952m n financing effect with positive value end up app with positive amount. Using MM formulae n get 9% too. N financing part I’m using 5% Q4 Qs seems easy but my futures answer like better than money market answer anyone get this too? How u guys get 4mths spot rate? I think I will lose some marks here, cause I’m getting the same rate for the close up futures price n spot rate. Multilateral netting is easy too. I’m using mid point to calculate the amount into CHF currency. This is all I can remember. Good luck everyone.

I thought Q1 seemed too easy so I am sure I didn’t do it right!! Question 2 I left until last and ran out of time - I’m so mad with myself as I spent too long on q4 with the blasted futures!! I HATE foreign exchange ? I hope I pass - my final ACCA exam and 2nd attempt. I’m so over it now.

Can anyone remember the marks allocated for q1 on the mandatory bid,crown jewel and poison pills? And the equity value was it to calculate the FCF value and multiple by the debt equity ratio (40%) to arrive as equity value??

Not sure about poison pill question it was either 6 or 8 points. I did the same and used 40% to calculate equity/ debt value.

@cindyteo said: Can anyone remember the marks allocated for q1 on the mandatory bid,crown jewel and poison pills? And the equity value was it to calculate the FCF value and multiple by the debt equity ratio (40%) to arrive as equity value??

I think the mandatory question was 8 marks, as it had mandatory bid, equitable treatment, poison pill and Crown jewels. I think I multiplied it by 60% as the equity value was 60% of FCF.

This is the mark allocation I remember: Question 1) Director A/B proposal and what synergy benefits Director B had? (9 marks) Use of real options for a more accurate valuation ( 5 marks) Report structure/presentation (4 marks) Current value of equity (6 marks) Combined value of equity (11 marks) Implications and whether should take on acquisition (7 marks) Mandatory bid, principle of fair treatment, poison pill and Crown jewels (8 marks) Question 2) Apv calculation (17 marks) Discussion on convertible loan notes and whether they are the better option compared to subsidised loan ( 8 marks) Question 4) Forward and Mmh (9 marks) Netting into CHF (7 marks) Advantage of netting (3 marks) Whether a market based transfer price is a better option than a fixed price + mark up (6 marks)

There was a question about transfer pricing in Q4

Dear all. Could you please tell me: How intercompany were implemented in calculation in Q1? Where 30% premium to Equity value of target had to be used? Thanks in advance! (My 1st P paper, 1st attempt. Qs attempted q1,2,4. 4th was OK. I've converted to CHF at higher of the spread of spot rates)

Wow you have good memory. Thanks!

Hello guys.. can anyone tell me what was the weighted average asset beta that you got ? I forgot how to do that i have no idea how.. so i just used 1.42 to proceed.. This is my last acca paper and i am completely shattered with how my exam went. The paper over all was very manageable and i had a very strong grip on all the questions.. due to time constraints i lagged behind severely. I chose question 2 and 4 as i was very good at Apv.. But sadly i wasnt able to complete that question.. I couldnt attempt around 18 marks in that question

Similar situation here - P4 being last exam . Also ended up with 8 mark part of APV question unfinished as run out of time. What i did was that i calculated combined asset beta by using individual asset betas ( provided), 12600 equity value of the acquirer ( has been provided either ) and equity of the target ( calculated at the 6 mark part ). ( by sticking all that into that formula similar to wacc) . Then , proceeded by calculating combined equity beta by using combined asset beta and 70:30 debt to equity ratio ( or the other way round) as it's been mentioned as applicable for the combined company . And finally calculated cost of equity and Wacc in a usual may. Not sure. That looked like the only way to me.

8 marks was allocated for q1 mandatory bid question. Also you Wld use FCF to firm method to calculate to arrive at the company value and later take out the equity value which is 60% of the firm value

Do u remember ur wacc for combined company?