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what about question 4. Did Anyone attempted. The exam cant be completed in such timeframe for sure.
Overview;
Q1 – a) real options b) i)Npv – few little tricky bits with tax and inflation in variables ii) Bsop or VAR to value phase 2? iii) report assumptions c) EU overseas invest
Q2 – dividend policy’s, valuations and comparisons
Q3 – MBI, financial reconstruction, advice
Q4 – swap calculations (didn’t even read the rest of the requirements!)Questions
Q1 Bi) anyone get a negative Npv from the project ?
Q1 bii) – was this apply the Bsop model to value the option to invest in 4yrs ?? As Npv was zero this completely threw me and i couldn’t get the calculation to work so binned it and moved on.
Q3 bii) used fcfe to value MBI ?Overall seemed like a fair paper, appreciate any feedback.
Q1 was fair.
Q2 depends if you studied dividend policy thoroughly.
Q3 was fair but not enough time.
Q4 just touched i/r swaps and determining forward rate where we have very few past year qns to practise on. Feels like i have wasted alot of time studying all the hedging qns.Q2 not sure how to get growth rate. Q3 no time to complete. Q1 did my best. Sad that i have to fail again when i studied so hard.
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@Insta55 Q1 Bi) NPV was negative. On BSOPM Pa was 140 million since NPV is zero and Pe was also 140 million t was 4 and r 3.5%
@insta55 said:
Overview;
Q1 – a) real options b) i)Npv – few little tricky bits with tax and inflation in variables ii) Bsop or VAR to value phase 2?I used BSOP – option to expand. Was there enough info on VAR?
also since the a was about real options, assumed they wanted to know about real options.1,2,3
No one in the hall took q4, afaik.
1- there was negative npv for the project, right? unless I did a booboo… I was lacking in theory. I tried Black scholes, I realise I chose wrong values.
2- marks made no sense. didn’t feel like a proper 25 question. I hated it. I would never have picked it if i had a choice. It should have been limited to a 10-15 question at most, and the rest 5-10 marks on some thing else. waste of a question.
3- Was ok, a bit time stressed. I didn’t solve this properly though 🙁
4- was so excited to see it… then realised there was NO way there was going to be time for this question. This was not an option at all. We are not robots, examiner needs to learn that.
Basically, 1 and 3 were normal questions, 2 was badly formatted, and 4 was badly timed. I chose to save time.
Talking of time… I took ~13 minutes reading the paper, so the new exam timing didn’t save me much time. It’s still a 3 hr paper.
Q1, a ii )don’t know how to get the Pa of Phase2
a iii ) how to calculate the max bid price of Phase1?Q2, a ) don’t know the trend of the last company
b) don’t know how to get the growth rateQ3 the fund needed I just add the consideration + repay for loan + redundancy cost + invest on non current assets ???
@anuj428 said:
Was there enough info on VAR?We weren’t given confidence values, so I don’t think you could apply VAR. Also stdev was given as a %age, not as a figure.
I made I made an error in determining the Pe, also I used t=10, noob mistake.
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The question stated that the NPV of phase 2 is Zero hence the present value is the same as the Initial Investment and are both 140m. So Pe=Pa and are both 140m. No need for discounting the 140m as it is already PV given that NPV is zero
Q4
(a)Yr1 pay $19.39* & rec $14*
Yr2 pay $19.39 & rec $18.4
Yr3 pay $19.39 & rec $21.6
Yr4 pay $19.39 & rec $24.84* $400~4.847%= $19.39
Need to compute Fra
Yr1 same 3.5% yield = $14
Yr2 $400~4.6%. = $18.4
Yr3 $400~5.4%. = $21.6
Yr4 $400~6.21%. = $24.84
NB: minus 20 basis- Topics: 0
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@ineves said:
The question stated that the NPV of phase 2 is Zero hence the present value is the same as the Initial Investment and are both 140m. So Pe=Pa and are both 140m. No need for discounting the 140m as it is already PV given that NPV is zeroI interpreted the question that the new investment in year 4 is 140m which I thought is 140/1,12^4 in PV terms, this is what I used for PA, anyone did the same?
In Q1 I got negative NPV of 3.8m and the option value was I think 11.5m?
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The initial investment of 140 for phase 2 takes place in year 5 so this needs to be discounted as the appropriate cost of capital. This amount will be equal to the present value of the returns from phase 2 which will be pa for the bsop formula
I’ve actually seen that question in a past question. The question 4. I nailed most part. Just had issues with the last part because there was no time.
Some of the questions were drawn from oast questions. For example
June 2013 Q2
Dec 2013 Q1
Jun 2012 Q4a and b…I did 1, 2 and 4. But didn’t do the last part of 4 because of time. But most of the questions were very much not new as such. I hope for the best now.
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@adebisialoba, what answers did you get for question 4
For Q1, got a loss before tax for all 4 years, anyone else the same?
Agreed Pa=Pe as well for BSM.For Q2, all 3 companies have market capitalization exceeding the amount calculated by Dividend Valuation model, anyone else the same? Didn’t know how to explain too.
@kakahh said:
I used 140000/1.12^7 as paFor 3- price paid is 199m? And value is 250m sth ?
I get 199 too, but I am worry that will it be that simple?
For Q2 is it need to use the gordon growth g=bre to get the growth. If so, how do you get b? Is it b= new investment/ market capitalisation or new investment / PAT ?
As qn states using the dividend valuation model P = D(1+g)/ re – g. It is not so similar to past year qns.
For Q2 dividend policies for the 3 companies, the dividend payout ratio will be determined on the basis of dividend capacity ? ie- PAT- Inv. Expense ?
Hi
Got negative NPV of about $900,000+ for phase one. Phase two – calculate value of option to delay. NPV 0 also threw me but IN140,000/140,000 is zero so focused on rest of formula. Had to use Black-scholes formula and calculate N(d1) and N(d2) – I got stuck on whether the 140,000 had to be discounted as its the value in y5, but went blank. NPV of option to delay I got $66m.
Highest offer is NPV of Phase 2 less phase 1 negative NPV.
Q2 – very happy when I saw it so was 1st choice but when it got to answering it I completely forgot how to calculate the value of the comany using the dividend payout value and ended leaving it out completely?
Q3 – Used FCF to calculate MBI. Final recommendation was for them to ask the MBI company to buy the company from them as between the $199 they are already “paying” for it and as they are already making a loss on the assets, I thought it is the best deal – IF they are confident that the industry will not recover.
All and all it was not bad. The paper was fair and I believe if I studied a little more it would actually have gone great – only had 6 days in total. Wrote P3 on Thursday and that paper was fair too but I had terrible exam tech and think I messed it up pretty badly…. P4 felt better.
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