*** ACCA Paper AFM December 2019 Exam was.. Instant Poll and comments ***

Hard. Question 3 was a disaster for me. Will be lucky to get 8 out of 25

question 3 really threw me off.
Thought question 2 was okay, hopefully picked up lots of marks there. Question 1 I don’t think was hard, I just couldn’t remember and I’m so annoyed at myself! Hopefully done okay on the interest part but the hedging bit the for payment, know I screwed up.

Think I’ll be resitting March 🙁

feel better about the exam then i did this morning which is an achievement itself, attempted everything.
what the difference between a profit and cost treasury?
i made 5 points of pure educated guesses to try pick up 2-3 mark, compltely forgot what gamma was too.

@waising said:
Hard. Question 3 was a disaster for me. Will be lucky to get 8 out of 25

Same feelings here. It felt like there were such little marks available for the work we had to do? 2 marks for the cashflow and 4 marks to redo the forecast??
Q3 was a big disaster. For the $45m loan did anyone divide 45 by the present value of the 7% annuity to get amounts payable per year? I also added on 7% interest on the loan, took off the yearly int payment and the figure was the opening figure for year two. Did anyone do this and how many marks would this give? This is the only bit about Q3 I feel good about.

Q1 was good except for the profit/cost centre and gamma/delta discussion. I have to be honest I didn’t study these areas at all. Money market hedge you had to work backwards to see how much USD it would cost. Futures were better for me. Multilateral netting also came up and so did currency options and futures. Q3 was a small npv question, with VAR and sensitivity analysis…

Can’t believe the exam skipped so many core areas like FCF, WACC, projects betas etc.

Q1:

Cost centre vs profit centre required some form of mental gymnastics that escaped me on this occasion. Wrote some words. Found it hard to imagine how you would run a treasury department as a profit centre, as you wouldn’t expect it to generate income as such, based on my understanding of what a treasury department does.

Multilateral netting – did well. Nice way to ease into the calcs, providing you know how to do it. Had to use my driving licence as a ruler, having forgotten my ruler. that was a bit annoying.

MMH – Wrote an answer that made some sense, but probably got the borrowing and depositing the wrong way round.

FX futures – had to think about the best way to trend the futures price, having forgotten the method. Think what i did made sense.

Recommendation favoured the futures.

Interest rate FRA – Easy. Nothing to do except choose the right one.

Interest rate options – All the questions I had done previously required calculation of diminishing basis, whereas on this one they did it for you. Whilst that made it easier, it actually threw me a bit. I suppose one gets used to following a method. I think I did it OK, although the APR it came out with were quite high.

Recommendation was the FRA.

Bank offering OTC options to protect against delta and gamma risk – don’t know much about delta and gamma beyond the basics of what they represent, so made a few informed guesses based on that.

Last bit about the cost/benefit of risk management from the perspective of diversified investor – ran out of time, didn’t do it. Thought 90 minutes of writing time had passed, which they had.

Felt OK at this point, like I’d probably scored around half marks so far., evn without doing the last bit. Got confused about time because the exam started at 10.15. Decided I was actually 15 minutes behind. Things went downhill from here onwards.

Q2:

NPV was OK. Ended up with +1.25. Forgot how to do the sensitivity analysis but had a go. 8% was in there somewhere. Think I got the VAR calculation right.

Missed out part b to save time. Can’t remember what it was about.

Part c was about questioning the CEO’s opinions about strategic options, and it not being worth considering their value. Wrote some OK points.

Time realigned itself in my mind. Entered Q3 with 43 minutes left. Felt things were getting away from me but maybe a chance remained…

Q3:

No chance remained.

First bit about forecasting cash effect of restructure looked like it should be easy, and was only worth 2 marks, so should be done in less than 6 minutes I suppose. It took me about 20 minutes I think. Too much information to process in that time, and it was hard to assign a sensible value to the 10% improvement in operating profit for restaurants that will stay open.

Made a forecast balance sheet that didn’t balance. No time to assess whether they would breach covenants.

Wrote some words in the last bit about whether the arrangement would be acceptable to providers of finance.

Overall, I found it quite frustrating.

Overall, I found it quite frustrating.

Wow, Richard, i think we had a similar experience –

Q1 profit cost centre… i just waffled.. i checked the book there and there is not much in it
multilateral – not perfect but okay
hedging, im bad at anyway so more waffled
risk diversification thing has been asked loads of times, so i just put the old answer down about individual shareholders want risk diversification but institutional shareholders done

Q2 NPV bit i got 2 million,, but the risk thing i had no clue.. it was a very complex question with all the stuff about unit price, based on watts etc..
stuff about NPV being undervalued, i didnt really know, i just wrote something about improving reputation

Q3
strange marks set up
2 mark cash flow took a while to do
for new SOFP i was starting to feel time pressure , and i didn’t complete
last two parts were 15 marks. again it was just blah blah blah ´they are assuming they will get bank loan.. shareholders won’t be getting dividends..´

overall i think i did pretty bad and i don’t think i will pass

Q2 had a small bit where it was asked why the NPV could be underestimated. Something to do with an option to expand and option to delay. Waffled on a bit there but wrote one or two sensible points such as the co should wait 6 months for new info regarding the election is known. However management dismissed these options as the cashflows were very unknown.

After doing the multi lateral question and parts of the hedging, I had a smile on my face. Said smile turned into a faint one after finishing Q2, and after Q3, the smile was no more!

This was a simple exam technically except for Q.3 but was unnecessarily time pressured with very few marl allocation!It seems this examiner has missed point of setting this particular exam because he seems more inclined to testing time management rather than the skills.Even in offices,you need time to think and analyze the problem and organize your solution before writing it out.In this exam,this was missed out instead questions were designed with so much details but with little time to assemble the information.I HAVE SERIOUS RESERVATIONS WITH MARK ALLOCATIONS IN THIS SITTING.TOO MUCH QUESTION REQUIREMENTS WITH MASSIVE INFORMATION WITH VERY FEW MARKS.LOOK AT Q.3 a)2 marks to calculate the net cash flow from restructuring,4marks to construct a Revised statement of Financial position following the Restructuring.!This paper was unnecessary time- pressured for no good cause!If the examiner has run out of good technical questions,he/she should step aside and leave a new examiner to take over the setting.THIS PAPER WAS PURE EXAGGERATION OF TIME PRESSURE.Candidates should be tested on a reasonable balance between technical aspect and time management.I will fail this paper not because of lacking knowledge but the reasonable time pressure created by the examiner asking too many small questions which require a lot of information for little marks.The examiner missed the point here.By the way,who is the current examiner for AFM?

Hi, I think that the paper was not so hard, but I am not sure if I will pass it.

Q1 > I did skip completely part A and C for a total of 16 Marks. Then part B was a report about Multilateral Netting (6 marks > ok), FX Futures and Capital Market (7 marks > ok), interest rate options and futures if interest raises and falls (8 marks > ok), writing about delta and gamma (7 marks > maybe I got 3 marks) + professional marks (4 marks > 3 marks) and advise (5 marks > 3 marks).

Q2 > A was about NPV, sensitivity analysis (btw i got one of the 2 ratios less than 10%) and VAR (14 marks > I think was ok for me).
B was about something related to NPV and the policy the company was using (5 marks > not done).
C was about NPV and real option (6 marks > 4 marks)

Q3 > strangely was the hardest for me and the way they allocated the marks was strange.
The text was long to read with a lot of information and I spent a lot of time on it and getting few points.
A was about net cash (2 marks > OK)
B was about SFP (4 marks) I did a lot of mistakes here..
C was about to check if interest cover and D/E was achieved in the next 2 years and write about it (9 marks). I know that my answer is wrong here but at least I think I got it right about the annual payment of the loan (capital + interest). If I am lucky I could get 3 points.
Part D was to comment if investors will accept the reconstructing (10 marks > not done).

I see other comments about Q3 and it’s a “relief” to see that I am not the only one to find it difficult and a bit odd.

Good luck to everyone.

Can anyone fadom a guess of how many of the 14 marks for Q2 a were for a narrative/discussion on the result of NPv, Sensitivity analysis and Var? I did the calculations only and moved on.. ?

Ye hopefully.

Despite calculating a positive NPv and a sales sensitivity below 10% which meant therefore the project being rejected, I somehow didn’t mention this as a shortcoming in their risk policies ie rejecting positive NPVs.
Seems like a shortcoming in my exam brain..

If that was the thing on delta and gamma, I think 6 or 7 marks

If it was on risk diversification, 5 marks