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Wow, that was tough.
Just got completely stuck on the first question, didn’t know what they wanted us to do.Also really struggled trying to work out what they were getting at on the text questions.
It was easily the toughest exam I have taken yet. Funny as I actually did the work for this.
First questions was the easiest I think – synergies were 1026.51mn I think and then allocated the synergy to both shareholders vi both offers. Gearing I wasn’t so sure off. Before acquisition it was 32% I think, with a cash offer it jumps to 40% and share offer down to 28%.
Think I got 32% gain for cash offer for Kennedy and 33% with share for share offer. Can’t recall what I got for swift’s shareholders. 800mn shares of swift and additional 300 or 400mnn created.
P/E ratio was 18:7 for swift and I think 12sonething for Kennedy. Total value of combined entity was 6597 or something like that
The hedging question was difficult and I prepared the most for this. I completely skipped currency swaps so had no idea what to do. Even so, the first question about the receipts in usd and the payments I think you had to use money markets e.g take the residual and borrow residual/interest for four months but I didn’t have time to do it unfortunately.
The last question was tough. I knew I got the answer wrong and I just didn’t know how to treat the additional tax payment with the remittances. I have done every past exam question but I just never came across this.
The question was really quite confusing. The hedging of the reciepts and payments. only forward rates and then info on swaps, got me confused as i was expecting more detailed hedging question, I had to scan again repeatedly to make sure there was no futures or options to work on. Or may be i missed it. for the swaps I think i got it. fairly easily confusing i would say
In the hedging question, we had to take the net payable US $ and hegde it using forwards abd money market. Is that right?
Drenuba I could have written this response – same answers for Q1 as you and then really struggled with the rest.
oops I think you are right. so tensed i missed that. correct to net payments, lol and to think i mentioned netting in my discussuions hahaha
Q1 was the most challenging for me. Net Asset valuation was no where close to the valuation as per the other methods.
I just realized that I forgot to add back interest to the profits while calculating FCFF.
Also I’m not sure about my PE and wacc calcualtions. Anyone remember the answers you got?
My pe and fcfe had almost the same value, my net asset was defo wrong and my dgm was around 3000? i used ke, as we can only use ke for dgm. How much did yall get for dgm?
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Q1 value the equity in company being unbundled using net assets, PE, FCFF and div valuation model I think 24 marks for those split into 3 8markers. Then 11 marks for discussion on the unbundling I think and 7 marks on theory and then 4 final marks for another theory topic?
Q2 APV 14 marks
11 marks on considerations of the shareholders or capital providers? Left this last and ran out of time so not hopeful of even getting half marks on this question.
Q3 FX hedging using money market hedge and forward rate. 5 marks. Forward rates were 3 months and 1 year but the net receipt was in 4 months? This threw me off but calculated both.
Currency swap 5 marks
8 marks value a project using the swap and without the swap
7 marks on how to manage transaction, translation and economic risk
All in all very tough with the time given to complete and understand what is needed to be done. Not overly confident but can only wait in hope now!
Yeah we definitely had to use money markets which I am so annoyed about because that was an easy question. For whatever reason, the forward rates confused me. Receipt was due in 4 months yet quotes for forwards were only for three months and one year. So wasnt sure how to do that. I
Q1 – unbundling
Valuation based on net assets valuation, FFCF valuation, PE ratio valuation, dividend valuation
with some WACC, ungearing and cost of capital involvedAll arrived at different values (pretty volatile)
Q2 – APV
Basecase NPV negative
APV negativeProject shouldn’t be undertaken based on it but it had strategic advantages
Q3 – hedging & foreign investment
Netting + Forward rates couldn’t be used because they had expired (3 month forwards given, receipt was in 4 months), only money markets were applicable way of hedging.
NPV without the swap negative
NPV with the swap positiveThe questions were really not like the past papers at all I found and really throw you out when past papers have a similar format but then the current paper adds in different ways of asking and questioning.
The first question i did was the hedge question~ The question is very confusing, dont really understand what the question asked (because dont understand “5marks” calculation could be too tiny compared to question 1 (8 marks per valuation) ~ question APV is fairly past paper format, question 1 is “surprised” which could be cut into 10 marks questions i. Section b because I was expecting Massive NPV calculation and exchange rate and imports and due taxation etc. very nice part 1 asking why L strated as unrelated the decided to unbundling, I almost copied the whole section of the background information. But lost 4 marks for fiscal problem which is also very easy marks. ~ all calculations element in todays paper were confusing.
can anyone remember the mark allocation for calculation for Q1 unbundling part as well as theory part?
I am doing a post audit review on this paper….please let me know if interested to discuss further.
My email stephenlausw@gmail.comBut according to me , there was sufficient information provided to calculate 4 month forward and forward and money market hedge give same result ,so netting is sufficient , isn’t ?
Why no foreign currency or interest rate hedging
That was sure shot 25 Marks
The only upside is It will come next time when I resitthe keyboard and mouse provided in the centre based exam was horrible. this was also one of the reasons of me not completing the paper on time. should i appky for mitigating circumstances.. will this issue be considered?
@Brobs91
Can I know how you got negative base case when there’s no outflow in the first place…And how did you work out the hedging part for Npv with and without swap? Is it in our past year practice?? Based on past year practice, the closest is Buryecs question where the swap is strictly exchange rate. But this question it’s more on interest rate swap….meaning in part (b) you work out IR swap but in NPV q you convert IR swap into exchange rate????
Question stated in the first section it was considering a 600m investment in Rupees. It gave the after tax inflows in the 3rd section.
With the swap (150m RR) if I recall reduced the investment so 450m was normal capital and 150m was the swap. The swap was then an inflow on year 4 exchanged at the current spot rate as the q stated to swap it back.
Yes Buryecs was very similar and a question from June 11
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