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

I got wacc approx 12 .7 something

@citrus1986 said:
My advice would be to wait until you get your results, you never know, plus it will give you much needed rest.
In the event you do fail my advice would be to go practice every question in the BPP practice kit and to read the technical articles. I would aim to do 2 of the 45 min questions each day in the week and 6 on each of the weekend days. Thats 22 45 min questions per week which means you’ll need around 3 weeks to get through them all. As you will have around 6-7 weeks from results to exams I would repeat again for another 3 weeks and then spend the last 1-2 weeks doing 1.5 hour questions (1 per day in the week) 2 or 3 per day on the weekends (Do these under timed conditions). Aside from that during the whole period you should be watching John Moffats videos, he has around 60 on AMF and they cover everything you need and make it very clear. Watch these alongside the 6 weeks you spend doing the 45 min questions.
There is no such thing as reaching your limit its just a matter of practice.
This is just the approach I would take and everyone is different so do what works for you but hopefully you get some value from this.
PRACTICE PRACTICE PRACTICE!
Remember…
“Everything always seems difficult, until it isn’t”

This is really good advice, practice is important and more of it is very important as it helps you remember and be prepared for every question no matter how it is examined.

Hi,
Best of luck to all appeared in Mar 2019 attempt.

I am getting prepared for June, pls share precisely which topics were tested in Mar.

Thanking you in anticipation!

Q2 Interest rate risk: FRA, Futures & collars
Q1 Change of capital structure with bonds. Calculation government yield, bond valuation & yield. New asset beta & cost of equity etc. No similar past papers like it.
Q3 potential merger/ acquisition of 2 different companies. FCFE figures provided no cash flow calculations.

Q2 was probably most predictable and similar to other past papers. The other 2 were challenging!! No investment appraisal or fcfe calculations

@tural199227 said:
Guys, the question regarding hedging, I believe didnt mentioned about collars, it said options on interest rate futures. where did you notice “collars”?

I think it said option collars…
You are not the only one who did options instead of collars.

@aishling82 said:
Q2 Interest rate risk: FRA, Futures & collars
Q1 Change of capital structure with bonds. Calculation government yield, bond valuation & yield. New asset beta & cost of equity etc. No similar past papers like it.
Q3 potential merger/ acquisition of 2 different companies. FCFE figures provided no cash flow calculations.

Q2 was probably most predictable and similar to other past papers. The other 2 were challenging!! No investment appraisal or fcfe calculations

In Q3, minimum acceptable price, was there net asset of the target company? I couldnt find thats why I found MV of equity + 60% of synergy.

Can anybody tell me how we need to calculate beta asset. for first similar competitive company… I have calculated total ba of first competitor company…then it was said that it is engaged in two activity which 20 % similar to marte co and beta asset of its 80% operation was given so I calculated 20 % beta asset value of first similar company and second similar competitor has all the same activity so normally calculated beta asset by using formula and then added them both and divided by 2…..is I am right….????

@accaayush said:
Can anybody tell me how we need to calculate beta asset. for first similar competitive company… I have calculated total ba of first competitor company…then it was said that it is engaged in two activity which 20 % similar to marte co and beta asset of its 80% operation was given so I calculated 20 % beta asset value of first similar company and second similar competitor has all the same activity so normally calculated beta asset by using formula and then added them both and divided by 2…..is I am right….????

Did the same, because the finance director asked for both asset betas to be weighted equally

@beth18 said:
Best wishes with your results. Hope you pass this sitting.

Thanks a lot! Hope so too
Good luck for June sitting… 🙂

@accaayush said:
What was new market value of debt and equity you used..as I think for equity it was 100×15 and for debt I used 3 million ×mv of bondthen divided by 100

They said there were 3 million bonds so we didn’t have to divide by 100.

Very tough paper, but trying to follow everyone’s comments is so confusing

Did anyone pick up that it was 3 million bond? And not $3 million bonds? So had to multiply nominal value by 3 to give you 300 million? I missed had to change last second.. I knew something had to be wrong, why would the examiner make us calculate and regret with a company value of 1500m and 3m nominal value of bonds..

I calculated the bond price to be 105.6? But like an idiot I forgot to do the final IRR on the price at 6 percent to find the true cost of debt.

Collars I think I spend atleast 5 minutes just looking at the question. Calculate the new premium of buy call and selling put.

If interest rates rise, would do.better
We wouldn’t exercise, but the buying of output would. Still better

If they dropped we would exercise our call but the buying of put wouldn’t..

In q3, did anyone discount the fcfe valuation? I wasn’t sure has it had seemed we were given fcfe of most recent years and not future.

But had to get market value of acquired at t expected required premium of l.

Which was 14 percent? So I took no shares, multiplied by share value. And multiplied by 1.14

Using fcfe method. I calculated market value of both companies using shares.

I then added the fcfe of both companies, added the 9 m synergy (damnit was this pre or post tax) and then multiplier the fcfe multiplier of 8 by 1.05. Because the case said it expected it to rise.

I then took this value and deducted it from the current market value of both to calculate the benefit.

Took 40 percent of this and added it to the market value of l. So total price was around 600m?

Final one, I used first section (14 pecent) MV. Deducted it from the synergy we calculated. And the left overs was.be the premium company T would get.

No idea if this was correct.

And guys cost of capital is WACC.

Q1 beta, never have I seen a question with a change in both business and financial risk. But I regeared the .85 asset beta with the new debt of the company
To calculate the cost of equity of the project. Just made sense coz we don’t ever use asset beta to calculate WACC which was the final requirement in question 1bii

Good luck everyone, I don’t plan on failing but if I do I hope you guys pass.

Q1.At first calculate asset beta at 80% from company’s beta. Then take 50% of each company’s asset beta, get asset beta 0.85. Calculate equity 1500m. MV of Debt 317M, taking 3 million 100$ bonds (6% coupon, 3% premium). I got re around 10%, rd around 5%, wacc don’t remember maybe around 9%. Risk free rate as 1 year govt bond yield which is 3%. Govt yields added with BBB rating, get bond price around 105$.
APV better due to change in capital structure (previous gearing 0, now around 17%).Wrote report to board of directors.
Q2 Forward rate FRA4-8 used, got 3.19 eff interest rate and $358 eur reciept or someting, Futures June, 48 contracts, don’t remember the receipt (maybe around $346) but it was worse than for FWD rates. Interest rate collars – sell call, buy put, premium has net from sell and buy. In interest rates rise, collar gave better result, but worse if interest rates declined.
Delta hedge – buy shares, sell call options on these shares to hedge against decrease of share price. can be calculated ar N=Nr of shares/N(d1). Gamma , rate at which value of option changes, as delta changes.
Q3 Describe what will determine success of acquisition of company. Wrote about synergies – financial, revenue and cost. Describe feasability of Pacman defense and White knight tactics against hostile takeover. Wrote that it would be challenging to find buyer for $580M company, and a lot of resources needed for taking over the bidder (need to raise debt or equity)
Didn’t have much time for Q3. Calculated the equity value before and after, using FCF of both companies + 7, then multiplying by FCF to equity multiple to get the equity value after the acquisition. Then calculated synergy benefit and split to each shareholder.

I believe it said 3 million bonds i.e. number of instruments. I might be wrong :p