ACCA Paper AFM September 2020 Exam was.. Instant Poll and comments

What were the q’s like?

Debt valuation, WACC, CSR,
NPV with remittance, Hedging (currency)

Overall was not a bad exam but I’d like to see ACCA formulating some data with more clarity. It’s not like in real life you don’t ask for clarifications.

Found that land valuation/ depreciation in question 2 awkward- anyone understood?

the machinery depreciation was 700m/4 a year
The land I think has a sales value of 75m*1.08^4

The sales unit confused me, but later I realised it is for manufacturing cost, but no time already

How did everyone treated the bonds? Did you divide the number given by 100 and then multiplied by market price. I did not divide amount of bonds given by 100 as thought it seemed like very little debt that way, so just multiplied straight away by 104 or 108. Anyone?

Yeah that’s what I did, but it was total market value of bonds for wacc calculations I’m worried about.

You didn’t need to tax the gain as it said tax-exempt 🙂

I had no idea what the NPV was either 🙁

The exam wasn’t bad, I performed well on the discursive questions. I aced the hedging question. Had like 1 hour, was confident I would pass, but then that last 1 hour was spent trying to understand what the hell the transfer price of €10 euro, manufacturing cost, the 30% annual rate for the land and building disposal meant. I found it quite difficult with their wording of the scenario. Initially I thought I had to work backwards from the pre-tax contributions to arrive at the revenue.

Can someone confirm when it says that inflation rate were to be kept at 10% for the remaining four years, does that mean there was no need to inflate the figures as the inflation is to remain constant? Or did it meant I had to inflate it at a constant rate at 10% year over year?

When I think of the exam after the fact it doesn’t seem super hard, but i made it soo bad:(
Totally confused by yield-to-maturity, easy marks lost…
Hiw about the sentence about dividends in Q3? How you apply it to the calculation?

Well that was exactly what I thought so I scratched that and went straight to multipliying. As they later say they will invest 60mln in NCA, so those new bonds would not have been sufficient otherwise

Exam was not hard but complex.
Q1. (A) Calculate cost of capital was easy.
(B). Calculate mv of bond. Revised ke and wacc. Was not difficult but information gathering was complex.
FORGET OTHER REQUIREMENTS. I attempt for 22 marks as i run out of time.

Q2. pre tax revenue was given. We need to deduct fixed cost to get operating profit. Then deduct tax and add TDA. Then allow working capital and then remit cashflow.
After this as components cost was already included in cost. Therefore ignore cost but charge tax (tp-cost)* inflation *tax. And then i applied discount rate. I get -ve npv and proposed to use apv instead of npv as npv ignore financing side effects.
Other areas it cover includes political, economical, compliance, ethical and cultural risk.
Q3. Currency risk hedging. Forward rate was of first choice then futures and options. Lockinn rate, i calculate using september future and and think was about 40 contracts use future and .08 contracts hedge using forward rate. Similarly for options, as it was receipt case and so i will be selling currency and contract size was given in R currency- i use put option which gives lowest receipt.

Let me know if i missed anything!

I was confused I thought current swaps and forex swaps were the same thing. I wasn’t even sure how to answer it.

How was wacc calculated after the issue of bonds? How did you reflect all the bonds in the calculation

So hard to tell how that went but i suspect not well.

Q1) Definitely wrong, bond value i somehow got was $108approx and left the ytm

Q2)I got a positive NPV of approx 14m with land and buildings being worth something like 230m and this as an inflow in year 4. Hoping that even if im way out, my justifications and explanations make sense and i get some marks.

Q3) Went for sell futures and buy put options. Said that forwards gave the best return and then talked about it.

Completely in the lap of the gods