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For people who did the Section C EAC question; which replacement interval was better?
3 or 4 years?
And the other WACC question, what was the WACC you got?
I think I got like 6.8% or sth but not sure how right that is lol.
Mee too
Larisa12 wrote:Net Cost of finance in FRA question of part B was tough, i just had to guess…
I had to guess on this too! I found the question wording really confusing.. so many different interest rates..
Nikko wrote:For people who did the Section C EAC question; which replacement interval was better?
I calculated that the 4 year replacement cycle was better, as it had a lower cost by about $8.5K. Not sure if I was right though..
Also, did you calculate the Initial Investment in Year 0 or Year 1? I thought I should put it in year 1, as the machinery wasn’t paid for until a year after delivery…
Great, I also wrote year 4 is better. 🙂
The initial investment said it was paid after the first year right, so I wrote the purchase in year 1 as well.
But I started calculating the resale value from year 0, if that makes sense. Honestly I’m not sure how right or wrong that will be but fingers crossed haha
In the WACC question, there was a 9 marker which asked whether WACC would increase or decrease after the investors converted the loan notes into shares.
Anyone else got that? And what did you write?
Nikko wrote:In the WACC question, there was a 9 marker which asked whether WACC would increase or decrease after the investors converted the loan notes into shares.
I got this as well!
I spoke about the equity of the company increasing once the loan notes were converted. And that this would increase the WACC as Cost of Equity is more expensive than Cost of Debt due to debt having tax relief… I talked about the Gearing ratio decreasing due to the rise in Equity compared to Debt.
I wasn’t sure if we had to mention the Capital Structure theories (M&M, Traditional) so I briefly talked about these. I hope I wrote enough as it was a 9 mark question!
Nikko wrote:For people who did the Section C EAC question; which replacement interval was better?
Just realising I don’t think I said one was better than the other (but did say so in section B) FML!
For Forex I can’t remember what I did! For the S2 rate I did purchasing power parity twice. And for the FRA it was 12-18 at the higher rate.
Me three took a guess the wording was unlike anything I’ve seen in any past papers or study text!
I also wrote about this increasing WACC because of the equity. I wrote about the theories and tied them into the question
I got that one. I calculated that since Ke was higher..converting loans into shares was going to increase wacc more
Looking good guys. Also wrote WACC would increase because of the more expensive equity bla bla.
Hoping for some good marks on that question, what WACC did you guys arrive at?
For me there was a 4 mark written question asking to discuss the reasons that EAC should be used when appraising Replacement Cycles. I explained how EAC works, that it helps you to compare two investments of different lifetimes by calculating the Annual Cost.
Do you remember the third requirement of NPV question I kinda have a hard time remembering it
@bobbysinger12 for me I think it was to discuss the profitability index in relation to investment appraisal. Bit of a strange one as I’ve never come across benefits/disadvantages of PI alone!
Section B FRA ques absolutely terrible- no options matched an answer. I am convinced everyone did guess work in it.
Section C theory part ?
Discuss Relative Risk ? Short term long term finance
Ratio Ques weirddd
Comment on what approach they should adopt- where tf were we taught to distinguish and elect that on calculation basisIt asked for the NPV on WC, so I discounted at 6%.
They had mentioned that they were taking a loan at 6% specifically for the project, so i used 6%.
Gave me a negative NPV on both a) and b).I found section A generally okay, with the odd difficult question.
Section B was a disaster for me with a tough FRA/Exchange rates question, a confusing Business Valuation scenario and a difficult working capital/payables days question – all 3 were confusing and had different scenarios to the ‘normal’ for those areas and with so many ‘choose 2 answers’ questions I really struggled.
Section C was average – I thought the EAC question was fine however the 2 wordy questions after were strange about DCF methods and why EAC should be used. I found the WACC question pretty tough as the amount of information provided I thought was minimal and the 9 mark question afterwards was super difficult – I discussed the movement in total Equity and Debt shifting the gearing etc, traditional and M&M theories but struggled with numerical examples.
All in all – hope to scrape through, but will be closeYeah Section B (especially Interest rates) disaster with a capital D! None of my tries seem to get one of the answers so I guessed and moved on and the same for the theory parts. It’s a full fat zero out of 10 on that section for me anyway haha
Those chose 2 questions are just horrible.
yeah i got the same paper with the 9 mark theor eac ques in section c and was really tricky, couldnt gather many points. section b of this paper was a complete disaster with fra and etc, expecting very less for section b but hopefully sec a and c saves me
what did you guys do for the sec c wacc , the 100mil bank loan, i just took it on the percentage given and the whole 100 mil as the mv when calculating the wacc
On the loan I used the Interest*(1-tax rate) to get post tax rate and then used that as cost of debt %.
ampash wrote:On the loan I used the Interest*(1-tax rate) to get post tax rate and then used that as cost of debt %.
yeah this is what i did as well. Used 100m as Market value but deducted tax from the 8% (I think) Fixed Loan interest
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