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The FRA question in section B really confused me as well. No matter what I did I couldn’t calculate an answer that was remotely close to any of the options so had to guess in the end. I definitely spent longer on this Q than any of the others in sec A/B
Hi there yes I had same question. There was one Eoq question in section C to calculate about the cost in part b there were ratios to calculate and WC policies aggressive and conservative.
Don’t know if you remember there was one Npv question in section A my answer was negative npv
Also Fra question in sectionA I choose the answer 30k something
Section B question 16-20 were okay
There was question in section B in relation MM theory about WACC or so
Another question in part A was about what is financial managementAre you taking about section C Npv question
I did the same 13% Npv was positive something 182…..I think I missed a question in section C. I’ve been wracking my brain trying to remember doing 5 questions but I only can remember 4.
. Calculate WACC
2. an EAC
3. Something about whether issuing shares will cause WACC to fall
4. Something about replacing asset at same time?
but I cannot recall any other in Section. It really is bothering me that I might have missed a question.
Can anybody help fill in this gap in my brain?The wording in these exams gets me every time. By the time I figure out what they are really asking time is up. I too was confused with the foreign exchange section B q’s
Section B was pretty awful – definitely a few questions that I spent too much time on then guessed anyway as nothing was matching.
I believe you had the same section c as me.
1a) Wacc (11 marks)
1b) Discuss whether Wacc would increase or decrease after conversion of loan notes (9 marks)
2a) EAC
2b) Discuss why EAC should be used (not sure if it was the exact wording)
2c) Discuss advantages of discounted cash flows (something like that – easy to miss if not reached the end of exam – it was only worth 4/5 marks so not the end of the world if missed).How did you find the last written question, 2c? I wrote about how Discounted Cash Flows take the Time Value of money into account. I tried to expand on this as much as I could, but couldn’t think of much more to say!
I think I used the original Cost as Year 0 then I calculated each year’s depreciation as laid out in the question. Then the balance for years 3 and 4 I used in each of the EAC calculations, as these were the resale values.
So I calculated it like this (although the figures are probably different to the exam):
Year 0 800,000
Depn 25% -200,000
Year 1 600,000
Depn 25% -150,000
etc.I had a different questions for section c: calculate NPV for the project and decide on its acceptability; divisible projects appraisal; working capital calculating ratios and comparing to industry averages, advising on working capital policy.
I know I didn’t write much (I quickly put an answer for all discussion parts – I would have gone back if I hadn’t ran out of time)… Same as you really, time value of money over length of project. I hadn’t practiced section c questions in revision enough (apart from NPV ones).
Section A: I found section A very theory heavy. Something I am never quite comfortable with especially that the questions and answers are often unclear.
Section B: Was generally ok for me, I managed to match most of my answers to the suggested multiple choices but I wouldn’t say I am 100% confident
Section C: Absolute disaster.
NPV question was ok however when calculating the PV of working capital investment I forgot it was going to be released in the final year! Silly mistake really as I knew it had to be done. I might have used the wrong discount rate on that too as I used 13% WACC.
My reasoning for using WACC in the first part of NPV was that the project was an extension to existing business therefore the financial and business risk remained unchanged.
Profitability Index question was odd. I answered by saying what PI was and that it can be used for divisible projects.The ratio question was very confusing. I wrote few sentences which I might score marks for but I realised later on that the ratios given at the bottom of the scenario were for the industry and not present ratios and I was referring to them as present ratios instead. I really hope that won’t take a lot of marks away. I just went into autopilot as I was running out of time…
Oh well, good luck with the results everyone x
I had the NPV calculation for C section.
Section A: was mostly theoretical
Section B: The question about FRA was very difficult for me, the style of the question was also not familiar.
Section C: I used 13% WACC and believe it is true. 6% was not right because it was only for debt and also we shouldn’t consider these costs because WACC also contains it. We had to use nominal WACC because there were different inflation rates. If there was one general inflation we could calculate the nominal WACC with fisher formula (1+i)=(1+r)(1+h)
I got positive NPV
question b was about working capital and there was an inflation rate we had to calculate the inflated numbers for each year, we had to consider that working capital would be positive in the last year and as I remember we had to discount it.
the third question was about the profitability index and I think most of you will get some of the marks from 5.
Unfortunately, I don’t remember the second C section question if anybody does we can discuss it.
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Yes the FM paper is 50% theory, a lot of people don’t do well because they neglect this fact!
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