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Hi Mr. John Moffat,
first of all I would like to congratulate you for the good work in this forum.
I have a question concerning the marking scheme on the last exam. If in a question about currency hedging, we use by mistake the selling exchange rate instead of purchasing rate what will be the impact in the scoring process (in a question about 15 points)?? I am asking that because it has plenty hits in the question (expected basis, lock in rate etc), shall I lose all these points?
Thank you in advance
Thank you for your comment.
You would not lose all the marks assuming that you did the other things correctly. I cannot comment on how many marks you would lose – I have not even seen the question.
Hi Mr. John. Hope you are doing well. Please Sir I want to know something. I wrote the AFM exam in June and one small calculation in Q1 got me confused because I have never come across anything like that before.
It’s about how to calculate the cost of equity. The question gave the following information for company A and B:
-“A” had its cost of debt(8.7%), its market values of equity($50m) and debt($21m) given but it had no cost of equity (so it needed to be calculated).
-“B” was an all equity financed firm with its cost of capital(10%) and its market value of equity($27m) given. “B” operating in the same industry as “A”.
There was no other information like risk free rate, market premium etc that we could use in the CAPM or MM formulas.
So Mr. John how can we calculate A’s cost of equity in such a case??
In the exam I just assumed something and moved on. Thank you sir for any possible clarification.I cannot comment on the recent exam because I have not seen the paper. Maybe it was an APV question in which case the all equity rate for A (used in calculating the base case NPV) would be the cost of equity for B (which would be equal to B’s WACC since it is all equity financed).
However, please do not expect me to comment more because again I have not seen the exam.
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