- This topic has 6 replies, 3 voices, and was last updated 8 years ago by
.
- Posts
Dear John
This is probably a bit of an awkward question. However I came across 2 exams where significant marks were available for discussing the assumptions made when doing question 1.
although these assumptions will be dependent on the case scenario, I was wondering if there are a few “general assumptions” that can be included, ones which will probably be applicable to all types of scenarios?
Dec 2013 have 14 points available for this, however I struggled to get 14 points worth of assumptions in the direct question.
Thanks
It is an awkward question 🙂
It is hard for anyone (including me!) to be able to get the full marks for anything, but remember that you are really after at least half the marks on every part of a question, and that you should be able to get. The only ‘general assumptions’ that I can think of are things like assuming that operating flows occur at the end of the year (unless the question says otherwise), and assuming the debt is risk free ( and therefore has a beta of zero) if you are needing to use the asset beta formula.
The best advice I can offer you is to keep practicing Question 1’s and learning from the examiners answers.
Also, if you have not already watched them, I have recorded some lectures working through several recent question 1’s – you can find them linked from the main P4 page.These are the common assumption usually taken,
1- Assume that the cash flow and growth are accurate
2-If working capital information is given than we assume that year 1 working capital is taken from debt and rest is taken from the project itself
3- We assume that when two entities have similar operation than the business risk is same but It may possible that business risk could be different due to the geographical differences, etc.
4-Deb has no affect on credit rating unless other wise stated.
5 Often in exam government interest rate is given and we assume it is the risk free rate.
Sir please identify if I am wrong any where.Thanks John and Hashim.
Will keep those in mind, obviously making sure they are relevant to the question.
I started doing the revision lectures yesterday afternoon, and it all seems so logical when you do the question, but when I attempt them not so logical. 🙂
But thank you, I will keep practicing until the exam.
- You must be logged in to reply to this topic.