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I think for those that have had sufficient time to study it was a fair paper.
I unfortunately did not have sufficient time.
Q1- was business valuations abit tricky
Calculate ke and cost of capital, and work out equity value using earnings yield, dividend and FCFf.
Q2- NPV, IRR, MIRR, VAR
Q3 – Hedging FX – I made an error and added the options premiums instead of decreasing.
Time wasn’t on my side.I really struggled with question 1 .. business valuation. This is my final exam and I really wanted to be done this year but it doesn’t look like it will happen ??
struggled with question 1 … business valuation it is disastar . This was my first attempt on AFM & my last try to end ACCA under 7 y rule but it doesn’t look like it will happen ? they are happy about resits & how their exams are diff. they don’t care about learn the knowldege – why we re unique bec no one can pass easily
Anyone who found Q1 easy could you confirm how you’ve calculated the KE and WACC and equity values.
Same as everyone struggled in Q1 business valuation just too much data to deal with i wrote it all but doubt its enough and correct
For me, it was:
Q1: Business valuation: ke and cost of capital, then to find equity value by using earnings yield, dividend and CF
Q2: NPV, BSOP medol: delay project for 3 years
Q3: Netting, Forward contract + Money market hedge, Treasury functionI also had same
Question one was business valuation. I started this part last which I think was a bad idea because I had limited time to finish
But I made sure I did the theory aspect which was on revenue and cost synergy and why revenue synergy is difficult to determine. And the availability and confirmation bias.
Then the WACC and cost of equity I did the whole gearing and re-gearing. I don’t remember exactly what I got but I had 9% and 10% or so. I could only start on dvm and earning yield and then time was up
The currency hedge was okay. Not sure how I did though
The investment was okay until I realized I didn’t take square root for VAR which is eating me up. And the investment appraisal I didn’t show working capital which I assumed somewhere should be done with inflation.
Overall I hope I have done enough for the 50%.
All the best everyone, we shall surely pass:)Does anyone remember what was the amount to be received in foreign currency in the Q2 (something like 208m?….)? I remember that the contract size on both futures and options was 5.000.000 and therefore there was not perfect hedge…. Does anyone remember and confirm that?
Do you remember what was the amount to be received in foreign currency in the Q2 (something like 208m?….)? I remember that the contract size on both futures and options was 5.000.000 and therefore there was not perfect hedge…. Do you remember??
Do you remember what was the amount to be received in foreign currency in the Q2 (something like 202m?….)? I remember that the contract size on both futures and options was 5.000.000 and therefore there was not perfect hedge…. Do you remember??
First i find the ungeared asset beta of the acquirer co then to get asset beta of combined co. I calculate the average asset beta of 2 company by the operation percebatge.
Then regear it by 50 50 percent of equity and beta ratio .Then i use capm to get cost of equity
I did exactly the same….. and if a remeber well i find 13% Ke and 9% WACC (or something like that)…..
Do you remember what was the amount to be received in foreign currency in the Q2 (something like 202m?….)? I remember that the contract size on both futures and options was 5.000.000 and therefore there was not perfect hedge…. Do you remember??Yes i also get 13% ke and 9% wacc by using 50:50 capital structure.
Yes on number 2 it is not perfect hedge then i discuss the impact of imperfect hedging on using future and option.On forward rate i use the selling rate to change to dollar .
On future i use lock in rate method.
And on option i use put option and decreae the premium payment.Did you use forward on futures and options to cover the un-hedged portion (since no perfect hedge) or just discussed about? And a last question in the q1, and more specifically in the dvm, did you find the growth rate 10% (for the combined entity after the upward adjustment)?
Thanks a lot in advance!!!I have only just discussed as nothing is stated on the question to hedge the uncover part by forward .
And the dividnend growth is 6.85 i think, to be honest i have not completed dividend valuation model.To tell you the truth I saw that the question did not mention anything about the unhedged portion but I used forward becouse how could have the outcome if I have not hedge the exact amount?
Regarding growth rate actually it was something like 6% (I don’t remember the exact figure) but the question said that this growth rate expected to be increased after the acquisition by 3points (something like this) and that’s why the final figure used in dvm was 10%….
Thanks a lot !!!!Right…. I fund 9% the WACC by using this gearing (50/50)….. And if i remember correct i found the Ke at 13%…. Also i used Ke for the valuation of equity under DVM as appropriate discounting factor and WACC for the valuation under FCFF method….. Finally i think that both 3 methods (P/E, DVM & FCFF) gave me an equity valuation for the combined entity of aprox. 1.600 (more specifically all approaches result to a figures between 1.600 – 1.700)…..
I think your result is same with me.
I thought i use 1200 equity and 400 mv of bond for wacc by error .but i dont think thats the caseThank you very much
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