*** F9 December 2011 Exam was: Post your comments and vote in Instant Poll ***

05008967

refer to the Dec 2010 ecamination question 1 is similar problem you will see its in the question that it will need additional inital investment in working capital of 250000 and that was not including in the cashlow but was added to the year 0 and not released in year4 as per exam answer on dec 2010

similar was today

Q1 After discounting at 11%
Year 0 (890,000)
Year 1 306,306
Year 2 193,166
Year 3 174,023
Year 4 156,788
Year 5 218,390
Year 6 (54,533)
NPV = $104,130

Round-up of the paper as far as I can remember:

Q1 – Investment Appraisal:
a) NPV of investing in the machine (7marks)
b) IRR (4marks)
c) Defining Sensitivity Analysis (1mark)
d) Calculation of sensitivity analysis to SP and DF. (6)

Q2 – WC Mgt
a) Cash operating cycle and it’s relationship with working cap policy etc (7)
b) Calc cash operating cycle (4)
c) Calculation of factoring with-recourse &non-recourse (7)
d) Why factor? (7)

Q3 – Biz Valuation
a) THeory – rights issue & P/E ratio (7)
b) Theory – rights issue & gearing (7)
c) TERP (3)
d) Calculation of WACC (8)

Q4 – WACC
a) Valuing the biz using; NA, DGM, Earnings Yield (5)
b) Weakness of DGM (5)
c) Don’t remember o_O (4)
d) Objectives of NFP orgs etc (11)

Overall, I believe it was a fair paper. I’m sure we will see very high marks for it. Although, I must say the paper was not without it’s tricks. Careful reading of the question’s requirements was paramount as always.
I’ve also noticed not many people are complaining about time being a problem, which is good.

Best wishes, everyone! The paper is done – no use worrying about it anymore. Just pray for the best and keep positive! Those of you who are done with exams, relax and enjoy! Those of us who have papers, back to reading. We’re almost done…I can’t wait 😀

@freshmint said:
Round-up of the paper as far as I can remember:
Q4 C was whether the shareholders were happy I think?

Q1 – Investment Appraisal:
a) NPV of investing in the machine (7marks)
b) IRR (4marks)
c) Defining Sensitivity Analysis (1mark)
d) Calculation of sensitivity analysis to SP and DF. (6)

Q2 – WC Mgt
a) Cash operating cycle and it’s relationship with working cap policy etc (7)
b) Calc cash operating cycle (4)
c) Calculation of factoring with-recourse &non-recourse (7)
d) Why factor? (7)

Q3 – Biz Valuation
a) THeory – rights issue & P/E ratio (7)
b) Theory – rights issue & gearing (7)
c) TERP (3)
d) Calculation of WACC (8)

Q4 – WACC
a) Valuing the biz using; NA, DGM, Earnings Yield (5)
b) Weakness of DGM (5)
c) Don’t remember o_O (4)
d) Objectives of NFP orgs etc (11)

Overall, I believe it was a fair paper. I’m sure we will see very high marks for it. Although, I must say the paper was not without it’s tricks. Careful reading of the question’s requirements was paramount as always.
I’ve also noticed not many people are complaining about time being a problem, which is good.

Best wishes, everyone! The paper is done – no use worrying about it anymore. Just pray for the best and keep positive! Those of you who are done with exams, relax and enjoy! Those of us who have papers, back to reading. We’re almost done…I can’t wait 😀

For Q1 NPV I got:

0 machine 800k + w/cap 90k= (890k)
1 contr 500k – fixed c 160k = 340k @11% = 306,340
2 cont 500k – fixed 160 – tax 102 = 238k = 193,256
3 cont 500k – fixed 160 – tax 102 = 238k = 173,978
4 cont 500k – fixed 160 – tax 102 = 238k = 156,842
5 cont 500k – fixed 160 – tax 102 + w.cap 90k + scrap 40k = 368k = 218,224
6 tax (102) = (54,570)

total npv 104,070

working cap was req’d at the “start” of the first period so i thought it made most sense to include it under time 0
anyone agree?

@mongadobbin said:
Then used 20% to calculate the IRR and got 16.22%
…
working cap was req’d at the “start” of the first period so i thought it made most sense to include it under time 0
anyone agree?

Yes, working cap is included at Year 0, along with the initial investment, and written back in the final year. 🙂

Ok. Q1gave us 11% after tax rate (think thats right). Were we supposed to use a pre tax rate ( ie 11% x 10/7) = 16% ?? Cos if we use the after tax rate and then include the tax in the cashflow, arent we double counting the effect of tax???
Also, i got both negative values on the factoring. Thought it looked odd and tried to see what i was missing but couldnt see it 🙁

started very easy with question ,calculation parts in other questions such as WACC and TERp were easymarkes but discussion marks were tough particularly 4d, 11 marks for discussion on not for profit vs lsited compnay seemed high considering its importance in the sylabus. Fingers crossed for feb though!

THE COST OF DEBT BEFORE TAX 7% WAS GIVEN THAN WHAT WAS THE NEED TO FIND BY IRR METHOD, CAN ANYBODY EXPLAIN ??

ALSO IT WAS BEFORE TAX SO I DISCOUNTED AT 7(1-03) AT 5 APPROX.

WAS I WRONG ??

i screwed up the easiest npv calculation ever!for shame! :S i didnt add back WC and didnt do the tax in arrears..do u guys reckon theres still a mark or two in there for me?

Yes, you will have calculated pre tax cashflows, used the DF and arrived at PV and then got an NPV. There are usually marks for all that

@munazzeel said:
i screwed up the easiest npv calculation ever!for shame! :S i didnt add back WC and didnt do the tax in arrears..do u guys reckon theres still a mark or two in there for me?

ah, I use the same way, I don’t think it should be just simply using before-tax cost of debt times 70%

I use 8 as interest in t1-t6 and DF 7% to calc the MV, and then use the MV to go into the IRR calcs.

@harripool said:
Yes, you will have calculated pre tax cashflows, used the DF and arrived at PV and then got an NPV. There are usually marks for all that