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You and I did the same thing. This was the most straight forward question. The bank charge 7% per year, while the lease payment has a minimum interest of 0.0077; therefore the lease is more attractive – cost less when compare to buying the machine with loan and maintenance.
I am asking the lord to grant me divine favour in this with a pass – 50 and over. I am tired of this paper; always failed marginally.I found lease a better option than buy. However, my mind went totally black as I forgot to inflate accumulatively! How stupid am I?
you don’t need to recover it when the project is going on. the question tells you the machinery for example will be replaced. this means you don’t need to recover the working capital. But today the project would terminate at the end of the period, so you needed to recover working capital. Hope you did!
It is not tricky – the value of the discount saved and compare it with the bank rate. The discount is preferable. 1/99*365/30* the Pbles. The savings out weight the BK.
@cardine – so am I… F9 is unfortunate for me and I hope I can tick it out – I will see 😉 Next time I’ll get sick of this study text 😀
I have similar answers as you write here, so maybe a part of my solutions are right! 😀
I can agree that after 15min of reading it seemed doable and quite ok, but then I got messed with leasing a bit and I suppose my cost of inventory holding was not correct – this question seemed quick & easy at first sight but then I got stuck in average inv.God bless the examinator to be in good mood when checking our work! 😉 Just give me 51 and I will be fully satisfied!
Junekiarie:
the company keeps 40% of the monthly supply for buffer inventory. so 10,000 units times $1 plus your holing cost based on EOQ
Hi all,
Does anyone know what would be a good combination if you wanted to do 2 Professional papers in June 2014?
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Twas a fair paper though. Thank you Mr Moffat
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messed up in question 4. though i thought the questions were easy
Did no one else think the examiner played word games on the written?
When you first read it, it all seemed straight forward, then towards the end, I re-read again and it seemed he wanted an explantion for something completely different.
Maybe I’m reading too much into it, and seeing what he asked for as more complicated than it was.0.89 was the right answer because the company was very low geared, only 10% debt compared to industry average of 25%
For you – Reeb1350: P3 and P5, similar stuff, but nuff wuk!!!!!!!!!!!! Who is Mr John, is he the tutor on open tuition? Please work the paper on the week-end if you can. May this my you can achieve a better understanding which will help cross-over.
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Easy! =)))
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you have to regear it, 0.89 is ungear Beta
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I’m using the book value, ie: 0.89 x 8000/ ( 8000+5000×0.7)
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Correct answer.
Q1.Isn’t it positive NPV for PART(a) & (b)….and both acceptable ?
Q2.The project specific WACC was much less than the actual WACC ?
Q3.EOQ lead to cost saving …right ?
Q4.Leasing was the best option , but,which discount factor to be used ?@umerkhayam I hope you pass this time 🙂 Keep in touch and let me know about your results!
Maha
I thought for NPV question since research cost of (200,000) was sunk cost so did not take it.
I discounted leasing with 7% , which was given as an interest in “buy” option. There should be a discounting, as it was 10 point question. No discount rate was given for leasing….finding it via IRR I thought it would be not correct, in my opinion, so I discounted with 7 percent
In Q4 , I discounted leasing with 7%
In Q2 , I got betta something 0.88 or 0.89 do not remember exactly, but surely it was below 1.00
In Q1 there are two different NPVs, but both were acceptable for project
Anyone solved like this?
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