FM*** F9 December 2015 Exam was.. Instant Poll and comments ***

The receivables increased due to the increase in revenue. Receivables from 24-28.8m. But the reduction in days was for an industry average. I don't recall our company offering 30days. However I must admit i possibly missed this. I calculated the reduction in bad debts, added admin costs and cost of discount and hit all that with the COC. The question was information overload to be fair. A lot of unnecessary gibberish to jumble around numbers.

@misschile100 said: Yes I did inflate them

Just for clarifying. I hadn't known there were two ways of doing this one, one of them is the one you mentioned. The other one, the one that I'm familiar with is to calculate contribution without inflation, then discount the cash flows for each year using real rates. It's a win win situation for us. Yipeee!! After reading your comments I was afraid that I might be wrong so I confirmed with dec 2011 paper.

@ehsanshah said: You need to take assumption here... 75% will take discount and pay in 30 days.. + rest 25% will pay normal.. soo these two add up make receivables after discount...

This sounds correct. Adjusting the days is something I forgot on the 75% uptake. Rookie mistake. I know my adjusted AR is wrong anyway yippee. Lol.

Hi guys, Did anyoene put net reasible value as the answer for 13 or 14? And what about mcq no. 5 and 20?

@ehsanshah said: Credit discount will decrease Days to 30 for 75% customers.. and overall affect decrease in Receivable

Exactly what i did, assuming that 75% of customers taking up the discount will mean that 75% of customers will pay in 30 days. 2880 x 0.75 x 30/360 and the rest remained at 51 days. 2880 x 0.25 x 51/360

Well ive put the book value there ;). I think am wrong

I remember MC20 That was Dividend 4 years ago = 0.12, Div now = 0.17, cost of equity = 11% So g = (0.17/0.12)^(1/4)-1 = 0.091 and Price = (0.17*1.091)/(0.11-0.091) = $9.76

There was an Mcq where equity beta of one company was 1.2 the target company's beta was also given so did you take 1.2 while calculating Ke??

How much does the bank have to pay company, annual interest is 4%. options are 45, 50 k. I don't remember the rest. what's the right one?? I guessed it as 45 k

Forward hedge was acceptable since leading was expensive after taking into 6 months interest. Wacc was decreasing NPV was +ve 1000 Discount was not feasible

The exam was fair Question 1 to find he market values was easy Question 2 leading was cheaper Question 3 Cost/Benefit was a little hard I could not remember how to do it, hope my steps earn me marks Question 4 NPV positive, hard and soft capital rationing Question 5 WACC reduced from 11.4 to 11. part b I spoke about modigliani and miller theory of dividend irrelevancy

Early settlement was beneficial. Cost = 108000+ 35000 (admin cost) Benefit = 648000 + 8000 (decrease in bad debt)

I personally find this exam a bit hard. Q1,2,3 is the hardest for me. MCQ is okay. Section B Q1a) I got 38.5% D/E ratio. Q1b) Didn't know what this question is about so i just simply calculated interest cover and D/E. Interest cover is 4 point something. D/E is 56%. Then commented financial risk increase so shareholders require higher return, and share price may decrease. Q2a) Chose lead payment as it's my first time doing lead payment question. So i just simply did it. Didn't know interest have to be included :( But the money market hedge i calculated is more expensive than forward exchange if i remember correctly. Q2b) Skipped. Q3a) Benefit > Cost by 373k. I got a revised receivables day of 35days. Saving in finance cost 24k. Cost of discount 108k but this is wrong I guess. Reduction in bad debts 12k. Q3b) Forgot what i wrote but I know it's wrong after checking the technical articles. Q4a) NPV is 1336k something. Incremental WC i put it in Year 0-3 with no recovery (wrong again). Q4b) Hard and soft capital rationing. Q5a) Current WACC - 11.4% , Revised WACC - 11.1%. Q5b) MM irrelevancy theory only because I couldn't think much anymore. Let's just hope we can pass this paper!

Not a bad exam. Good luck all.

Can someone discuss like what they did for mcq I can't remember the exact order of answer but I remember some details. Please someone help

@genty said: There was an Mcq where equity beta of one company was 1.2 the target company's beta was also given so did you take 1.2 while calculating Ke??

Proxy company's debt/debt+equity ratio was 0.25 so i assumed that debt is 25 and equity is 100 - 25 = 75. you have to ungear the proxy company's equity beta to get the asset beta so 2.0(75/75+25) = 1.5 (Tax is ignored on this question) And regear it with the capital structure of the investing company (100% equity financed so no debt here) 1.5(100/100) = 1.5 and use CAPM to calculate the discount rate with equity beta of 1.5

The exam was jst ok although I also inflated the fixed cost by 4.7% but I managed to get the npv positive well the mmh was acceptable and the wacc was 9.%

@dreamscars said: Proxy company's debt/debt+equity ratio was 0.25 so i assumed that debt is 25 and equity is 100 - 25 = 75. you have to ungear the proxy company's equity beta to get the asset beta so 2.0(75/75+25) = 1.5 (Tax is ignored on this question) And regear it with the capital structure of the investing company (100% equity financed so no debt here) 1.5(100/100) = 1.5 and use CAPM to calculate the discount rate with equity beta of 1.5

I thought they had given the target beta as 1.2 :/

I got debt/equity around 40%. Interest cover of the conpany was 6 times. So, 6= PBIT/ 0.84+ 0.60 PBIT would be 8.64 But after new investment, PBIT would increase by 20% which means 10.368 (8.64*120%) Hence it would decrease interest cover ratio which was already below average sector. Revised interest cover= 10.368/ 0.84+ 0.60 + 0.80 4.63 times. The interest cover falls from 6 to 4.63 times

Not in correct order. My answer in bracket. 1. Project specific cost of discount. (11%) 2. Equivalent annual costs for replacement. (20120 something like this. Remember it was C, or the third project.) 3. Transaction risk for a company with subsidiaries ( 1,2,3 ) 4. Reverse yield gap ( Chose A, but should be C ) 5. Perfect capital market in MM theory 6. Total shareholder return ( $9.76 ) 7. Discount money market instrument 8. Traditional view about WACC I think. ( 1,4 ) 9. Future spot rate using purchase power parity 10. What's most relevant to someone selling a company. ( NRV ) That's all I can recall. There are some questions asking to choose the correct one. Do you mind adding in what you remember? :)

@alexanderrobert1989 said: How did people calculate the Debt to Equity in MV terms in the first question along with profit? If reserves were included it massively reduced the any levels of gearing?

We got the share price, so I times that by the number of shares. Then calculated the MV of Debt from holders perspective. My DE ratio was like 0.10...

@alexanderrobert1989 said: How did people calculate the Debt to Equity in MV terms in the first question along with profit? If reserves were included it massively reduced the any levels of gearing?

In terms of profit, you have the interest gearing which is profit before Interest and Tax over interest paid. So you can workout the profit levels. For part b, i wrote that the interest gearing level was low, loan note was high-interest, even though d/e ratio was low compared to the market, it was a lower-quality loan note given that there is a risk that the interest will not be payable.

@alexanderrobert1989 said: Exactly, Equity: Ordinary x Mv shares and Reserves Debt: MV of debt and New debt Yeah I did the same, gearing levels were low against the market average but interest cover went down so they were below market value. Everyone seems to have ignored reserves?

I didn't add reserves as the market value of shares should already have it in consideration. But unsure lol.

@farhantahir786 said: I didn't add reserves as the market value of shares should already have it in consideration. But unsure lol.

Only ordinary shares are included when using MV. If using BV, reserves will be added too.

Guys the wacc with the introduction od the loan is lower , however the wacc rates differ , other say 10sh ans others 12ish. It all depends on the rates used to find the irr of the loan

@chris165 said: True but to calculate the finance cost you need to know the number of receiveables days before and after. Just because 75% of customers pay in 30 days doesn't mean average receiveables days cannot remain at 51.

Of course it does!!! It means the remaining 25% of customers remain at 51 days and the 75% take up the 30 days!!!

@shayanacca said: I got debt/equity around 40%. Interest cover of the conpany was 6 times. So, 6= PBIT/ 0.84+ 0.60 PBIT would be 8.64 But after new investment, PBIT would increase by 20% which means 10.368 (8.64*120%) Hence it would decrease interest cover ratio which was already below average sector. Revised interest cover= 10.368/ 0.84+ 0.60 + 0.80 4.63 times. The interest cover falls from 6 to 4.63 times

Agree entirely - just what I did!!!

Hi does anyone know when ACCA will release results? Or if open tuition will be doing there own answers? TIA

@sams1987 said: Hi does anyone know when ACCA will release results? Or if open tuition will be doing there own answers? TIA

18th Jan. Details are on ACCA website along with policy of publishing only part of previous papers and no MCQ,s. OT can't answer what they can't get hold of.

@chris1975z said: 18th Jan. Details are on ACCA website along with policy of publishing only part of previous papers and no MCQ,s. OT can't answer what they can't get hold of.

Hey did you get 40% gearing? i didnt include reserves