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@irhammohammed said:
heard paper was very easyClearly you haven’t done the paper yourself.
Don’t you think that what you said is pointless in terms of contribution? You really should have some respect for the fellow people who have actually done this exam, as opposed to making condescending comments.
I also put a note in my working capital workings that I’m assuming the money will be used for w/c on the new machine.
A fair assumption I’d say seeing as the w/c is already in place from the previous machine@drey7000 said:
Clearly you haven’t done the paper yourself.Don’t you think that what you said is pointless in terms of contribution? You really should have some respect for the fellow people who have actually done this exam, as opposed to making condescending comments.
Agreed. Completely pointless and inane.
@alexanderrobert1989 said:
Lead payment is at the spot rate then you apply interest to it because you are assuming you need to borrow it. Every past exam I have looked at that is the way to do it.Usually and in the exam it was the most expensive option I think?
But with that logic, wouldn’t you apply interest from the borrowing rates on the forward contract too? What you said sounds right, don’t get me wrong. I’ve just never encountered a question asking for a lead payment, and it seems to me that if you don’t apply borrowing interest rates to it. Usually you pay interest over a period of time, and leading implies you pay right now, so no time has elapsed, so how can you calculate interest if you don’t know when you’re actually paying back the bank? Essentially what you’re saying is hedging without depositing it into a foreign account, right?
Any well prepared student could have passed this paper very easy with good time management.
However, I didn’t manage my time effectively and didn’t do almost two whole questions, so I’m keeping my fingers crossed;
The difficult topics I expected didn’t come up…
I’m just praying that I pass.
Agree with you.
Leading presumes you have the funds now. However, you can still deposit them at a bank account and get the interest rate, or you should borrow them.
I didn’t even consider leading.@ehsanshah said:
Affect on WACC decreases for me from 11% something to 10.5 %NPV was positive something around 90k
Leading was cheap.. all three were around 30k with difference of 1000 something..
Settlement discount should be accepted.. 50K something benefit… 18k something cost..
I can’t remember figures accurately so they are not precise..
Gearing was 40 something 🙁
Theory was subjective of course..
Do not remember clearly, but my answers were quite similar:
– Affect on WACC decreases logically if the cost of the debt is lower than the existing WACC;
– NPV positive; agree it starts with “9”, but not sure if it was 90k or 900k;
– Gearing was around 40%;
– MCQ: There were many “C” back to back answers in the first five questions, later followed by several back to back “B” answers. Question #6 was something I didnt know, my best guess was “C”; the rest of the MCQs are quite ok to answer within 15 mins.With regards to the Inv App question, part b on the limitations, did anyone else write about the fact that 400,000 units was the maximum that could be produced and so future investors may not invest as profits are never going to increase, etc?
Found the multi choice questions difficult.
@aimeer85 said:
I also put a note in my working capital workings that I’m assuming the money will be used for w/c on the new machine.
A fair assumption I’d say seeing as the w/c is already in place from the previous machineI done the exact same myself. But added that if the project had come to an end, the WC would be taken back in full. I think we were correct to assume this and make the point.
@alexanderrobert1989 said:
Lead payment is at the spot rate then you apply interest to it because you are assuming you need to borrow it. Every past exam I have looked at that is the way to do it.Usually and in the exam it was the most expensive option I think?
If we lead at spot, why would we assume a repayment over six months. If we are leading, surely the six month thing becomes irrelevant…..we are choosing to pay today. Conversely if we were to lag, what repayment period would we use. I believe the question said that funds for the hedge would need to be borrowed. If leading, I would have assumed this was pulled from cash reserves and paid off early. Matching the payment against the liability. I would have assumed if funds did need borrowing, they would just use the overdraft facility if anything.
I do understand your logic however and I am not saying I am correct. but following logic, borrowing for AP payments over six months is not something I would be familiar with. At my work, we pay down using a credit facility. individual payments would not be leading in the manner you are suggesting in real life (certainly at my work). But to be fair, exams and real life are exactly that lol. One is real and one is relatively fairy tale for the most part.
@asmith61 said:
With regards to the Inv App question, part b on the limitations, did anyone else write about the fact that 400,000 units was the maximum that could be produced and so future investors may not invest as profits are never going to increase, etc?Found the multi choice questions difficult.
I did acknowledge this, but left it out of my answer as unit production ceilings and profit ceilings may differ. This could be through greater economies of scale in production, labour efficiency growing thus costs reduce overall and profit goes up. Plus if the product is in high demand, there may even be scope for small price increases. Thinking back to my F5 bits here on market skimming and PED.
But again I may be wrong. As there is logic, and then there is what the examiner wants.
I also got leading payment as the cheapest option? Then MMH and then Forward. I didn’t add interest on the leading payment just used the spot rate
sorry leading wasnt cheap as they was a finance cost for leading to borrow the amount of money. the forward exchange contract was the most reasonable option
@alexanderrobert1989 said:
Gonko, you are assuming a lot. It does seem like an odd way to do it, but in the exam you are weighing up the options. Below is something J Moffat posted.“Leading is paying early, so the lead payment simply means paying the euros now, instead of waiting until it is due in 6 months time.
So we convert at the current spot.
However, in order to convert now means having to borrow money and so because of the interest the cost in 6 months time will be the money borrowed together with the interest.
(It is, of course, a silly thing for them to do – it would be more sensible to put the euros on deposit rather than pay the supplier immediately (which is what is happening with the money market hedging). Therefore it is not surprising that the lead payment is the most expensive of the three choices.”
Unfortunately we have to assume a lot in these exams as the questions are often not 100% clear. So we are borrowing to pay early. I thought the question stated that hedging the funds are borrowed and then deposited etc. If we are leading,we have nothing to hedge against. The payment is made at spot and the transaction closed. Why we or any company would borrow for a specified period for a lead payment is not logical. At my work I make FX payments and we typically lock out with FRA agreements. But I’ve never come across borrowing for a lead payment. Its normally pulled from a concentration account, converted and paid. We certainly would not sit on a six month loan for it. Bt again as I have said elsewhere, reality does not equal exam testing and I must have been wrong on this one. Just trying to highlight logic here lol.
Hi Andrea, there was a question done by john on the revision lectures that tackled leading, regarding the forward to quote you ” But with that logic, wouldn’t you apply interest from the borrowing rates on the forward contract too? ”
Why we dont apply interest in the forward exchange contract is that we have already pre agreed the rate with the bank to be paid at a later date hence we would borrow at that date to pay the payment and would not make economical sense to borrow now and deposit it and wait for 6 month to pay at a fixed pre assigned rate as borrowing costs are more than depositing
Sorry hope i am making sense, wish u and everyone else on OT the best and more importantly we all pass(hopefully)@marsibejko said:
I just divided it by the number of years which is 5 and ended up with the lowest figure.you should divide the NPV by the annuity factor of the project
https://www.accaglobal.com/content/dam/ACCA_Global/Students/fun/f9/Exam%20docs/d15_hybrid_f9_q.pdf
Hopefully the link will work.
How is lead payment calculated ?? I used the spot rate to calculate it. what did all of you do?
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