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@carmonkey said:
Q2: For the first bond there was no interest rate or maturity date, did we just assume a rate and maturity?
if no maturity date ,it should be an irredeemable debt? its interest rate = 100x nominal rate / market valueI had 104/100 x 60m = 62.4m
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did anybody think part a of question 1 was to long for the time that it should have been done in, also question 3 was a nightmare.
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about wc, if not mention not taking back at the end of the period, it normally assume take back at year end. but if the project cash flow is perpetuity, it should not take back at year 4 ,i think. i did not sit the exam, i just based on all of your discussion.
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@carmonkey said:
a
did the question give you a balance sheet or not ? can u find the nominal rate of the debt over there?
Oh I did get £62.m for the MV but by using an assumed int rate and maturity rate! lets hope that pays off! Thanx guys 🙂@alancong said:
about wc, if not mention not taking back at the end of the period, it normally assume take back at year end. but if the project cash flow is perpetuity, it should not take back at year 4 ,i think. i did not sit the exam, i just based on all of your discussion.yes this was a diff scenario from pass yr papers…
they specified that directors thought of continuing hence i did not take backI put working capital as (750k) in year 0; did not recover it in year 4; but i thought there was a requirement for an annual incremental increase of an extra (think it was 3%),,, so i had an outflow in year 1 of the extra 3% , etc, etc,
for the bond in the WACC question .. didnt they give us the after tax cost of debt?
Question 3 was a complete nightmare.. so much information!!!… didnt know what ratios to calculate… think i really blew this question….
Too much calculations I thought. And discursive elements too.
Q1 – I worked out NPV as $1,2m. I mentioned Sensitity analysis, Expected values and Simulation
Q2 – About WAAC I wrote about Miller and Mogdilaini theories (tax/no tax). Srcip dividend is issue of shares in lieu of dividends. Cost of debt for new bond – put redemption as $105 and capital $100. – not sure if correct??
Q3 – Working capital policy- I wrote about aggressive and conservative.Choice of dividends I wrote about signalling and clientele effects?
Q4 – Forward cheaper than Money market. Interest/Inflation I wrote about IPRT and PPRT theories.So on so many to talk about – time is a big problem in these exams no matter how much you practice! Any ideas and Good luck to all.
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Q1
either ways would work, either apply inflation on each and individual inflow/outflow (do it this way and lose valuable time for other questions), or cashflows without appying inflation on any but discount at effective cost of capital (e) 1+e = (1+m/1+i) instead.(and u would have saved a lot of valuable time for other questions- Topics: 0
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@saidmezher said:
Q1
either ways would work, either apply inflation on each and individual inflow/outflow (do it this way and lose valuable time for other questions), or cashflows without appying inflation on any but discount at effective cost of capital (e) 1+e = (1+m/1+i) instead.(and u would have saved a lot of valuable time for other questionsi would not agree your points, as question specificly ask use Nominal rate. so u must use nominal rate.
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@joevassallo said:
Too much calculations I thought. And discursive elements too.
Q1 – I worked out NPV as $1,2m. I mentioned Sensitity analysis, Expected values and Simulation
Q2 – About WAAC I wrote about Miller and Mogdilaini theories (tax/no tax). Srcip dividend is issue of shares in lieu of dividends. Cost of debt for new bond – put redemption as $105 and capital $100. – not sure if correct??
Q3 – Working capital policy- I wrote about aggressive and conservative.Choice of dividends I wrote about signalling and clientele effects?
Q4 – Forward cheaper than Money market. Interest/Inflation I wrote about IPRT and PPRT theories.So on so many to talk about – time is a big problem in these exams no matter how much you practice! Any ideas and Good luck to all.
i donot know the calculation part, but your discussion parts did quite good. you got right theories.
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@eugeneksc said:
But the question specified “Assuming the production last for 4 years only”, right on the beginningbut wc is not only used to support production, it also used to support ie inventory, salary, in one words, for daily running of the business. i think it’s better not take back
Q1 I inflated all cashflows n discounted on nominal terms , B part URGHHH i dn’t seem to get any mark there , Part C i could’nt remember anything so thought of Capital rationaing,sensitivity anlysies and Probability .
Q2 Before Issue of Market WACC was 8.6
After issue it was 8 , probably m wrong bcz i cldn’t figure out how to calculate growth 🙁
B AND C i left them allQ3 DID ok , it was all theoryy huhhh
Q4 a) forward hedge was preferable
b) bulk discount was preferableI hope m correct
Praying for atleast 55 marksss 🙁- Topics: 0
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@muzna88 said:
Alancong
will u tell me how growth was calculated n what was the growth in Q2hi, there; i did not sit the paper ,so i donot know what’s the question. what growth rate they are asking for? was it using dividend valuation model to calculate ke? the growth rate should be 2 way to calculate: g=rxb OR using average growth rate 1. The averaging method
g=
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for Q2 gowth, you take the last dividend paid, divide it by the first dividend paid, and then raise it to the power of 1/x years, i think it’s 1/4 if i remember correctly.
what do we have to consider in formulating working capital policy…? i wrote a bunch about the nature of the business and the risk attitude of the management… is this correct?
by the way i inflated the working capital, which was wrong anyway… hopefully i get 1 mark for putting it in in the first place at least, lol
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@eugeneksc said:
for Q2 gowth, you take the last dividend paid, divide it by the first dividend paid, and then raise it to the power of 1/x years, i think it’s 1/4 if i remember correctly.what do we have to consider in formulating working capital policy…? i wrote a bunch about the nature of the business and the risk attitude of the management… is this correct?
by the way i inflated the working capital, which was wrong anyway… hopefully i get 1 mark for putting it in in the first place at least, lol
WC POLICY I THINK you should talk about the 3 approach for funding: aggressive , conservative moderate ,as different attitude to risk will affect cost of wc.
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