FM*** F9 June 2012 Exam was … Comments and Instant Poll ***

Q1. I used 7% for NPV and got $1.6m (ish)
ALso used 7% for EAC - Chose machine 1 as cost less ($6k ?). Explanation part i said close call but cashlow my be an issue.
Probability & sensitivity - said that sensitivity doesnt incorporate rik, just highlights the vulnerable variables. Proability does incorporate risk as that is the certainty which management gives it but therein lies the problem with quality of info.
Q2 - Overtrading - recalculated all given ratios and made conclusion of overtrading. No new equity or long term finance to support 40% increase in turnover.
Working capital - Investment policy - was a bit of a sticky one but went with these are the choices of levels of investment.
Financing policy - how to fund decisions made above.
Problem was finding the similarities and diffs................
Miller Orr - worked out the return point but couldnt remember what the upper should be. Went with $300k.
Q3 - Agency problem (i'm doing P1 so was a bit of a gift for me!) so Directors of SME are quite liklely to also be shareholders hence Agency problem reduced.
Co would look at Equity/Bonds/straight debt. concerns would be control/interest charged.
Finance provider would look at Credit history and business plan.
Islamic Finance - i had only yesterday memorised the definitions and they were the last thing i looked at before going in (another gift).
Mudarabah = Equity deal - one party brings skill - one party brings capital. Both share risk of profit /loss. Case Co would need to consider potential loss of profit as no interest (Riba) is payable as it is banned.
Money Market Hedge Vs Forward rate
Forward was 6 month (cant remember exch - 1.99 i think)
MMH - borrowed Euros now (500k/1.025) - switch at spot to $ now - put $ on deposit @3% (6 mths of 6%) = end up with $x in 6 months
Forward rate came out as receiving the most $ in 6 months.(by @$2.4k?)
(i may have got the interest rates round the wrong way there - cant remember what they were)
PPP = think i worked it out at 1.97 or 1.98 - i know it was only 0.01 diff to the 1 year forward.
Q4 - PE = 5x3000 = Value $15m
Said PE may not be appropriate as may have diff capitl structures and case co had just repaid a shedload of debt.
Ke - got 12%
Dividend valuation - really baffled me. How can you do a Div calc with no Div's?
So I did a div calc on year 1. A div calc on year 2. a iv calc on year 3. then a div calc on year 3 with growth. Examiner can take his pick !!
Wacc - gave us the debt : equity ratio so no need to look for actual values. Got 10% (Used Rf as 4% and Erm as Rf+Prem = 9%)
After financing Wacc - also gave us debt:equity so quick swap with prev formula. Gave us new Beta to work out new cost of capital = Ke 14% Wacc 10.3%
said rise in Wacc expected as more debt introduced so risk has increased.
Business Risk - put Industry comparison/ business news/ economic climate / goods & services supplied may be luxury.
Financial risk - put analyse gearing (cant remember the rest)
Systematic - Beta implies risk involved so need to look at that.

Overall - spent way to much time on Q1 by 15 mins and Q2 by 10 mins but managed to catch up with 2 mins to spare.

feel like i did enough - was kinda out to prove a point as i failed in Dec with 44 so i practised my butt off.
Good luck to all

All my calculations r lame...d NPV threw me off balance, wot is it wif forecast info. With inconsistent figures, how could sales, variable cost, even wif inflation be lower compare 2 previous yrs, it is unrealistic...wot I did was 2 inflate year2 by 1.04 on year 1 value and so on...1.04, 1.04^2 and so on...however, I dnt fink que. 4 is all abt ungear and gear...am hoping on essays 2 pass me.

@razmtaz
question 2
With part b,
the one for working capital finance and management difference , was that about aggressive, conservative and moderate policies?

i tried 2 link that with aggressive, conservative and moderate policies....... fingure crossed...@z

@zohaibahm3d said:

Quote:

question 2
With part b,
the one for working capital finance and management difference , was that about aggressive, conservative and moderate policies?

For question 1 I disregarded fixed costs as there was nothing mentioned about them that they are additional (incremental) fixed costs.
I was wondering about that but all the practise questions I did there was clearly mentioned about FC. Here they seemed to me irrelevant.
Anyway at the end of the day it's probably 1/2 mark for including them, I stated the comment why I didn't take them into account....

@angusyiu said:
the difference for mine is more than that. By the way, did you guys divided the annual borrow rate/deposit rate to get 6 mth rate for your calculation?? I think we have to?

Hi, I got something like that as well, can't remember the exact amount, but the forward rate was favourable. The examiner gave us a bit tricky/unrealistic conversion rate, I have almost made a mistake! Deposit rate you have to time apportion to 6 month.

For qn 1b) did anyone realized the qn saying: machine 2 costs has included inflation? Since we r using nominal rate, does this means machine 1 we also have to include inflation?

@olaf said:
For question 1 I disregarded fixed costs as there was nothing mentioned about them that they are additional (incremental) fixed costs.
I was wondering about that but all the practise questions I did there was clearly mentioned about FC. Here they seemed to me irrelevant.
Anyway at the end of the day it's probably 1/2 mark for including them, I stated the comment why I didn't take them into account....

question 1 stated that fixed cost are relative 2 projrct....

@imtired said:
For qn 1b) did anyone realized the qn saying: machine 2 costs has included inflation? Since we r using nominal rate, does this means machine 1 we also have to include inflation?

Exactly that's why I used 7% for EAC calculation....not sure if it was correct but I was wondering about that as well and finally decided to use 7%.
In my opinion the sentence to ignore taxation and capital allowance was for maintenance costs that if there was not this sentence they would require tax deduction.

@olaf said:
Exactly that's why I used 7% for EAC calculation....not sure if it was correct but I was wondering about that as well and finally decided to use 7%.
In my opinion the sentence to ignore taxation and capital allowance was for maintenance costs that if there was not this sentence they would require tax deduction.

I used 12% though. I didnt use the figure there. I dunno how i calculated another set of figures out and stating that the fig must include inflation. This qn really stunned me wif two sets of wacc

@angusyiu said:
the difference for mine is more than that. By the way, did you guys divided the annual borrow rate/deposit rate to get 6 mth rate for your calculation?? I think we have to?

hey yes u had to divided
the rate. the rates given were for the entire year

@olaf said:
For question 1 I disregarded fixed costs as there was nothing mentioned about them that they are additional (incremental) fixed costs.
I was wondering about that but all the practise questions I did there was clearly mentioned about FC. Here they seemed to me irrelevant.
Anyway at the end of the day it's probably 1/2 mark for including them, I stated the comment why I didn't take them into account....

the question did mention it was related to the operation

Hello everyone,
Too much to write in a short time.20 min left for Q4 and it was a mess in a hurry.
1)which formula of dividend used,what growth rate used.one thing i used was a total dividends in year 2.
2)and one thing i didnt understood was how to find out variance and transaction costs for miller Or model i left this Q.
3)both wacc with the values given no ungearing.used capm for ke value.

Test not too bad, Islamic finance new topic so had to be expected,wish i had read the article on ACCA website a couple more times.I suppose the dividend growth model question in Q4 was a matter Of using Yr 2 dividend and then discounting the answer at a year 1 discount ?

hi guys, there was no ungear nor degearing, the inf was all there
cost of equity was 12% in first instance and 14% in second, i hope i am right.
exams was not bad needed more time.

@aneelraja said:
Hello everyone,
Too much to write in a short time.20 min left for Q4 and it was a mess in a hurry.
1)which formula of dividend used,what growth rate used.one thing i used was a total dividends in year 2.
2)and one thing i didnt understood was how to find out variance and transaction costs for miller Or model i left this Q.
3)both wacc with the values given no ungearing.used capm for ke value.

1. I used total dividend of years 3. may be the formula will be
1000*1.03 / .12-.03
2. Didnt u see the formula in the last page? requirement was .. a)return point and upper limit.
3. yea I also used camp . current ke may be 12 , and previous years 14. (if im not wrong)
:( pray for me .

it was standard question paper . Made some silly mistakes. Hope examiner will understand my situation .:( pray for me guys.

@alokito said:
1. I used total dividend of years 3. may be the formula will be
1000*1.03 / .12-.03
2. Didnt u see the formula in the last page? requirement was .. a)return point and upper limit.
3. yea I also used camp . current ke may be 12 , and previous years 14. (if im not wrong)
:( pray for me .

i did same with you for 1 & 3.. :)

hi every one! can anyone plz tell me wht rate was to use in Q#1, is it 7% post tax or is it 12% pre tax? plz tell me wht rate was suppose to use in Investment Appraisal and in EAC?

Thnxx...

4a part dvm was quite simple. we just hav to multiply the total earnings into pe ratio to get the value of company

was it as simple as if industry P/E ratio was 5 and Company earnings was 3000,
3000 x 5 = 15000 Value of company.....

Q4

For people complaining about no dividends in the current year. Remember the dividend for the 2nd year were given.

And remember that DVM formula in which Do(1+g) = D1

so you were already given the D1 value :D

i made a mistake in q 1 part 2 in asset replacement question where i did not include initial investment.. ohh my stupidity .. but i wander if they give marks for steps in f9 ?? for may be for just putting the cost or putting annuty factor and so on ?

Could anyone upload the F9 questions June 2012? I need the marks for each question and for each subquestions.

the p/e qn required us to compute the current earnings given the earnings of 3 prior years. earnings thus grew by by the square root of 4300/3000)-1 which gave me about 19.6percent. used that to compute the current earnings and multiplied the earnings by 5 to get the mkt value

the p/e qn required us to compute the current earnings given the earnings of 3 prior years. earnings thus grew by by the square root of 4300/3000)-1 which gave me about 19.6percent. used that to compute the current earnings and multiplied the earnings by 5 to get the mkt value

I must've sat another ACCA F9 exam as the exam I sat was hard and lengthy, not what I consider a fair exam to even come close to finish and do well! Devastated!
Not a good feeling for 2nd attempt!! :(

Hello Everyone i just want to comment regarding Q.1 for the calculation of npv i used after tax rate of 7 % the reason being that in WACC there r 2 components Ke & Kd in case of Ke there is no tax but in Case of Kd it is tax deductible thus for npv calculation i took 7 % rate after tax.... however in part b asset replacement Qs...
i used 12% the reason being that it explicitly stated that ignore tax & capital allowance....thus i used 12 % before tax so do comment whether it was logical or not..... thanks.....
In Q4 i did make a blunder i took year 3 dividend value & use that in dvm formula & got an utterly ocnfusing figure 1444444... something like that.... but hoefully i might get 2.5/4 as i correctly calculated Ke.....

Hi for Q4 did anyone get Ke= 12%, WACC= 10% and new Ke = 14% and new WACC = 10.3%? Thanks

Oh my God,I used before tax cost of capital for NPV?So my answer is wrong.How many mark will loose?