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

what topics came guys?

Exam is still in progress !!!

?

well guys, let me just discuss some of the questions that came out

investment appraisal
equivalent annual cost
miller orr
capm gearing and ungearing
overtradingbiz valuation
islamic finance mudaraba
forwardd exchange
money market hedge


that about all i can remember guys

A very fair exam

Question 1
Calculate NPV and Annual Equivalent cost, Discussions Sensitivity analysis and probability analysis

Question 2
Overtrading, difference and similarity between working capital financing and investment, Miller-orr model

Question 3
SME agency problems less than big company - reasons, mudaraba, purchasing power parity, forward hedge v money market hedge

Question 4
P/E valuation, Dividend valuation (tough - this year no dividend, how to use dividend valuation model), Calculate WACC, discussion on financial risk, business risk and systematic risk

Overall, time is slightly pressurised, but I manage to finish. No tough topics. Should be able to pass based on the impression I finish the questions.

for NPV, do we have to use the sales figures given in year 2 to 4? or just inflate according to the first year?

I just did Q1 n 2 well. 3 was ok but 4 was disaster. Due to time pressure I went blank and cudnt find the share capital for wacc. Theory part was crap as well. Don't know if I can get 50. Probably 25 marks has been absolutely messed up. Plz guys tell me ur experience if I can pass. Otherwise my life will b hell

@telicia said:
for NPV, do we have to use the sales figures given in year 2 to 4? or just inflate according to the first year?

I thought all the sales and variable costs are given in year 0 term? So have to inflate ourselves?

Question 1:
Project 1 NPV 1614
Project 2 : Machine 1 EAC 89 (I guess) machine 2 105 ( I guess) Machine 1 should be purchased
Then Sensitivity/Probabality Analysis duscussion
Question2:
find if over trading with ratios to compare
Had to skip working capital financing/investment due to time pressure.
Miller orr model: Upper limit 275000 and return point 225000 what it good for that overtrader above.

Question 3: SME conflict with shareholder comparing with large one.
Mudaraba if it is OK for forward contract?
PPP calculate spot rate : 1.963 I guess. Discuss theory.
Forward vs money. which one to choose in question. (left it No time)

Question 4: PE valuation- I think I messed up- $3000/1.03*15=436893 (don't if thats how it was supposed to be.)
Dividend valuation: Ke= 12% g=3%? and no dividend? just left it ;)
Calculate WACC: current 19% and after debt 14% (hope its OK did't degear if needed Just could not see anymore :) panicking )

Hope I pass will be glad with 50

Wasn't return point 1/3 spread+lower limit, i.e. 225?

anybody know how to do Q4?
Part (a) was asking for valuation using dividend growth model, the only thing i could think of was Share price valuation using Dividend growth model. The question did not indicate the number of shares and i made the assumption of 10 Million shares, in order for me to divide Dividends to fit in the Equation of P0=Do(1+g)/ke-g. Hope to get some feedbacks thanks!

@telicia said:
for NPV, do we have to use the sales figures given in year 2 to 4? or just inflate according to the first year?

I have inflated sell price with 4% and 2.15 for variable cost. also included fixed cost already inflated. used 7% after tax cost of capital. resulting is 1614 NPV I guess.

que 1 and 2 gud que 3 was avg n que 4 was disaster.. didn ustnd wat to do due to time limit..........and dnt no..........pass or nt? :(

Question 4 need degear? I thought question has already given a new equity beta?

degeared may not be necessary since the business risk is still the same even if there's an increase in debt. isn't it?

nenor said 3 minutes ago:

Wasn’t return point 1/3 spread+lower limit, i.e. 225?

you are right It was typo on my part. I did get 225.

ya, I just use the new equity beta to recalculate the cost of equity using CAPM. Hope this is correct. I am running out of time for question 4. Left 30 minutes for that question and somehow get stucked with the dividend valuation model.

@jm84 said:
Question 4 need degear? I thought question has already given a new equity beta?

I thougtht so aswell but a poster above saying that degaering was needed. I just used the new Beta of 2 which gave me 14%.

the EAC QUESTION wat discount rate did u use? i took the 7% rate not sure if thats right anyone ????

I messed up question 4 completely. I started de-gearing then figured I didnt need to. Hope I picked up some marksalong the way but definetely nowhere near the answer. Also was unsure about the difference between financial, business and systematic risk?

Also, on question 2 I wasnt sure exactly what they were asking about working capital?!

how was p/e ratio valuation done??????? Q4(a)

Q1- pretty basic despite of failure in part E (damned)
Q2-Went well except the working capital similarities and differences carried 9 marks
Q3-Went well as well except the mudabarah whatever 5marks
Q4-No idea what is all about until I managed to figured out the way hopefully my WAY is the right WAY otherwise im lost in the middle of the HIGHWAY 25 marks right there

Well I think these questions are reasonable except for matters above (areas I failed to covered and lack in theory to explain basic elements in WC.Hopefully that will sqeeze me in the 50% and above candidates.I can no longer tolerate failures in this damn paper again.GOD BLESS everyone.

@2833833abc said:
how was p/e ratio valuation done??????? Q4(a)

Well I have no idea on how to do it initially but i have figured that since the equity and debt are given in percentage

--SECTOR AVG PER = 5 times
--EPS ( substitute with divided pay out ratio which you can calculate using infos)
= 500/EAIT (i dont remember how much exactly)
= say 40%
--Then get the share price using PER = 70 cents
--Corgic value = 70 cent x 0.75 of equity
=$52m

#I seriously spent 5-10 mins approx figuring these damn thing out and I was like I am not going to leave these blanks and boomed these popped out of my mind.Even if these are wrong,I should have at least 1/2 marks just to play safe

wooaaaa!!!! what i did was,
1. i left 2.(b)
* Q3. Islamic dinance confused with musharka :(!!! 5 marks wore incorrect :'(
*Q4 bcoz i time pressure i didnt saw the tax rate xD so i assumed it 30% clearly writting my assumption and then calculated WACC xD and that divident valuation was incomplete!!!! so i guess 20 marks gone hanged xD

Remaining marks!!!!! battle to PASS!
Will pass INSHA ALLAH

I messed Q 4 also. Even though I had enough time:-(
On my opinion, CAPM and MM combined was the most difficult part of syllabus. With very strange and sometimes not logic calculations.
But I have to admit that the rest of questions were ok.

@benfabregas said:
I messed up question 4 completely. I started de-gearing then figured I didnt need to. Hope I picked up some marksalong the way but definetely nowhere near the answer. Also was unsure about the difference between financial, business and systematic risk?

Also, on question 2 I wasnt sure exactly what they were asking about working capital?!

@carl29 said:
Certainly a lot to cover. I thought some of the theory questions were a little unfair. I answered it all though, some of it was just a guess.

I went through and i think i counted over 50, feeling confident

I think the first (sensitivity) and second (WC) questions theories sucks big time.I managed to squeeze in general infos like definition the relevant and I find the WC similarities and WC finance is the toughest one.I have no idea what it is and plain bullshit right there 9 marks.And I missed the Mudabarah whatever I have no idea what that is at all bang 5marks

@vjsharksn said:
wooaaaa!!!! what i did was,
1. i left 2.(b)
* Q3. Islamic dinance confused with musharka :(!!! 5 marks wore incorrect :'(
*Q4 bcoz i time pressure i didnt saw the tax rate xD so i assumed it 30% clearly writting my assumption and then calculated WACC xD and that divident valuation was incomplete!!!! so i guess 20 marks gone hanged xD

Remaining marks!!!!! battle to PASS!
Will pass INSHA ALLAH

I managed to answer all with slack in WC (theory part-9marks) and sensitivity analysis (7 marks) and mudabarah (5 marks). Hope my bullshitting explanations carries at least 1 mark.

Mudabarah for 5 marks was very excessive. In my 800 page text book there is about 6 lines on it.

Can anyone advise me what I should have wrote about for the working capital question (Q2) and the risk question(Q4)

For the question of islamic finance,
I give definition of mudaraba
Stating about how profit or loss shout be allocated
and the rab-al-mal cannot interfere with the way mudarib manage the business.
then i further states that speculation and extreme risk is not allowed in islamic finance, and that company is planning to hedge export receipt. So cannot use future contract because islamic finance prohibits this.

Then i have no idea what to write for the 5 marks

Couldn't do Q4 at all well. hope for 50 but don't think so.

Q4a PE ratio 5 time average and earning in Yr 1 is 3000 so I did 3000x5 = PE ratio 15000/3000 no discussion
Q4b Ke 13.6% by 75/(75+(25x.8)x1.6 =1.33 then for some reason I just went off track and did this Ke = 4%+(1.6x6%)
Q4c Could not work out value of Equity so didn't do the WACC
Didn't have time to answer about the risks. :(