*** F9 June 2013 Exam was.. Post your comments ***

<cite>@thebear said:</cite>
my take on this exam

Q1

a) NPV , i cant remember the figures , all i know is a positive one , overall should not be a problem , maybe some clumsy steps here and there
b ) real v nominal , dont really know how i answer it , but maybe i remember the answer from reading BPP study text , should get few marks
c ) financial objectives , this one i just put the company objective aim is to increase profitability and reduce cost , and they want us to link it to the purchasing of the machine , i just wrote what i can wrote , thats all , still can get marks , but no much

Q2

a) WACC , for this i get around 11.8 % , i did not include the preference share ( u shud not ! ) but i did not include bank loan ( if this is really need , arghhh ) . since to find ke on redeemable debt need to use IRR to solve , i just use 10 % and 12 % , bcoz my lecturer said b4 , honestly u dont have the time to find the rite DF , so stick to it , i just follow his advice , so now not sure on that . but overall , do WACC should be ok , may drop 1-2 points , but still ok overall
b) use of CAPM in projects , seriously i dont know anything on this , serious , i just waffle through , but if they give me even 1 mark , i be ok with it
c) why ke is expensive than kd ? that Q i think is not really a problem . tax advantage , equity holders last in line to receive anything in event of liquidation , debtholders confirm get some interest pay while equity holders are uncertain and thus require higher yield . i guess ( and hope ) with the answers that i give can give max points or 1 mark drop will do .

Q3

a) working capital policy . at 1st i have no idea wat this Q is on about but i just do some ratio calculations and from there , i discover the word POLICY might ask us to write about aggressive and conservative method ( ? ) . so i just wrote that the company is shifting policy from conservative method to a aggrssive method . and that all what i wrote , thats all . maybe might earn some marks
b)receivables policy . i just wrote about offer credit got a cost , and how a company need to balance profitabilty and liquidity and also the credit control policy about it . not sure whether i am correct or not , but maybe some marks is there , if full , thats good !
c) forex risk . the risk involve are transaction risk , translation risk and economic risk . full marks expected
d) forward and money market hedge . no sweat , full marks once again expected

Q4

( a ) – ( c ) i do not have anything to comment about this partly due to time constraint , so i have no choice but to waffle here and there by just calculate what the Q asked me to do , but hopefully out of 16 marks , 3 will be sufficient for me
d ) Factors to be considered in placing , venture capital and trade bonds . I think this is a saving grace for otherwise a disaster part of this Q which can potentially pull down a lot marks and may make it fail . full marks expected

Overall : I think this paper is a fair paper to deal with , and except Q4 ( a) to ( c ) and Q2 ( b ) , i think and i believe i can go thru with a pass . after countless of times of dealing this paper , this is the 1st time i complete all the Q , with no left empty part on it . But anything can happen , so I just keep by fingers crossed !

Bear

Q2
Why you say it was not needed to include preference shares? Never heard. Can you clarify?

Pref shares are included in wacc

I think I have created a new theory during the exam pressure on how to calculate valuation based on postponed dvd :))))
I used 25 cents as d0 -> d1=25*1.04=26 then DISCOUNTED it!!! based on 9% (it resulted smth around 18) before apply the formula….
finally it was smth like M.value = 18/(0.09-0.04)+Y3 dividend discounted to Y0
stupid loss of valuable marks

<cite> @nevyana said:</cite>
On the ACCA website but they will not be published soon. They will upload the questions sooner and the solutions are published close to the results announcement.

yhmm they are probably waiting for everyone to forget what they answred in the exam. so we would not complain about our marks haha 😀

I have LSBF book, page 176 :
A preference share is a fixed rate charged to the company in the form of a dividend rather than in terms of interest. PReference sheres are normally treated as debt, rather than eqyuity but they are not tax deductible. They can be treated using the dividend valuation model with no growth.

<cite>@thebear said:</cite>
my take on this exam

Q1

a) NPV , i cant remember the figures , all i know is a positive one , overall should not be a problem , maybe some clumsy steps here and there
b ) real v nominal , dont really know how i answer it , but maybe i remember the answer from reading BPP study text , should get few marks
c ) financial objectives , this one i just put the company objective aim is to increase profitability and reduce cost , and they want us to link it to the purchasing of the machine , i just wrote what i can wrote , thats all , still can get marks , but no much

Q2

a) WACC , for this i get around 11.8 % , i did not include the preference share ( u shud not ! ) but i did not include bank loan ( if this is really need , arghhh ) . since to find ke on redeemable debt need to use IRR to solve , i just use 10 % and 12 % , bcoz my lecturer said b4 , honestly u dont have the time to find the rite DF , so stick to it , i just follow his advice , so now not sure on that . but overall , do WACC should be ok , may drop 1-2 points , but still ok overall
b) use of CAPM in projects , seriously i dont know anything on this , serious , i just waffle through , but if they give me even 1 mark , i be ok with it
c) why ke is expensive than kd ? that Q i think is not really a problem . tax advantage , equity holders last in line to receive anything in event of liquidation , debtholders confirm get some interest pay while equity holders are uncertain and thus require higher yield . i guess ( and hope ) with the answers that i give can give max points or 1 mark drop will do .

Q3

a) working capital policy . at 1st i have no idea wat this Q is on about but i just do some ratio calculations and from there , i discover the word POLICY might ask us to write about aggressive and conservative method ( ? ) . so i just wrote that the company is shifting policy from conservative method to a aggrssive method . and that all what i wrote , thats all . maybe might earn some marks
b)receivables policy . i just wrote about offer credit got a cost , and how a company need to balance profitabilty and liquidity and also the credit control policy about it . not sure whether i am correct or not , but maybe some marks is there , if full , thats good !
c) forex risk . the risk involve are transaction risk , translation risk and economic risk . full marks expected
d) forward and money market hedge . no sweat , full marks once again expected

Q4

( a ) – ( c ) i do not have anything to comment about this partly due to time constraint , so i have no choice but to waffle here and there by just calculate what the Q asked me to do , but hopefully out of 16 marks , 3 will be sufficient for me
d ) Factors to be considered in placing , venture capital and trade bonds . I think this is a saving grace for otherwise a disaster part of this Q which can potentially pull down a lot marks and may make it fail . full marks expected

Overall : I think this paper is a fair paper to deal with , and except Q4 ( a) to ( c ) and Q2 ( b ) , i think and i believe i can go thru with a pass . after countless of times of dealing this paper , this is the 1st time i complete all the Q , with no left empty part on it . But anything can happen , so I just keep by fingers crossed !

Bear

for question 1 c werent we suppose to write about maximisation of shareholders wealth and sales? :O

<cite> @icedawn said:</cite>
i calculated the overdraft savings by multiplying 5% to the amount of reduced of receivables ! any1 did that? also there is finance cost savings on cash operating cycle part since it has improved and less finance is needed for working capital!
i also wrote that there is cost saving on inventory as well since inventory days has decreased and assume that the business has adopted a jit policy where holding cost and ordering costs has decreased bla bla etc !! any1 did that lol? xD

overdraft ? i dont that Q ask us to calculate that , haish ……

anyway , i just wrote on the company is shifting policy from conservative mode to an aggressive mode , that’s all i write on ……

<cite> @icedawn said:</cite>
how do u know its using a conservative policy?

the COC that the Q provided to us is the revised one , and i suspect if we to calculate the inventory , receivables and the payables days period , it gives a diffrent figure ……

from there , we can see that the revised one shows a better COC rate than the b4 revised version with receivables and inventory days dropped ( but the payables increase ) . so this gives me a thing that maybe i got to write this shift in working capital policy …..

<cite>@vijayhre said:</cite>
The book is right, but you’ve understood it wrongly. The paragraph simply means that preference shares should be included in WACC calculation as a separate component and not part of ordinary shares. Preference shares must definitely be included in WACC, no doubt about that.

Ps: bank loan should have been included as well.

while it is true it is a separate component and not part of ordinary shares , it also cant put it as cost of debt , rite ?

anyway , i do think so long we can do the WACC from top to bottom , it shud be fine , omissions bound to happen each time under time pressure …..

<cite> @icedawn said:</cite>
for question 1 c werent we suppose to write about maximisation of shareholders wealth and sales? :O

I do agree with you. The Q highlighted “listed” Company, so I suggest the sh.holders wealth is what examiner expected here. Anyway, I have stated two types of return – dvd & capital growth – as two main objectives. Therefore to achieve them company required to be profitable and liquidity also an issue (to be able to pay dvds), so positive NPV project – is a direct contribution to those objectives

<cite>@thebear said:</cite>
while it is true it is a separate component and not part of ordinary shares , it also cant put it as cost of debt , rite ?

anyway , i do think so long we can do the WACC from top to bottom , it shud be fine , omissions bound to happen each time under time pressure …..

Actually it can’t be included with other debt since they have different cost of capitals.

<cite>@vijayhre said:</cite>
Actually it can’t be included with other debt since they have different cost of capitals.

and thats y u use a weighted avg since all debt have different cost of capital!!