FM*** F9 June 2014 Exam was.. Instant Poll and comments ***

Would you not only include an additional 9.2M in the final market value to divide by the new number of shares as 200k of it would have been spent on issuing rather than adding to the companies value? I say that now, however I can't actually remember if I added an additional 9.2 or 9.4 before dividing by the new share total. Hopefully only lose a mark for that bit though if I have done it wrong.

The reason why i used 9.4 (9.2 + .2) is because they needed $9.2M for the finance expansion so therefore they needed to raise 9.4 to get to the 9.2 required when you take into account the issue costs.

That's what I did for the total to be raised 9.2+0.2. I was talking about the market value of the company which you divide by 14.5 million shares as the final step. My thinking is that the 200k would not add to the market value of the company.

TERP is price per share....when you take into account rights issue the no. shares that had to be raised to fund 9.4m for rights was 2.5m shares. Since 12m shares is existence prior to the rights issue, I add the no. shares to get 14.5m, total market value = 65.8m...so thats how i worked TERP. So 14,000 or 14m in issue and 2,500 or 2.5m from rights...

Has any one Calculated q1(a ) I re calculated it. My answer is coming -49k

Cant remember what I got but it was negative. Most marks are for method and workings. I am sure if you do most steps you can hit 11-12 out of 14.

I have ran the numbers on Q1 (a) myself a few times and I keep getting 15k positive, in the exam I had £300k negative so I'm not sure, we will wait and see but @tallaghthoop is right the final answer shouldn't matter a long as the method was followed correctly and logically.

How are people getting a positive NPV? The question itself gave hints that even if NPV is -ve it should be accepted and that is why part b asked us to assume NPV is zero!! Although anyone could be correct i got negative 48k :P

Colleagues!!!!!!!!!!! I took the time and reworked the exam - F9 paper and I recognized the mistakes I made under pressure. I'll not say it was an easy paper; but there were quick theory marks that we could grab - if we see them, to polish-out the 50's for a pass. Q1(a) The Project is not financially acceptable - base on negative NPV $462,000; BUT the directors says they must undertake this and then we have only $5M remaining to use wisely. The FC is associated with this project and thus inflated each year. There are some assumptions - it state incremental and the volume vary; it could be a one-off or it may be every year. I presumed yearly; not in the exam though!!!!!! Q1(b) The projects are rank on there NPV/Invest = PI - D, B, C & A. The projects are divisible; but further states - Projects B & D are mutually exclusive. How can a project be divisible and mutually exclusive at the same time? Anyway my Maximum NPV is $3.517m assuming zero for Project E - stated by the examiner. It is D, B & C (900/2600*1350). Q1(c) One of the main reasons for soft capital rationing - management decisions to limit investment is that they must invest in a project that is not financially viable to remain competitive, efficiency of facility and hard capital rationing - amount they can get at an acceptable rate, inflation rate in the economy (cost out-weight sales). It could be that the funds 10m will just provide 59% return on investment. I lost some valid marks - but hope to get the required marks for pass - 50 upward. Q2(a) Working capital cycle - Inventory + receivable - payable. If we notice that Bk OD is huge, thus it form part of the cycle - I presumed, and used it to reduce the cycle to 44 days. This is for the period 2014. Inventory 5700/CoS 26M*365 = 80; Rbles 6575/sales 40m*365 = 60; Pbles 2137/CoS 26m*365 = 30 and with Bk OD, I assumed that they used this as a method of financing - aggressive working capital policy, and apply some creativity 4682/26m*365. If this was not done wcc would have been 110 days (140 - 30). Discussion - I tell what is the working capital cycle and that it should not be negative - relying slowly on short terms borrowings - heavy BK OD and this should not be so as it force the company into liquidation. Q2(b) 2015 Quick ratio CA - Inventory/CL = .5 times. We'll have to find the BK OD figure and used the equation 3545 + 8219/3616 + BK OD = 1.4 times. Therefore, 11764*1.4 - 3616 = 12854. Inventory 60/365*24 = 3545m; Rbles 75/365*40m = 8219; 55/365*24m = 3616. Sales to net working capital (4706) negative - tons of short term borrowings. This is 40m/(4.7)m Q2(c) extract the current asset of the SoFP for both 2014 & 2015 side by side for your perfect comparison and discuss the movements. 2015 pure borrowings - expensive BK OD. Q2(d) Trading in own currency; netting and matching and maintain a foreign currencies account. Q3(a) WACC is 9.4% equity MV is 75m (10m x 7.5), cost 10.3% 4 +(.9*(11 - 4)); bond market value is 15m @ cost 4.7%. current market value is 107.14, int 5.6 and redemption 100. Q3(b) cost of equity for new project is 12.12%. De-gear Beta Asset 54/54 +(12*.8) x 1.2 = 1.019; Regar beta equity 75 + (15*.8)/75 x 1.019 = 1.16. Use this equity beta; now 4 + 1.16 x 7 = 12.12 Q3(c)d) is discussion - straight forward questions, but I did not get the time to answer it properly to get the maximum marks - hope for 10/14 Q4(a) only one of the objectives seem to be achieve and the others were off. Q4(b) DGM 3.1% 5.1m x 1.031/12 + 3.1 = 34.8m. Discussion efficiency room for improvement. Q4(c) TERP 4.54 12m shares @ 4.7 = 56.4 and 2.5m shares @ 3.76 (20%) discount =9.4m. The issue cost MUST be included because they want 9.2 for the project and the funds raised must cover issue cost. Q4(d) Source of long term finance are the capital market and bond and leasing. The paper as usual was lengthy and require excellent time management, which is my weak point; but I trust that mercy will be granted this time. I wish all of you success - even if you get 50, give thanks. A pass is what we want noting else!!!!!!!!!!!!

On question 1b - I don't understand how you include both B and D in the answer given that they "mutually exclusive" - as this means that you can only do one or the other and not both.

That is right B & D cant be taken at the same time i thought it would either be ABC or ACD as NPV of E is Zero so i ignored E but dont know if it is the right approach. My Maximum NPV was 3900 with ABC

FS28 and Ahmed! That is why I say, "I lost marks under pressure". The combination which produce the maximum NPV are Projects D, C and A ( 1500 + 1350 + 200 (500/2500 x 1000) = 3050 Max NPV. You're correct - when a project is mutually exclusive; it only possible to do one or the other, but in the exam, I made a blunder and ask for uncommon favour from ALL the hands that my script will pass through. What else can I ask for? Ahmed! You have to proportion the remainder of funds, so you'll not be able to invest in ALL of A - limited to 5M. Thanks Colleagues!!!!!!!!!!!!!! I am waiting for the tutor to give his solutions - we can be at ease until August 8, 2014; the big day!!!!!!! Remember we must share information - this is what makes us better, increasing knowledge and competency. Regards,

Hey when will we get the solution for this exam?

My Npv was negative about 24.9million. My fc and vc were inflated by dividing with the pv table. My fc was inflated on the cumulative Bal.

The Exam in my view was very ok and very fair. Balanced questions, am sure its a pass for many!

I agree with marta0101. Question 1.a i got a positive NPV because i used Project E investment of 5m. I.b.i got a negative NPV.

My answer to Question 1 will appear on the website today (and my answer to the other questions in the next one or two days). Do let me know if you find any mistakes!!

Where on the website will the answers appear John?

Thank you so much Sir John i got NPV -ve 48 as well now i can sleep in peace that 14 marks are in my pocket :P However i didnt include Project E in capital rationing hope i get atleast 2 marks :P

Well done Ahmed, good start to the paper.

Wow I got that also... yippee!

I also got negative NPV of 48 alhamdullelah. I have one comment on question one answers.. the contribution (sales less V.C) is missing from the answer.. look at june 2013 answers.. it is there in the examiner's answers. Thanks

You can show contribution if you want, but there is no requirement to show it - there is absolutely no need (and there will be no extra marks for showing it).

My answer to Question 2 will be uploaded very soon. (Questions 3 and 4 to follow in the next day or two.)

Hi John, Where are the answers posted as I cannot seem to see them. Thanks Matt

i wrote only q1a ,2, 3 and 4 but i wasnt sure with 4d. i dont know my chances of passing this paper.

Matt - https://opentuition.com/acca/

Thanks Daniel

Answers to Q2 is now available on Open Tution WEB SITE. Thanks John, looking forward to Q3 & Q4 answers.

where I can't find it at all @Zee thanks