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I cant remember my capital rationing but with project E zero my all NPVs were included and I didnt have to proportionate it
Ah I see, I got a negative NPV for project E but then when doing the rationing part it said to assume an NPV of zero so it must have expected us to use the $5m investment & decide where to use the remaining $5m which is what I did. I think it was E then D then C then $500k of A. Anyone else get that? Can’t remember what my total NPV for that came out at though
I know I got negative NPV for question 1, but remember nothing else! I do think it was a fair exam though. Just hoping I did enough to pass.
Crazy stuff! you spend 20 or 25 mins trying to get a perfect 13 (or was it 14?) marks on Q1 NPV and then have 10 mins at the end if your lucky trying to extract 8 marks out of talking about sources of debt finance for a quoted company, at least I think that was the question…? Good luck all.
Ps I did inflate the SP, VC & FC by (1+i) to the power of n, not sure if right though, did confuse me a bit because the SP & VC per unit were already increasing, haven’t seen that before?
My TERP was also $4.54 using same calc as you pakistan098
I didn’t like this F9 exam. There were better F9 past exams that I saw. I hated the project specific cost of equity 4 mark calculation. And the useless question of 2 (c) of comparing current assets positions between 2014 and 2015. I just wish to pass. Hope I do, fingers crossed!
TERP –
$9.2m needed plus issue costs $0.2m = $9.4mExisting MV is $56.4m or $4.70 per share (12m shares in issue)
I worked out a 6 to 1 rights issue. ($56.4m : $9.4m)
6 shares at $4.70 = $28.20
1 new share at $4.70 x 80% (20% discount to market) = $3.76
Total is $31.96 divided by 7 shares gives TERP of $4.57i also inflated the same way by (1+i)^n and got overall got negative NPV which means project was not acceptable on financial grounds
i thought my WACC question went well but judging by the comments here most of them are saying 12-13% and i got 11% !! I am in trouble now 😛
I made it a 4.8 to 1 rights issue but I haven’t seen one that wasn’t a whole number before. I checked over & over it but I couldn’t make it equal a whole number. I then calculated 2 TERPS, 1 for the investment (including issue costs) which came to $4.54 & one for making it a 4 to 1 rights issue and raising more than the required investment.
pakistan098, I had the same mix as you for the projects. The NVP of E was going for sure to be negative since it was stated that1) it was going to be undertaken for strategic reasons and 2) we had to assume a 0 NPV to continue with the other parts of the question. If it were positive than why to use 0?? At least that was my logic when first reading the question.
It was not a difficult exam compared to some mock exams I tried yesterday, and I think this was the reason for making it almost impossible to finish all questions in the time provided. I am good in time management but this one was tough.
Good luck to all and enjoy summer now, till results time 🙂@pringo Time was enough if you know how and what to do. yeh practice was important…..
I am hoping that I got most of my marks in Q1 & Q2. Ran out of time in Q4 was half way through TERP and didn’t get to part D. I think that it was better than Dec 13 but was quite time pressured. The only other part I left out was Q3 Part 2 I hate the de gearing business and couldn’t be bothered thinking about it for 4 marks!
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yes, yes, me too, 48 negative for Project E (that’s why they offer zero in next part of question), but my total NPV was 3050.
Q in which wacc was required the cost of debt was 4.4% the ke was 10.3 and the mv of equity was 75 and mv of debt was 15 which gives WACC 9.32 %. and if we assume that the Mv of the debt of target co is after tax it would gives us project specific cost of equity = 12. some thing …
It was undoubtedly the easiest exam set for Paper F9 ever – all of the requirements, except the capital rationing part, had come up in past exam papers.
Having said that, I gave loads of detail for all the theoretical parts and I ended up with just 5 minutes to scribble something for Q4(d) for 8 marks about sources of finance – I only managed to describe Eurobonds and wrote something about bonds (so I’m hoping to at least garner 2 marks there).
However I’m so pissed off right now because I did not subtract the 4% risk-free rate from the 11% market return for both CAPM calculations – I got WACC of around 12%, so from the comments above I assume I am not the only one who stumbled on this easiest part. So there go 4 “easy marks”.
Also, some of my friends said that for Q1(b), we had to choose Project B instead of D, even though the latter had a higher PI, since the NPV from the combination including B was higher. I eliminated B, so I guess I’m missing 2 marks from there as well.
Hoping to at least get an 82 – 85!
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I have the exact same figures woww @ pakistan098
but by reading the comments I thought I did it wrong….
we needed to choose project D because it had the higher profitability index. @Bryon
I am happy you found the F9 paper good but for me it was not exciting. There were better past F9 exams that I’ve seen. Good luck for your results.
In Q1 I think the NPV should have been negative as in the next Q part they said assume the NPV for Project E is 0.
WACC was 9%
10.3 x (75/(75+15) + 4(ish) x (15/(75+15))Beta was 12.6
4% + 1.226 (11% – 4%)TERP I used the wrong figure so got $4.56 (hopefully did the right calc though)
WC days I got 110 for 2014
Quick Ratio I got like 0.95 so may have mucked that up.I also got Kd 4.4 & Ke 10.3 with MVs 75 & 15 but I think I might have made a mistake after that in my WACC because it came out higher. I couldn’t go back over any of it cause I wasn’t well enough, just glad I got through it without having to dash out to puke lol!
Woo I got a negative NPV too! For part b) I didn’t have to apportion any, I ignored project E because the NPV was assumed to be 0 and using A, B and C gave me the highest NPV (even though D had a higher ranking).
@Gabriel:
Thank you, and best wishes for you as well.Not so sure about Project D though, because If memory serves me right, I had read an answer to a theoretical question at the end of the BPP Study Text which said that the profitability index approach gives sub-optimal decisions when projects are mutually exclusive.
As for past papers, the last two sittings were not that bad neither (I guess the examiner is running out of ideas xD) but I believe this one was better.
@Byron – I calculated the total NPV with projects B, C & A and then again with D, C & A and the total with project D was definitely higher.
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