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

@anuj428:
We were given the revised working capital ratios for 2015 and the revised sales and cost of sales for the same period. We were also given the expected current ratio of 1.4.

So I first calculated the expected inventory, receivables and payables, then I used algebra:

1.4 = (inventory + receivables) / (payables + overdraft)

@neelythere…. I got the same TERP as you so I hope it’s correct 🙂

For the 8 mark Q I first calculated the %age increase/decrease in inventory, receivables, payables & overdraft. Compared to a static sales & %age reduction in COS. Then I calculated the %age that WC investment using short term finance had changed & that’s when I finally understood what the Q was asking ie changing to a more risky aggressive approach so I think my first half of the answer may have been rubbish although it was another one of the ones that I couldn’t go back to for being ill grrrr

Completely left out the efficient market hypothesis too (weak, semi strong, strong), knew the answer but left it until last & couldn’t fit it in. Anyone know how many marks that was for?

Question 1 – I got a positive NPV of $76,000 (close to that). I am so shocked people are getting negative figure. I can’t sleep cos I felt confident calculating that NPV. The capital rationing, Project E should be ignored. You cannot ratio without NPV, the NPV gives you a clue and if you had use profitability index you are wrong. I got close to $3900 (best option A+B+C then since I believe I failed the NPV, I think adding E to that equation will be better because B and D and mutually exclusive).

Question 2 – Cost of Capital – The ungearing and regearing was sort of fun. I cannot remember my answer though.

Question 4 – Sources of finance and characteristics of long term debt finance (Availability, Level of Finance Risk, Security & Covenant, Cost of Issue) Source of Long term debt finance (Debenture, Bond, Long term borrowings)

Question 3 – Seeing comments here, makes me assume I failed the TERP.

I hope I pass enough. This NPV may haunt me till results are out

@justkency – you would usually ignore a project with an NPV negative or zero but in this case we were told that the company were going to invest in project E regardless of whether or not it was financially acceptable so we did have to take that into account with the capital rationing.

Can anyone remember how many marks were available for the systematic & unsystematic risk question with regards to portfolio theory and CAPM?

@Abbi:
Question 3 was broken down as follows:
(a) WACC calculation – 7 marks
(b) Project-specific cost of equity – 4 marks
(c) Systematic, unsystematic risk – 6 marks
(d) Efficient market hypothesis – 8 marks

What s the answer for 1 question …c ….I mean that theory question

Q1 C we had to write factors for capital rationing like Recession, fear of high interest payments and dont remember what i wrote the 3rd one 😛

@ajmal:
I basically discussed soft capital rationing as follows for Q1(c):
– avoiding dilution of EPS by issuing equity
– avoiding dilution of control by issuing equity
– avoiding higher financial risk by issuing debt
– promoting competition between projects
– covenant restrictions in bond borrowing agreements
– issue costs

This came out recently in the June 2011 sitting Q1(d), quoting from the examiner’s answer:

“Soft capital rationing may be due to reluctance by a company to raise finance. For example, the amount of funds needed may be small in relation to the costs of raising the finance: or the company may wish to avoid dilution of control or earnings per share by issuing new equity; or the company may wish to avoid a commitment to paying fixed interest because it believes future economic conditions may put its profitability under pressure. Alternatively, the company may limit the funds available for capital investment in order to encourage competition between potential investment projects, so that only robust investment projects are accepted. This is the ‘internal capital market’ reason for soft capital rationing.”

My ppr went kinda good..negative NPV (dun remember the figure) buh it scared the crap outta me the first time, I did the theory parts relatively fine too buh m super worried cxz of my handwriting (it was exceptionally bad today) .. Hoping for a pass in 60s 🙂 TERP ratio was kinda tricky too! Buh I did get it somehow..any ways best of luck ya’ all 🙂
Can’t wait for 8th August .. I hate uncertainty lol

Any one like to match Q1. a) NPV (292565), B) Rank D, B, C, A,E .

Q2) Working invest. cycle 110 days, overdraft 5——–, acid Test, .59 or 49.

q3) A) Ke- 10.31% IRR-4.42%, WACC- 9.32%, B) Ba- 1.02 and Be- 1.19

Q4) P0- 4.91, g= 3.0—-% After Discount 20% -price 3.76, TERP- 4.52

8 Marks