FM*** F9 June 2016 Exam was.. Instant Poll and comments ***

Not bad.Almost confused myself on money market hedge,then had to start it over again.as for the 8% loan note of $16m,it was something else.Overally I think the paper was pretty easy.

Wacc 9.8 % Npv 755 Overall it was not a tough paper. Now lets wait and see?

@ Kharishma seeam: I have reached a negative NPV. How did you calculate the selling price and costs of construction?

You are correct.The NPV was a negative.It was easy to confuse application of probabilities.I think my average price per motor was $50100.Conversion costs,aroud 31,000 i dont really remember.fixed costs were in the ranges.other than that nothing else was tricky .

I also got negative NPV. Had not time to check it, if it is wrong I am hoping I will get points on tax and WDA. I treated selling price less cost as contribution and calculated EV.

what about beyond 4 years. did you try to treat the sales revenue as a perpetuity . i mean1/r-annuity up to four years?what did you find ?

In calculating the npv i calculated the contribution for each type multiplied this by there probability to get an expected value of €18450 in around that then just multiplied that by each of the levels of production . I got a positive note of 267k or summing ah well performance was spot on so might only drop a few marks

NPV was negative for the first 4 years, from the fifth year NPV became positive. The b part of question 5 said to compute for the foreseeable future so I computed for year 5 and 6. The asset had a useful life of 10 years, although the first 4 years gave a negative NPV but from the 5th year NPV became positive, so in question b, you accept the project.

after 4 years was in perpetuity. I calculated cash flow after tax at discount 1/11% and 1 years to infinity but than I deducted 1-4 years 11% after tax cash flows. It gave few millions of additional present value and overall made project profitable. Yes it was easy paper, nothing really tricky in the questions, I am actually really surprised.

It was only marginal (-)ve NPV though, $670.

Oh yes so I did wrong, it couldn`t be in perpetuity cause investment useful life was only 10 years, but I think only this I did wrong.

What about currency question? and overtrading? and valuation? anyone?

Does anybody remember the the questions in part b to q3 and q4 or q2

Hi all! Anybody reached a negative NPV at Q5? What I can recall from the exam was this: Q5 NPV calculation and critically discuss the probability analysis: - reached a negative NPV - calculated the sale price and conversion costs by doing an average of the expected values. Used those numbers in the NPV calculation. - made a small comment about the fact that the project was only amortized for 4 years not the 10 allowable...i did not understand if we should have amortize the asset for 4 years or 10...but after reading part b i said i'll amortize it for 10 years... - part (b) I did an annuity of the value of the net income after tax and added to it the amortization for the next years (discounted y1-10 and deduct y1-4). -part (c) commented on probabilities(about the fact that they should be used if the project is repeated and the fact that the ENPV is not actually what the outcome is gonna be) Q4 WACC - do not recall the numbers but i think it was close to 9,something %. I remember the difference between the before and after the debenture loan 0.14 drop. Commented it is due to debt being "cheaper" than equity. - part (b) was it SME's funding thier maturity gap and funding gap here? i do not remember... Q3 Hedging - i matched the receipt and the payment and hedged the remaining amount via a forward contract and a loan vs deposit and got that the FW contract was more favorable. - part (b) commented about the transaction, translation and economic risk. Q2 Market valuation models - probably made a fool out of myself...I remember that the net assets valuation gave me a number of $179 m...i think.. - part (b) EMH theory detalization Q1 Overtrading - made the workings of the ratios and commented upon them...hope they'll give me a little bit of credit but don't feel so confident on my reply... How did you guys do?

Paper was not hard but it was too lengthy. i felt like in real time pressure. Even most of the arthimetic questions are on my finger tips. it was very leghthy. u have to work very fast otherwise u cant complete

Great paper.. although Mcqs were too tricky. Question 5 had a negative Npv for me. But after considering constant csah flows from year 5-10, total Npv becomes positive and investment worthwhile

First mcq was a easy one i dont remember though

They had given forcasted selling price and its making cost (variable cost) for 3 models of cars and their associated probabilities. Multiplying each car type's contribution x their probabilities and adding the three totals give u . EV of contribution per motorcar Multiply contribution per unit x no of motor cars sold from 1 to year 4, less fixed cost (as per the production range) to get the total cash flows for each year. Depreciation per year is 4mn÷10, reduce 400,000 from each cash flows found above, to get taxable profits. Taxable profits x tax rate gives u tax payment in each year it occurs. Prepare investment appraisal table, year 0 outflow of 4mn, pre tax cashflows, tax, post tax cash flows, discount factor, and PV. Fill the table from workings, I got Positive NPV For the (b) part, they are gonna sell (450 units x contribution per motor car, say C from year 5 to year 10 (similar to selling from year 1 to 6) C X annuity factor from 1 to 6 years, give u the discounted amount at year 0 (i.e year start of year 4) = C1 C1 X PV factor for 1 to 4 years = value of PV at year 0 Add C1 to previously found NPV, since its positive project npv accept it. This is What I think, we should do!! Im ssorry if its wrong,

same to u

@Jayadev: depreciation is not actual cash outflow therefore is not included in the NPV calculation. One only includes the tax allowable benefit.

Doesn't NPV take account of cash flows only and not profits? Why would you need to adjust for depreciation?

Yea i know, if u adopt my method we get same answer.... Depreciation is just used to find taxable profits rather than adding tax savings on depreciation

Hi, u got positive npv???

Does anyone remember what they got for MCQ? I managed to write mine down. Got: A C B D B C B D D D C A D B A D C B C A

Hi, The mcq's were really hard. There was one i should have known the answer to but could not work it out. The cost of equity. It gave the dividend 10p, p/e 5 times, d/C 4 times. What is the answer? Thanks

Negative NPV for first four years. As others said depreciation should not be in calculation. Only the tax allowable amount on depreciation which was 28% of $400k / 10 years. Think it was $112k a year

Q5 part b i did in perpetuity as it said 'foreseeable future' and i got a really high npv. But it really confused me and i felt so unsure if that was the right thing to do. WACC q i forgot what to do and deducted tax from bank loan interest rate, not sure if that was right. Q1 - im not sure if what i wrote was ok for overtrading. Q3 - hedging, the fo was better and about £6k less than the money market hedge. Mcq - sensitivity analysis i got 10% but felt so unsure as got my self confused with the tax, think i ignored it in the end. I guessed a lot if the mcqd. I chose leases for i think it was mcq 1.

Same, is the right?

Same, is this right?

Thank you, think g was 0.8