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I said use forward contract instead of money market hedge for Q2. Because it was a payment and forward contract produced lower figure. Q3 was all about difference in redemption values for convertible bonds – for 4% you would redeem at par and for 6% you would convert. You generally only divide by annuity factor for asset purchases to work out EAC.
@vipulv said:
How did you inflate your sales? Price x inflation to power 2 , 3 , 4 ?Exactly.
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i did a big massive sweaty fart and got kicked out of the exam because they thought i followed through.
@mustii said:
with conversion, of the 4% growth and 6% growth, I remember the question asking what the market value is on each now?, it didn’t ask what they should take? the market value would then be the npv of each? which are both under 1000?Yes, the question was about MV. But with 4% you do not convert and with 6% you do. And when you do convert, the PV is 70*DF + sum of convertion * DF.
price quantity growth periods nominal value
6.5 110 1.06 7 1075.095635 1000
6.5 110 1.04 7 940.8912222 1000ANNUITY FACTOR
1 — 7 5.206
1–8 5.747
8 0.54
7 0.583IF CONVERT ANNUITY 190.3958424
991.2007553 5.206
IF NOT
942.29 5.747 163.9620672I got another variant.
1.
6.5 * (1 + 4%) ^ 7 = 8.55
8.55 * 110 = 941
It is better to redeem @ nominal value.2.
6.5 * (1 + 6^) ^ 7 = 9.77
9.77 * 110 = 1075
It is better to convertSo.
MV1: 70 * 5.971 (8 years @ 7%) + 1000 * 0.582 = 1000
MV2: 70 * 5.206 (7 years @ 8 %) + 1075 * 0.583 = 991I believe that was 58/68? I cannot remember the exact figure. I took the pv of the redemption value at par.
I choose the ARR only option instead of neither.
MV using dividend valuation i got 7.35 or something
£6000 net benefit
WACC – 9.something
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My friend which question had Asset replacement been asked? for question three it was A and b with a containing two sub question of find out the MV of loan using different growth rate…..
I agree NPV was easy I’d really practiced that so I’m really happy it came up! Found WACC ok too, but I’m sure I got 14.62% as my WACC which isn’t good! I found it easy apart from the Pref Shares though so that’s definitely what messed my calc up. Hopefully I still get marks for my workings. I thought the MCQs were OK but Iv got different answers to above, lots of Ds I wrote them down somewhere up post what I got later.
I got that the increasing minimum wage wouldn’t help (as it’s going to increase the money they pay out) I can’t remember the other options, if you can remember them let me know and il tell you what I got ?
@sharique123 said:
Hi Guys,I agree the paper was quite hard. Following are all the answers:
MCQs Answers:
B
C
D
A
D
B
B
B
C
DQ1 (A) – Comparatively Easy Question in the Paper to Handle:
NPV = + 1,848 (It is exact figure not approx)
Candidates were required simply to incorporate the effect of tax and inflation.Q2 (A) – Tricky Question:
Forward Hedge was favorable. Value under forward hedge : 230,175 (Exact Figure)Q3 (A) – Most difficult question of the paper:
Q3 (A) (i) – Market Value : 991 per loan note (Exact Figure) – No share option
Q3 (A) (ii) – Market Value : 942 per loan note (Exact Figure) – Share Option
Here I want to mention some mistakes which some people can make. Firstly if you have calculated the conversion value after seven years then the nominal value at which loan will be redeemed must also be taken at seven years. It means discounting only at 1 year backwards + you also need to discount one year interest payment backwards because value for comparison is available after seven years and loan note value can be found at seven years but one year interest payment must also be discounted.Q4 (A) – WACC – 9.94% (Exact figure) – Here I want to people tell that whether they have calculated the cost of debt (Kd) using IRR method or used formula (i(1-T)/P).
Q5 (A) – Interest Payable = 211 (Exact figure).
Here 2 things must be considered that WIP was 50% complete so must be excluded from the working capital.Are you sure about the Q2 ? I believe the company could save 9xx $ using money market hedge.
@sharique123 said:
Hi Guys,I agree the paper was quite hard. Following are all the answers:
MCQs Answers:
B
C
D
A
D
B
B
B
C
DQ1 (A) – Comparatively Easy Question in the Paper to Handle:
NPV = + 1,848 (It is exact figure not approx)
Candidates were required simply to incorporate the effect of tax and inflation.Q2 (A) – Tricky Question:
Forward Hedge was favorable. Value under forward hedge : 230,175 (Exact Figure)Q3 (A) – Most difficult question of the paper:
Q3 (A) (i) – Market Value : 991 per loan note (Exact Figure) – No share option
Q3 (A) (ii) – Market Value : 942 per loan note (Exact Figure) – Share Option
Here I want to mention some mistakes which some people can make. Firstly if you have calculated the conversion value after seven years then the nominal value at which loan will be redeemed must also be taken at seven years. It means discounting only at 1 year backwards + you also need to discount one year interest payment backwards because value for comparison is available after seven years and loan note value can be found at seven years but one year interest payment must also be discounted.Q4 (A) – WACC – 9.94% (Exact figure) – Here I want to people tell that whether they have calculated the cost of debt (Kd) using IRR method or used formula (i(1-T)/P).
Q5 (A) – Interest Payable = 211 (Exact figure).
Here 2 things must be considered that WIP was 50% complete so must be excluded from the working capital.How certain are you your correct? My NPV i got 2716. But i did forget to deduct scrap from TAD. I don’t know where else I have gone wrong.
How did you inflate?
Sales and Variable you had to do to the power of 1 2 3 4
but fixed you had to do ONLY sum x inflation and not to the power of …. as fixed cost do not change level of activity.
@acca145 said:
options were like this 1. reducing taxation
2. minimum wage for employees
3. legislation for disposal waste
4. improving roads etc in industrial areaA 1 & 2
B 1 2 3 4
C 1 & 3
D 1 & 4
I selected DI chose 2 and 4
@sharique123 said:
Yes. I am 100% sure. I completed this question in 15 mins and rechecked it.So apart from the TAD where you think ai may have gone wrong?
How did you inflate? Sales variable different from Overhead?
My Npv is off by 800 from yours just thinking where i could be wrong.
Interest rate risk types you had to discuss was this Liquidation, market segmentation and expectations?
Q2.I don’t remember the question wat was asked and all…Bt I had calculated future spot rate and compared with forward contract rate and got $ 925 as benefit due to forward contract..Is this correct?
@vipulv said:
I chose 2 and 4Yes I answered the same, reduce tax and create more transport links!
My MCQ answers were B C D C D C A A C A B A C A A B B A B A (I wrote them down before I came out, I’m not just crazy and remembered them all lol!)
Remember you just need 50% to pass. Do not stress about every last detail. Unless you have a god given gift in financial management, everyone will make mistakes. Very rare to get 75+
@acca145 said:
A borrower would buy/sell a cap and floor mcq which option did you guys selected ?Sell n buy floor i said
@sophierayner said:
Yes I answered the same, reduce tax and create more transport links!My MCQ answers were B C D C D C A A C A B A C A A B B A B A (I wrote them down before I came out, I’m not just crazy and remembered them all lol!)
This sounds more like mine though my first one defo C. Last was A lol do you remember any questions?
50000 n resell 80000 profit 7000 something?
6000 benefit
ROCE or interest think i chose neither D
@sharique123 said:
Incorrect. It was buy cap and sell floor. Because borrower usually buy cap to restrict the maximum interest rate to be paid and sell the floor to the depositor to minimize the premium. This is also called creating Collar.Pure guess had no idea. Did you study with open tution or someone else?
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