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FUBUKI CO – ACCA AFM (P4) DECEMBER 2010

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › FUBUKI CO – ACCA AFM (P4) DECEMBER 2010

  • This topic has 5 replies, 3 voices, and was last updated 1 year ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • March 18, 2021 at 7:23 pm #614702
    naveez
    • Topics: 15
    • Replies: 13
    • ☆

    Sir, Why do we include the working capital amount of $488(in Y0) as a part of the loan when calculating the issue cost?
    Shouldn’t we only take the $14000 to compute the issue cost of the loan like I have done below:
    $14000*4/96= $583

    In contrast with TIPPETLINE(March/June 2018), the issue cost has been computed based on the loan amount borrowed, they have not taken working capital amount into account
    when computing the issue cost of the loan.

    I scratching my head and finding difficult to comprehend this. Please enlighten me Sir!

    Thank you in advance for your explanation.

    March 19, 2021 at 8:48 am #614732
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49603
    • ☆☆☆☆☆

    Tippletine specifically says that they will need to finance $30.6M (and so presumably the working capital is coming out of existing funds).

    As far as Fubuki is concerned, the fact that the investment is in a foreign country and that the question states that the full amount of the funds required will be raised through debt finance makes it more likely that the funds needed will include the working capital required. However this is really an assumption and is only a minor point – you would not have lost any marks if you had not included the working capital.

    March 19, 2021 at 12:02 pm #614775
    naveez
    • Topics: 15
    • Replies: 13
    • ☆

    Let’s say if I exclude the working capital amount, what plausible assumption that I should state for this exclusion. Pls advise.

    March 19, 2021 at 1:12 pm #614787
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49603
    • ☆☆☆☆☆

    That you have assumed that finance was only raised to cover the capital investment.

    May 14, 2021 at 11:44 pm #620616
    my life
    • Topics: 1
    • Replies: 35
    • ☆

    Good evening Sir and sorry for asking that question here. I couldn’t find any other suitable topic to ask. I just want a clarification concerning the Specimen exam (question 3(b) Hav Co :premium based on excess earning”).
    I just want to know this: the “PV of annual premium in perpetuity” for Strand Co has been calculated as 159.3/0.07(wacc) giving $2275.7. So I want to know why it’s been divided (by the WACC) instead of simply discounting it at the WACC. What I know is that we usually discount at wacc to get the PV but here it has been divided.

    May 15, 2021 at 7:48 am #620637
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49603
    • ☆☆☆☆☆

    In future please start a new thread if you are asking about a different topic or question.

    They have discounted at the WACC !!

    You should remember from Paper MA and from Paper FM that the discount factor for a perpetuity is 1/r where r is the rate at which we are discounting.

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