June 10 Exams POLL Paper F9 was Post your comments here

Question 1 – I got 20% that there would be a negative balance. I think I screwed up the second part even though I drew a probability tree with the -500 OD starting balance. I think I will get method marks for this.
Question 2 – Easy valuation of redeemable shares. WACC straightforward when introduced debt brings the cost down. The main part was the issue of the bond and discussion. Not a good idea. The company operates in a software industry and therefore is a technology company (think growth – debt bad, equity expensive). I explored preference shares but said that was window dressing a fixed dividend charge which is more or less a fixed interest charge. I recommended more equity to cover the overdraft.
Question 3 – The idiot trainee double counted interest, had depreciation, discounted at the cost of debt (should have used WACC), did not calculate contribution correctly and included the sunk cost of $200k on development. When I re-performed the calculation I used WACC to discount. I took into account the remaining fixed cost and inflated it although im not sure thats entirely right as I wasnt sure if it was incremental fixed costs or if just the interest portion was. What do you think. My reccomendation was NPV > 0, so buy.
Q4 – I approached it using a DVM for current period and got a share price of approx $7 (using equivalent annual growth I got growth about 4%). For the second part, What i did was i did a DVM assuming 3% growth rate and .70 dividend with the same Ke. what I got was a share price of about $10. Then to analyse I took the equivalent annual growth of the dividend from .40 to .70 and noted that it was 15% which was untraditional given the 4% prior growth rate and the 3% after. In short the Director was full of it.

Was the first questn a simulation model questn or the Expected value questn? I thnk we had to calculate cashflows using simulation model,,I didnt kno how to calculate using simulation model as i tho8 no numericals wud be asked from it,,there is a similar q in kaplan text for simulation model though but never bothered to study it thnking numericals will not be asked…Paper was a disaster,,completely a different style,,v unexpected…

I think when i finish ACCA i will go to Head Office and tell them that part of the furniture and good offices came from me because i cannot be repeating the same subject for 3 consecutive sittings. The paper was rough for i must say and wishing december will bring smiles to everyone.

As an exam it was ok, having said that, my hand still hurts from all the writing!. As an F9 exam, I’m not so sure it worked. From the very beginning i found it a bit odd, almost disjointed from the syllabus. Does anyone think that maybe it should be split into five questions so at least it can cover some of the core areas of the syllabus in a more complete manner?

Thanks trainee accountant for the extra work on the NPV question, lol!

@samandrews said:
what did everyone do for the dividend valuation model where there was going to be no dividend paid for 3 years?

I calculated the share price with 70 c. and growth of 3%. I received something about $ 10. Then I discounted this number for 3 years with 10% and I received 7 point something. I don’t know if this is the wight way?

arggghhhh good god that was the worst f9 paper i have ever sat and after sitting 3 you think i should be a pro! 🙁

for the DVM the first part i calculated the growth before which is current div / old div to the power of 1/no of movements which gave a 4% growth and $7. something then the second used the 70cents and then 3% growth and it gave me $10 something.

Can anyone remember what the last part of question 2 and 3 was?

Ta

Thw Wacc i got 11

Q1 – I got the closing account balances for period 1 and 2 that was pretty straightforward i think..but then the other two questions about calculating the probability of a negative account balance and calculate the probability that the account balance will exceed the overdraft limit or something (i dont remember it properly) those confused me so i skipped them..then there was a that part about trade receivables management policy. In that question I just waffled on about how they should assess the credit worthiness of customers and the usual debt collection procedures they should adopt…the last part of the question was about the importance of liquidity and profitability in working capital management and i wrote that a company need to strike a balance between the two…I was surprised at the 13 marks for the EV calculation..Didnt feel like it was worth 13 marks lol..
Q2 – Um..this question didn’t seem two difficult but it was a bit confusing. I calculated the after-tax cost of debt. Then we were so supposed to explain the effect the bonds issue had on the WACC..i wasn’t sure if the WACC should be calculated using the book value of the overdraft (4.5m) or were we supposed to use the new limit on overdraft 500,000? Anyone have any ideas? Or how did you people solve it? So yeah that part confused me a bit. The other part was interest cover and gearing if I remember correctly..I calculated the interest cover before the bond issue and after the bond issue and then compared them both the the sector avg. Same thing for gearing…Hmm I think that was it right? I dont remember the rest of the question…
Q3 – The trainee was quite retarded obviously 😛 included depreciation, didnt adjust for inflation rates..part of the fixed costs were already committed (therefore irrelevant)..used a DF of 10% instead of the WACC..The one thing I wasnt sure of was was the mentioned the REAL rate of WACC and then they also mentioned the rate of general inflation..I calculated the nominal rate of WACC using the formula (1+1)=(1+h) x (1+r)..but I’m not sure if i was supposed to or if we were just supposed to use the given WACC..anyway after using that formula I got a rate of appx. 12% so I used that..but my NPV was was too high to be true lol..I think i mightve messed up the calculationgs somewhere. Overall though the answer seems to be that the NPV is actually positive and the project should be accepted…The other part of the question about how to overcome certain difficulties in project appraisal (different asset life cycles, several IRRs, business risk), I kinda just guessed..wrote whatever came to my mind..again alot of points for that part, unfortunately 🙁
Q4 – While doing past papers I never felt the need for more time..3 hrs was basically enough to finish all the questions and review my answers but during the exam I found myself under a bit of time pressure when I got to Q4..I didnt really answer it as well as i probably couldve if I had more time..Used the formula for TSR and dividend yield is pretty easy to calculate..i forgot to caluculate capital gain though..oh well…and the rest of the question I answered what I could in the 15-20min I had left so yeah..I think Q4 was kind of a lost cause…..
Anyway..overall I was disappointed with the paper..It was so totally different from the usual question types..I bet even if we could solve all the past papers without any problem – like totally mastered them – we still wouldnt have been prepared to answer the questions on this exam..it was just so different. I just hope I get a 50. I dont think anyone is looking forward to taking this paper again..good luck to you all 🙂

@fundamental said:
I had to do Q3 twice because I messed up the first time lol
I got an NPV > 2000

Thought it made sense after adding back all of the nonsense that the trainee put in but I was still a bit iffy on having a return over 100% invested.Anyone else get anything stupidly high?

ya I got something ridiculously high too..I was like what the…but i didnt have enough time to go and check through so i just assumed it was all right….glad to see im not the only one..

@decentguy185 said:
i got probability of 20% on q1 a{iii}.. and 18% on a{iv}

I got the same percentages 🙂

@louibee said:
arggghhhh good god that was the worst f9 paper i have ever sat and after sitting 3 you think i should be a pro! 🙁

for the DVM the first part i calculated the growth before which is current div / old div to the power of 1/no of movements which gave a 4% growth and $7. something then the second used the 70cents and then 3% growth and it gave me $10 something.

Can anyone remember what the last part of question 2 and 3 was?

Ta

Thw Wacc i got 11

I got around $10.40 if i remember correctly..using the historical data and around $10.60 using the DVM..but I thought $10 seemed like a bit much..still confused :S

never imagine that kind of paper … 🙁 ..

@tejal said:
how did you calculate those probabilities? I was totally clueless about those..
I didnt include the interest payments because i think in NPV we assume that Interest is included when the WACC is used (coz the WACC already takes into considereation the interset on debt??)…Not sure if thats right though..

I was totally clueless at first and left the question for the end.. i made a table of possible outcomes that will give a negative closing balance for period 2..
i did something like this..
{2000} in period one and {9000} in period 2 will give a neg closing balance.. 5000 in p1 and {9000} in p2 etc.. multiplied there prob and.. added each outcomes prob.. it just struck me in the end i dont know whether its rite or not..
*..i quoted you thrice.. using this forum for the first time..sorry about that*