Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › June 2011 q4
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John Moffat.
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- November 17, 2013 at 8:07 pm #146499
Dear Tutor,
Could you please explain why they take for Pa 35 Mln. Previously spent 7 +7 for development and exclusive Right to develop are not included in Pe calculation. Why? What is the meaning of Pe?November 18, 2013 at 12:40 pm #146591The question is a bit ambiguous.
The answer assumes that we will pay the 7M anyway, but then we have the option to delay spending the 35M to actually produce the game.
On this assumption, it costs 35M to exercise (Pe) and the value (Pa) is the present value of the flows that will then be generated.November 18, 2013 at 6:29 pm #146644Thank you very much for your reply – in the exam it will be difficult to make proper assumptions)).
I’ve got another question. This is Q.Mercury (I’ve got it from June 2008 (Singapore). Buy the way is it any differences between international and Singapore P4?
The question is – when do we need to calculate tax adjusted gearing like in this question? In many cases we just use unadjusted gearing.November 19, 2013 at 5:22 pm #146821Many times in P4 you need to make assumptions (just as you would in real life).
If you are not sure, then state your assumption and provided it is at all sensible then you will get full marks for doing things correctly on your assumption (even though you may end up with a different answer from the examiner. There is very often no one correct answer – the markers are good at P4 and will give you the marks.)With regard to International and Singapore – I guess that there must be differences (otherwise there would not be a separate variant), but I am afraid that I do not know. I would guess that the most likely difference might be the tax rules in Singapore, but I am sorry – I have no idea at all about Singapore tax 🙁 )
However, the question Mercury was the same question and answer for both the Global and the Singaporean variant.
The examiners answer is correct, but he really does make it look ridiculous (it was set by the previous examiner who was removed a few years ago).
You do not need to calculate the tax adjusted gearing at all. All you need to do is to use the asset beta formula from the formula sheet, together with the fact that if you combine investments in two areas that have different betas (as in this case) then the overall asset beta will be the weighted average of the individual asset betas.
Why on earth the examiner did not simply use the formula that he gave on the exam sheet defeats me (this is probably one of the reasons that he is no longer the examiner 🙂 )If you can possibly get hold of a revision/exam kit produced by Kaplan or BPP, then you will see that their answers get the correct answer a much more logical way using the formulae on the formula sheet.
November 19, 2013 at 5:24 pm #146823PS Please – if you are asking a question on a different topic, then please start a new topic. Otherwise it is very confusing for other people trying to learn from what is written.
November 19, 2013 at 6:56 pm #146846Thank you so much for your very clear and detailed explanations.
Sorry for this mess with my questions – this is because I did not expect your answer so soon…
AND GOOD LUCK TO ALL at this exam!!!November 19, 2013 at 7:27 pm #146851No problem – you are welcome 🙂
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