FM*** June 2022 ACCA FM exam – Instant Poll and comments ***

Come on people someone reply to me! Whoever had WACC as their question 32 (second C question) please let me know how did you calculate the convertible debt! As per the scenario, the convertible debt was to be converted to 20 shares if i recall correctly or redeemed at nominal value (100). The odd thing about the convertible bond was that it was the first exercise i have encountered that it did not say how many years until conversion or redemption which i found very strange and unnecessary!

I discounted at 3 years. I thought the statement was dated end of 2016 and redemption/convertibles was in 2019? But then my post-tax interest didn’t come to much at all so I think I made a mistake somewhere.

For the 3rd project the initial cost was $5200, as far as I remember. The ROCE I had is 21,8%. Cash flow 9000/4years minus tax 22% and minus amortisation which is 1100. Initial cost+residual value/2 (5200+800)/2. Guys, how did you come up to 38,8%?

@hannahbrown Thank you for your reply. I did not see that it mentioned a year. Was your WACC question about the directors views which linked with M&M tax theory and traditional theory? What additional reasons you wrote for the debt and equity financing?

@valentinos do you remember what was cover in Sec B ??? and someone who got different set..??

I wouldn’t worry too much, I definitely did something wrong with my cost of debt because my IRR was so low. 10 mark question so I’m sure we still picked up a few! Yes I got that question too, I mentioned redemption and control as my other two factors. What about you?

@yana. What did u get for your NPV calculation and Net saving

I don’t remember the exact figures((.

@hannahbrown I hope i did not loose more than 2-3 marks to be honest from the 10 mark WACC. For the other part of equity and debt i wrote that with equity financing shareholders will have their shares diluted and this would cause issues etc.. and for debt financing i talked about the possible setbacks of high gearing

I also got 58 days in section B for days. Section C WACC I had a very high % for COC and using IRR for COD was 2.3% very low and I used the bank interest less the tax. Found Section A quite tricky and section B the foreign exchange question was really difficult

did anyone get turqoise co in sec a in which it was asked to find net total of dollar recepits and payments using forward contracts

@yanna Yes thats what i did.

Did any of you get WACC were Rf - 3% Market return - 12% and Beta 1.3?

I was so stuck on this question! I used the higher exchange rates for the payments, lower ones for the receipts, and chose the 3 or 6 month forward rates depending on the timings of transactions. Didn't get any of the 4 choices though, so just guessed in the end.

Did any of you get WACC were Rf – 3% Market return – 12% and Beta 1.3?

i also got 58 days. and did you get 1.00 for quick ratio?

in section A there was a question with the impact of raising interest rates on the company's project. so, i selected the option saying that demand will reduce as consumers choose cheaper import goods. is it true?

Yes quick ratio of 1.00. And demand will be reduced

What percentage wacc did you get? 12.4%?

yeah, i remember it was over 12%

how did you calculate the convertibles? did you also find the conversion value to be $100.998 -i mean, number of shares * MV of shares* growth rate (if i remember right, it was 6% every year) so, overall, 20*$4*1.06^4=100.998 was the number of years 4?

Yup 100.98. 7% growth rate ,5yrs of time, 12 ordinary shares and share price was 6. So (1.07^5)*6*12

What was the answer for 1st question which says the source of finance not likely available to SME?

short term overdraft finance

I have also choosed the same. But is it correct?

A curiosity is that often, with smaller businesses, longer-term loans are easier to obtain that medium term loans because the longer loans are easily secured with mortgages against property. The fact that medium term loans are hard to obtain is a well-known feature of SMEs and is known as the maturity gap. Its main problem arises in a mismatching of assets and liabilities. this statement is obtained from Kaplan. based on the information here, it can be concluded that short and medium finance is hard to obtain for SME.

Okay

There was a question in section A about spot rate, the currencies were FR and DOLLAR. I got An answer of 25.44. But second part of the question asked did the dollar strenthen or weaken ? What was the answer?

weaken, cos as far as i remember, the previous exchange rate was higher than rate, meaning that dollar decreased in value

by the way, did you also get the answer choice $113.6 to the question with repayment after 18 month?