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Part B
Cash operating cycle (finding the trade payable days)
P/E ratio, EPSPart C
Capital rationing – 2011 exams alike
Factoring – (2012 exams had the w/ or without recourse)The MCQ was very tricky! I never heard of the pecking theory. It was a matter of luck to choose the true/false
Pecking order theory was definitely part of the syllabus alongside theories such as Traditional View on Capital Structure and Miller and Modigliani ones.
I had the cash operating cycle and P/E ratio myself but in section A instead.
Overall the Section A was hard but doable, Section B was quite a disaster with business valuations and Section C was the best with few tricks on the allowable cash flows for NPV appraisal.
I had the NPV nominal and real rate in Section C.. forgot how to do the real rate nominal.. do we need to deflate or leave the values in current terms? at least in nominal rate, we inflate everything based on the rate. 🙁 the others are ok, financial ratios and some analysis. I wish there was WACC instead.
What question did we get in Section B? I remember getting Foreign Exchange but what else did we get?
I thought it was a very tricky exam.
Section a and b much harder than expected.
In section b i could not work out the value based on earnings yield!There was calculation of market values of loan notes as well in section B, very touch
Anyone remember in sections c was a b c d e projects which were you select? Was it divisible or indivisible?
Was it B and C mutually exclusive
Anyone get it C the NPV profit and had to add back depreciation, marketing and admin, very different
Other section C was factoring
Theory
Hard and Soft Capital rationing
Advantages and Disadvantage of factoringI also do not remember was b and c mutually exclusive if so i did it wrong i wrote b c e
How did you do factotring question. Method 1 and method 2 i found both unaccetable
was Method 1 offering a discount to customers and method 2 the factoring agreement?
Yes that what I remember, 2% discount days reduced to 32 and they charged .85% of revenue, however the second option was without recourse, which means no bad debt included. Charged 1.5% and days I think were down to 30 and also Revenue down by 5% because of aggressive nature of collection. There seems very little to do for 6 marks. So am assuming I missed something? Read it a number of times and just seemed too straight forward
[Morning sitting]
Here’s what I got:
Section C
Q1
(a) To calculate operating gearing ratio and comment the view of external finance providers regarding the operating gearing.
(b) To calculate debt/equity ratio and interest cover ratio and comment the view of external finance providers regarding the financial gearing.
(c) (I can’t remember this) It is like… “What will happen if the real term cost of capital is used?”
(d) Problems SMEs faced in obtaining finance for business expansion.Q2
(a) NPV calculation
The investment project included two initial investment components, hotel and fittings, and two revenue component, accomodation and restaurant. Percentage of occupancy, total day and daily room rate needed to be considered. Cost of capital needed to be converted to nominal term.
(b) To discuss why directors pay less dividend and why shareholders are not happy with lower dividend.
(c) Simulation analysis and its benefitsHi – I sat the afternoon sitting. Does anyone remember what NPV values they got for nominal and real approach in section C? And what % real rate they used?
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