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Couldn’t put it any better. That’s a fair snapshot of the paper. I too thought it a fair paper, more or less equally balanced between numerical and discursive questions.
1. I mainly talked about options (including with the collar) will be more expensive than an interest swap, as it still lets you partly take advantage of a favourable movement (semi-fixed interest rate rather than fixed). So it may be better if you’re unsure on if you think the interest rate will go up/down. And swap May be better if you think it will go down. Wasn’t sure what more to put.
2. I just talked about no capital rationing being ideal in theory but not suitable in reality. If it undertook all positive NPV projects it would likely run out of cash at some point, have cash flow problems, miss potentially better projects, etc
3. Can’t fully remember this, but definitely 4-7 I think
If you remember in the Exitus Co question we were to find the Equity Vale of Acta. After the FCF you would end up with the value of the entire firm inclusive of debt but they asked for the equity value. A pointer to the fact that we will arrived at the overall value would be that we discounted with the Cost of Capital. But we were given a debt to equity ratio of Exitus Co as 30:70. For me I stated in my excel sheet that “assume the debt to equity ratio of Acta Co is same as Exitus Co”. I then multiplied my FCF by 70% to arrive at my Equity value of Acta Co. Anyone with an alternative approach at arriving at the Equity value of Acta Co?
Has anybody used the money market method to edge the payment in € in the third question?
Overall a much more balanced and predictable paper than December. Yes, there were some extra layers of difficulty, but that’s expected from a strategic level exam.
I’m fairly certain I passed, and also that I would have in December had I drawn these questions then. REALLY frustrating, and very confusing as to how or why December was the way that it was.
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