Mock Exam

please anyone with Dec, 2015 P7 mock exams

khambo: Why on earth have you posted this in the Paper F9 forum when you are asking about P7? Also, you must not ask on this website for copyright material to be sent to you by email - it is illegal and unethical.

hake304: 1. The share price at the start of the year was 5.20 - 0.60 = $4.60. The dividend is $0.45 and the increase in share price is $0.60 Therefore the total shareholder return = (0.45 + 0.60) / 4.60 = 22.83% 2. Dividend yield = dividend / market value = 0.08 Therefore market value = dividend / 0.08 = 12.5 x dividend Dividend cover = earnings / dividend = 2.4 Therefore earning = 2.4 x dividend PE = MV / earnings = 12.5 x dividend / 2.4 x dividend = 5.21 3. They need to place an order when they have enough left in inventory to last the lead time (the time between placing the order and receiving the goods). The lead time is 30 days.The average demand per day is 12 x 7,500 / 365 = 246.58 units Therefore the reorder level is 30 x 246.58 = 7,397 units.

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Hi, Can you show how you work out Q1 ME. ABC Co has just paid a dividend of 24 cents per share and it's current share price one year ago was $3.60. The total shareholder return for the year was 23.3% Also in Q2 how do you get to 12.5? TIA

In Q2 how do you get to 12.5?

Razor 180: Your first question: The total shareholder return over a year = (dividend + increase in share price) / share price at the start of the year. Since the return is 23.3%, then dividend + increase in share price = 23.3% x $3.60 = $0.84 The dividend during the year is $0.24, therefore the share price increase must be $0.84 - $0.24 = $0.60 Therefore the current share price = 3.60 + 0.60 = $4.20.

Razor 180: Your second question: I have no idea which question you are referring to. The questions in the mock exam are selected at random from a bank of questions (as is explained on the page before you attempt the exam). Please give me a clue which question you are referring to!

hake 304: question 1: Because it is an annuity, 5,000 x 8 year annuity factor = 24000 Therefore the 8 year annuity factor = 24,000 / 5,000 = 4.800 If you look in the tables along the 8 year row then 13% is the closest (it gives 4.799) You could, of course, do the normal calculation and make 2 guesses, but because it is an annuity the above is much quicker.

hake 304: Question 2 (I don't think you are bothering to watch the free lectures because this is all explained in the lecture!!) The TERP = ((5 x $4) + $3.10) / 6 = £3.85 If someone owned 1,000 shares before the rights issue, then they must have been worth 1,000 x $4 = $4,000. For there to be no cash effect, they must still be worth $4,000 after the rights issue, which must been that they now own 4,000 / 3.85 = 1,038.96 shares. So they must have taken up 38.96 new shares. There were entitled to buy 1/5 x 1,000 = 200 shares. Therefore they have actually taken up 38.96/200 = 19.48%

Hake 304 Question 3 A two year cycle has the following flows: 0 (72,000) 1 (7,200) 2 7,000 (16,600 - 9,600) The PV at 15% is (72,972) The EAC = 72,972 / 1.626 = 44,878

Dear Sir, In the mock exam there was a question asking the following "RI CO Has in issue 6% redeemable bonds. quoted at 120% ex Int. which of the statements is consistent with the above information" i can not calculate the redemption yield, please advise how do we calculate redemption yield? Thanking you in advance. kind regards and wishing you the best

You cannot be asked to calculate the redemption yield (and you do not need to in this question) but you are expected to know what it means. The interest yield (which you can be expected to calculate) is 6/120 = 5%. However, the interest yield only takes account of the interest. The redemption yield is the overall return - the interest together with any gain or loss on redemption (which is the amount received on redemption less the investment required now (the MV)), Here, the current MV is 120. The redemption is at 100. Therefore there is a 'loss' on redemption and therefore the redemption yield will be lower than the interest yield. Only one of the choices has interest yield at 5% and redemption yield as lower.

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thank you, much appreciated

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Dear tutor, 1) Fling Co has annual credit sales of $4,500,000 and on average customers take 60 days to pay, assuming a 360 days year. As a result, Fling has a trade receivables balance of $750,000. Fling relies on an overdraft to finance this at an annual interest rate of 8%. Fling is considering offering an early settlement discount to its customers of 0.5% for payment in 30 days. It expects that 25% of its customers (representing 35% of the annual credit sales figure) will pay in 30 days in order to obtain the discount. If Fling introduces the proposed discount, what will be the NET saving? 2) R plc has in issue $400,000 8% bonds, redeemable in 5 years time at a premium of 10% investors require a return of 12% p.a. The rate of corporation tax is 35%. What is the total market value of the debt in issue. 3) LJM co is considering investing in a new project which will cost $160,000. It has an expected life of 4 years and an expected scrap value of $20,000. The anticipated net operating cash flows each year are : Year 1 : $40,000 Year 2: $60,000 Year 3: $80,000 Year 4: $20,000 Cost of capital is 10% What is the NPV and ARR of the investment? As for question 3 I know is quite easy, but I can't figure out where to deduct the scrap value to get the NPV.. Kindly help me on these question. Thanks!!

Have you actually watched the free lectures? They are a complete course for F9 and cover everything needed for the exam (including these three questions). There is no point in attempting the mock exam unless you have either watched all the lectures or instead worked through every page of a Study Text! Question 1: Current receivables = 750,000 New receivables period = (35% x 30) + (65% x 60) = 49.5 days. Therefore new receivables = 49.5/360 x $4.5M = 618,750 Therefore interest saving = (750,000 - 618,750) x 8% = $10,500 Cost of discount = 35% x 0.5% x $4,500,000 = $7,875 Therefore net saving = 10,500 - 7,875 = $2,625

Question 2: On $400,000, the expected receipts are: 1 - 5 Interest 32,000 p.a. (8% x 400,000) 5 Repayment 440,000 (400,000 + 10%) The present value discounted at the investors required return of 12% = $364,840 (Tax is only relevant when calculating the cost of debt, it does not affect the investor and it is the investor who determines the market value.)

Question 3: We do not deduct the scrap value anywhere when calculating NPV's! It is an cash inflow at the end of the project. The cash flows are: 0 (160,000) 1 40,000 2 60,000 3 80,000 4 40,000 (20,000 + 20,000) The NPV at 10% = $13,320 I work through an almost identical example in the very first of the free lectures on investment appraisal, where I am quickly revising Paper F2 before going into the more complicated things for F9.