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Here is the question:
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And here is my solution to first two requirements:
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Kindly confirm my calculations and answers.
Thanks
We can only help with specific problems, and with either questions in our notes or with past real exam questions – sorry.
That’s understandable, obviously short on time so I will ask the specifics and hope you can help me out sir 🙂
#1 When they say ” Working Capital Investment will be required at the start of 2nd year ” do we put this investment infront of year 1 on our timeline because due to DCF assumptions regarding Cash Flows which states any Cash Flows made at the start of a year would be considered to have occurred from the previous year and thus should be put infront of the previous year
#2 If a question states ” Estimate after tax ARR ” does that mean we will simply take Operating Cash Flow less the appropriate tax from there to get OP Cash Flows After Tax and then deduct depreciation from them and so on???
#3 Can #2 scenario be tested in exams?
Thanks
If working capital is required at the start if the second year, then the cash flow is at time 1 (because the second year starts 1 year from now – time 1 is a point in time one year from now, time 1 is not a whole year)
What you say about calculating after tax ARR is true. (It can be asked in exams although ARRA in the exam is usually pretty simple and therefore not many marks)
Thank you sir 🙂
Another query I have is that if we are short on time and we have to write a theory answer, can we write our answers in bullet points emphasizing the key elements to the question instead of writing a lengthy answer in detail. Is this allowable or will we get no marks at all? Thanks
Yes you can use bullet points, provided that you do write short sentences and not one word answers.
This is in fact better – the danger in writing a long paragraph is that if you are making several points then the market might miss some of them.
Best is either to underline the key word for each point you make, or (better) to make each point separately with a blank line between each.
So I won’t be penalized for writing points with sentences instead of paragraphs for theoretical answers?
Thanks for your insight 🙂
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