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@thieuson
for capital rationing i assumed invetsments are in PV values…………coz i was going out of time that was only 3 marks questions and then on basis of profitibility index distributed capital budgets……..what u say???
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@thieuson said:
Aq: it means that you do not need to recalculate the equity market value, it also means that the equity require rate of return not changed….It relates to question b: my answer is that it is not validity infact because the firrm changed its capital structure, financial structure, gearing => financial risk changed => requirate of return changed => market value changed
I agree that the MV of equity need not to be calculated… But the Ke of the new (After proposal) firm changes because the Beta changes..
(i) I degeared the 1.1 Equity Beta of the company and arrived at it’s Asset Beta…
(ii) I then Used it as follows:
Asset Beta as per (i) = 60% * Beta (Leisure) + 40%*0.4 (Property Beta – Given)
Assumed that the Combined Asset Beta is the weighted average of the individual Betas.
(iii) Solving for Beta (Leisure) you get the pure hotel service asset beta.
(iv) I regeraed it under new capital structure. (reduced debt + Same MV equity)
(v) Applied it to CAPM to get new Ke.- Topics: 0
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@aqadirshaikh said:
@thieusonfor capital rationing i assumed invetsments are in PV values…………coz i was going out of time that was only 3 marks questions and then on basis of profitibility index distributed capital budgets……..what u say???
” I think a Linear programming model was required.. Not profitability Index. This was a multi period capital rationing.. PI’s are only for single period capital rationing…”
@mhmdfazil said:
” I think a Linear programming model was required.. Not profitability Index. This was a multi period capital rationing.. PI’s are only for single period capital rationing…”Then how that part should be tackled
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@aqadirshaikh said:
Then how that part should be tackled“The question specifically said that solving the problem is not necessary…!!
You have to.
(i) Identify the variables (Say D1 = Proportion of D1 investment undertaken, D2 = Proportion of D2 investment undertaken…. etc…)
(ii) Identify the objective function (Maximize NPV = 380D1 + 400D2 …. etc) (I’m just making up figures.. used as they were in the paper)
(iii) Non negativity constraint
( 0<=D1 + D2 +D3 + D4+ D5 <= 1)
(iv) and the capital constraints
e.g : Period 1,
(1200 D1 + 1500 D2 + …….+ 2500 D5 = 9000@mhmdfazil said:
“The question specifically said that solving the problem is not necessary…!!
You have to.
(i) Identify the variables (Say D1 = Proportion of D1 investment undertaken, D2 = Proportion of D2 investment undertaken…. etc…)
(ii) Identify the objective function (Maximize NPV = 380D1 + 400D2 …. etc) (I’m just making up figures.. used as they were in the paper)
(iii) Non negativity constraint
( 0<=D1 + D2 +D3 + D4+ D5 <= 1)
(iv) and the capital constraints
e.g : Period 1,
(1200 D1 + 1500 D2 + …….+ 2500 D5 = 9000Possibly I wasted my time on this ……………!
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@aqadirshaikh said:
Possibly I wasted my time on this ……………!“Correct me if I’m wrong…!! :(“
@mhmdfazil said:
“Correct me if I’m wrong…!! :(“U r right………but three marks for this only????
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I did q5, thought it was easier to pick up marks than q3. Especially re quality control point.
Yes I felt the same. The quality control point threw me. I just hope I wrote enough on the IMF bit for q5
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AAAAHhhhhhh what the hell paper was about ,,,No Apv,no proper risk management,no mergers and acq ,no black scholes nO nO NO nO ,why examiner does this?
Ahtasham, I agree. I knew lots on risk management, apv, Eva, bsop and none of it came up. Even the fx question was really strange, so I’m gutted really
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Did any one answer Q5, IMF?
IMF is international financial institution
IMF support countries BoP problems
Countries have to implement structural adjustment program
SAP policies entail cutting current account spending
These policies negatively impact population as, salaries of govenment workers are cut and taxes are raised
ETC ETC- Topics: 0
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Q 2 was on fx ? Or something else… I saw people talking about NPS for 4 years, but I remember that Q2 was on FX. Am i wrong? Pls help me out, I cannot sleep after this stange exam (which I will successfully fail)
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how come there are some students poll P4 very easy ? extremely hard
How do we solve qns 2? Isn’t it on fx? How then do we solve using interest rates? The 1st one we can use money market hedge by borrowing, converting and deposit. But how do we use the info on interest rates for forwards, future and option? Anyone can advise?
How was Beta after proposal suppose to be calculate. i think My calculation it wrong. 🙁 . Please Tell. 🙁
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ferrischan:
1. the interest rate base plus/minus for computing forward rate using formular that: S1 = S0 x (1 + hc) / (1 + hb)
2. Option: not need using interest rate because exercise price set at 142 already.
3. Money market hedge: we use last paragraph information about borrow interest rate and investment rate: i) borrow ZP140mil/(1+ interest rate for 3 month); ii) buy Euro; iii) invest Euro; iv) receive ZP140mil; v) pay principle and interest in ZP, total = ZP140mil; vi) withdraw Euro (principle and interest).
Noted: quoted interest rate is annually but we buy in three months => convert to 3 months.- Topics: 0
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sorry, 4 months. we hedge 4 months because there is an OTC not exchange traded => unstandardized, we can negotiate.
Hey this paper was harder I tell you and it was really time consuming paper. I hope to clear it by GOD’S Grace. I am really fade up. No matter how you prepare you get challenged. It is my only paper remaining. GOD HELP ME PLEASE
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