AFM*** P4 December 2013 Exam was.. Post your comments ***

For bsop. I used the pv from first 2 years only. Which started everything off as a negative answer!

Zain224, I read your post: "December 3, 2013 at 5:13 pm" , I agree with everything. Did the same thing.. even if we are wrong, we will get marks in parts and wont loose all 9 marks just like that...

Del.

Could someone please respond to: How they went about part b & c for q3? b) Implication for Share holders of parent company (M Co) for 50% premium as compared to 30% c) Otherwise additional cash that was required and how could the parent company arrange it?

what's about 2 contract types mentioned in scenario? I know only about Sukuk from the SA. I also tried Q4 but in c) i wrote only the main principles of Islamic finance

thanks johnwells just hope and pray we both will pass

in 1st question Pa was NPV of project in year zero, but Pe was at year end 2..thus Pe should be discounted at year zero?

Well thought that the content in q1 was not too bad. Made one mistake in that I did benefits an drawbacks for the company of WTO instead of country. Stupid really. Also had too many digits in working- should have rounded down figures more. Time for this q was a joke. At the allocated time I had just worked out down to operating profit! Had to sacrifice marks in the rest of the q. Delta part I know I also answered badly!

For Pa I used pv of years 0,1,2 as that's when sale would occur. But that's also why I had a negative Pa as the costs of the machinery etc are not yet recovered. Anyone agree?

Pa should be T3 to T5 discounted back to present value terms I think. Time was a killer in this exam - I got WACC as 9% for Q3 as others have mentioned. Sell rate on futures market - what do you mean? There was a loss of 4 ticks and a gain of over 100 on the futures if I remember correctly? Was around $760k total - forward was $772k.

WACC @ 5% do not know who that happened =)

Carl29 - the tax agreement would have brought a cash inflow if there was other overseas income to offset (my opinion) So I stated it's not obvious that there is other overseas income to offset against hence no benefit.

Yes Q4 was fairly easy. The last minute article reading helped. Thats the only one i am fairly sure about

I thought that you would need to tax the profit on the specialised part that was purchased from the home country. I could only find the sale price and not the cost so just taxed the whole sale. It was interesting as people say as soon as you hit the time limit for each q move on, yet was difficult to move on in q 1 with no answer

The specialized part i tfrd into Mp currency and included cost in cash flow....?

For the Option ( I used PV for years 3-5) as the Pa. I assumed exercise was in year 3 start, so the relevant PV would be after the exercise of Pe of $30 million offer from Bulud Co. My assumption.

I think there was 115 basis points overall - so 3/5 of that would be 46 ticks - I think I actually divided by 3/4 and got 29 ticks - oops!

Yes but as you were buying the part from yourself I.e the head office you would need to tax it. I may have misunderstood (which would be normal) but was sure the brought it from the parent company.

I did the scary thing that tutors always tell us. Onc the time is up move on. I had set myself a time limit for the calculations in 1b. Once I got there I went to calculate 1c assuming a value for Pa. I did quite a few calculations for 1b, but did not complete the actual table at all. I then went on to write the complete report again assuming values for NPV. It was a very scary thing to do, but it gave me enough time to answer the assumption and risk bit as well as the WTO in full. I also hope that I will score the presentation marks, as I submitted a complete report, albeit that all my figures are made up. I then went on to Q3 where I got stuck in b) and c). In hindsight I should have chosen Hedging. But once you have started you can't go back. In the last 15 minutes I then thought to cut my losses in Q3 and I went back to Q1 to finish the table for the NPV calculation, as I thought these were easier points. Q4 was great. I hope that it will save me and pull me through. It was pretty obvious there was going to be a Q on islamic finance, and the question gave us enough to answer there. So all-in-all it was scary to write the report based on fake figures as I ran out of time, I chose the optional question badly, but will hopefully scrape through because of Q4. Fingers crossed.

How to calculate exercise price in Q2?

I regret not reading the islamic article and not attempting q4 would had virtually guaranteed my pass. Arrgh!

Q2 was a dream. Straight forward hedging. Did part a first and then moved on to q1 as wanted to get the calcs right in hedging before absorbing q1. I agree many working in q1. Would have thought at this level would not be a test of the speed of punching numbers in the calculator. Did my forward rates in w1. Discount factor was already given so no need to calc. So after remittance in $ adjusted for benefit of dtr of 5% and discounted at df given. Then worked out value of the put option using bsop. Ran out of time on report though. Stated the obvious and assumptions. Sadly did not have time to talk business risk and exchange and political risk. Agree way too much to ask in 90 mins. Q2 was type 3 i think. Asset betas were already given. So had to find average asset beta and regear to find be of the combined. Gearing was already given so used that. Calculated ke then wacc of the combined. Since question asked for fcff used that to calculate pv of years 1 to 4 and to perpetuity. Combined value post acq less value of individual cos gave value to equity. Was just about to state no of shares post acq so that can work out premiums when it was all over... :-(

Q1: WTO: about free trade zones, tarrifs , promote trade etc NPV, fairly easy , include terminal value of project also around 1m npv as it makes sense cuz option will add additional value BSOP , Pa= sum of recipts , Pe = price, Put option Q2: Since Deposit so buy futures/ options Choose highest option intrest premium ie with 0.0003 one as its deposit FRA 3 - 4 (i dont remember months for sure) Q3) ASSET Beta already give so regear with weighted average mkt value of debt + equity calculate ke and kd was already given T1-T4 growth phase t5+ is annuity ie t5cash flow (1+g)/(wacc-g) extra return = current mkt value of both companies (shares*price) - new value Premium calculation (not sire tough) Shareprice of predator*100 Premium balacing figure =Mkt value of target

\what was question 4? i didn't even read it . Was it all about Islamic Finance??, why didn't i read it?

q4 , was easy but i opted for q3 as q4 would took more time to read and consume information

This was an indeed fair paper but I don't think it was time tested before given to us bcos my opinion is that the examiner may not finish all that is req under 3hrs. Q1. I did all adjustments except adjusting for working capital, tax savings and sales values of assets. b part had an intricacy of adding the $28m to have a Pa of over $28m, so d1 will not end in negative. Saw that in BPP kit Q25. Q2 was also confusing with the 0.9% uncertainty. Wanted to attempt Q3 but had only 15mins left so opted for Q4 bcos of the attraction of c part. Hope I pass this.

please tell question 4 is regarding wat i didnt read that was it on islamic finance i had lots of grip on that yaar i had a mess of question 2

how do u calculate exercise price?

For Q1. the special material bought from parent company in $.....seems that question do not tell the margin for the inter-company transaction....is it a nil profit trade? so no tax in home country?

My strategy was to start with section B - chose questions and planned them in the reading time, then allowed 85 mins for writing them, 5 mins for reading Q1 and 90 mins to attempt it. This meant I couldn't spend 2 hours on Q1 as others have mentioned (I had I bad experience of this in a different exam which I only just scraped through!) Q3 - okay on the whole I think Bit confused by the 30% vs 50% premium bit. They gave up 2 low-value shares, got a cash premium and then acquired a share in the new company that was worth loads more (something over $7 equity value from part a divided by 310 shares??) - the 50% premium seemed unnecessarily generous. Clearly I missed something there!! Q4 - okay on the whole too By my calculations it was better to sell as a going concern and the demerger wasn't as good an option financially. I had the Islamic finance articles fresh in my mind and there were clues in the question pointing to a venture capital type of arrangement. Also mentioned loss sharing aspect. Q1 - obviously I didn't finish although was quite pleased there was only a page of scenario to read compared to some of the mocks I have done. Also glad of easy working capital and straight line depreciation. Got down a few bits about role of WTO - I don't remember the question asking for advantages and disadvantages though?? Worked methodically through the NPV and should have done ok although who knows what mistakes I was oblivious to in my haste! Decided to focus on part d as it was more marks than part c so I left space in my 'report' to come back and moved onto assumptions etc. Then got as far as writing down equations for Black Scholes and starting to put values next to r, s, t etc. (not sure that will get me even a mark!!) and hastily wrote in the report that I hadn't had time to value the option but assumed it would increase the NPV making it more worthwhile!!