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

Was 3 hours sufficient for this exam???? I spent a total of 2 hr 10 min on question 1! I put so much energy and time into q1 that by the time i got to the choice questions I was mentally exhausted as well as pressed for time. Ended up skimming through the choice questions but hopefully the tonnes i did in Q1 as well as the very little i did in the choice questions will be enough to take me across the finish line.

A replica of question 1 https://www.accaglobal.com/content/dam/acca/global/pdf/SA_aug10_examinerapP4.pdf

exactly i also calculat wacc 9 %

i also think. PE is Undiscounted Cash Flows after the Option has been exercised...as BSOP formulas does the discounting.....

Question 1&2 was ok but got stuck with 3. Not sure to go through.

question on islamic finance was the easiest... i think i can score all 12marks in that.

Oviyan excluded market value of debt in calculations. Makonis has debt ( as evidenced by different Be and Ba, unlike Nuvola). The debt has to be calculated first in my opinion. That give a slightly different discount rate. 8.887% I think, which was rounded to 9% anyway. I am surprised that I am only one who did this, probably means I am wrong. But the question said market values, not market values of equity.

I registered on this forum to comment on ludacrisam81. What a nice comments! I believe you have a marking experience. I keep wondering why people discuss so much about specific answers such as my wacc is this or that. Markers do not mark answers at all. They don't care, they care about your understanding of the course in general which is reflected by how you present your work.

Makonis Ve =1.218 Billion Nuvola Ve =$480 Million Since Nuvola’s Ba and Be are the same Nuvola has no debt. Makonis has debt. Using Asset beta formula And assuming Bd =0 Makonis pre acquisition Debt =507.5 Million. So combined market values =1,218+507.5+480=2205.5 million. The question says asset betas are the proportion to current market values ( not market value of equity, market values) so we need to take the whole amount. Multiplying $1,725.5 by 0.9 and $480 by 1.2 and dividing by 2205.5 we get Asset Beta of combined company at 0.9653 Regearing at 40:60 debt using 20% tax rate and same formula above, and assuming debt is risk free ( it is not, it is 2.55% above risk free rate), we get Beta Equity = 1.48. Using CAPM we get Ke =12.36 And WACC = (12.36*0.6) + (4.55 *0.4*0.8) = 8.872% Which is rounded to 9% in any case. I have not found a single person who did it this way, so possibly my method has a flaw but I cannot see it.

Great! I did till the calculation of debt for 1 Co. as you mentioned and calculate the average Beta asset and work out the Ke under CAPM formula...I was about to ask if someone calculate the debt for 1 Co. Now I have my answer and feel more confident on passing this paper!

Can somedody tell me what calculation must have been done with the 2 growth rate given in Q3 relevant to FCF? one was for Y1-Y4 if I can still remember it right, then there was another growth rate...I got stuck with these growth rate but I did my calculation for the debt of 1 Co, weighted Beta of combined Co and use of CAPM formula and WACC.

i have little to say on this paper. fingers crossed for a pass

That's the way i did and got WACC of 9%. hoping that was correct ooo

Very sad. I missed the road and so caught in the jam. I was late by almost one hour. Three months of work spoiled by one mistake.

Asked for extra time, but was not given.

If I can still pass, i have to be proud?

I was late by one hour, because of road confusion.

Fair paper but time was the factor

Very sad Ramesh. I am not happy for you. May God help you pass.

Thanks Muhammad for your concern.

This is what I thought about the paper: Q1. The option was a put option and pa was equivalent to the PVs of cashflows from years 3 to 5. I used the formula: P=PeN(-d2)e^-rt _PaN(-d1) Coz I didnt have much time to calculate the call option first for the other formula. The risk free rate was the rate of treasury bills, that was, I think 4% ? Q2. The tricky part was recognising that it was an investment and not borrowing, therefore buy futures (for futures contract) and buy call options. I think it was an unbelievable question coz I was expecting something tougher than that. Hopefully I wasn't mistaken about any of the information given *fingers crossed* Q3. Jeez! I forgot the synergy benefits so am completely hopeless on this one but am hoping I'll get some marks for the weighted asset betas and the equity betas. Overall the paper was easy.

BSOP only discounts the exercise price with e^-rt as the discount factor so Pa was supposed to be the discounted cash flows..at least that's what I think.