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March
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same here :l
What did u guys do for qs 2, divde by eur rate or multiply. That threw my options and futures qs out the park 🙁
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forward rate was based on direct quote and future and option was based on indirect quote.
Question 2…I was so happy..wen I got into it…I got confused and never did enugh for even half the marks
King of gutted not to be honest. I think this was a good paper for me but I sepnd way to long on the first question trying to figure out what the 18 marker was actually asking – I eventually worked it out that it was basically asking for you to compute the combined WACC and use that to discount the proposed acquisitions cash flows – I attempted this but got stuck a few times due to me not having confidence in my figures.
One big question I still have is that if the acquisition company had to be split between the part that was going to be retained R&D and manufacturing. I think I attempted to split this out and calculate a value for the manufacturing part separately which I then added as proceeds to the NPV analysis. I was getting creative here – I knew the theory just had no practice of doing this so could be very wrong.
Question two and three were fair I think but I had very little time to answer then – and my writing suffered from being tired.
did anyone else have similar issues? I truly hope to have passed this time as I have studied like a mad man. also where was BSP model really pissed this didn’t come up.
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Given how unprepared I felt going in I managed to do a lot of the paper. Probably not enough though.
It was a pretty difficult paper, needed lots of thinking to figure out what the scenarios were saying before getting into it.
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Q3 was divide, but I ended up multiplying in the rush to get the question out of the way.
Q1 – I’m still not sure what had to be done in fairness. Personally, I went for the r&d
Unit FCF discounted at A’s wacc, calculated the market value of the the manufacturing division (sort of selling price estimate I suppose), added both together and taken away the MV of A plus 35% premium. Not sure it makes sense, but I specified in the report it is the value of the FCF to C plus the probable receipt for the sale of the business unit less cost to acquire both. Re synergies, I calculated the combined wacc and discounted at that – mind you I got both at 9%-ish so must have cocked up somewhere.Apart from Q1, which is renowed to be a hell of a lot, the other Qs were very fair.
Let’s hope for a pass!!
Question one My cost of capital came up to 9 plus I rounded it up to 10%..what did u guys get
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yeah, got a rounded figure of 10%.for wacc…….
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When discounting FCF of R&D division should you use the merged WACC or A’s WACC?
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Q1, combine wacc that i have used was 6%. did i screw it up? actually i totally don’t understand why the P/E of the manufacturing division is given ( to test if the co. is under valued??) and i don’t know how to get the premium also, i tried but failed to compute the synergy returned to A shareholders. Q3. i used 3mth fwd buying rate for forward market hedging.(divide) for currency futures, i buy at march rate. and used 1/today buying spot rate to calculate basis risk. did i do it wrongly? And i don’t understand what the examiner is asking for the theory part. I attempted Q4 last part on mudaraba only. Time pressured. Spent 2hr and 15min on Q1. Confused on Q3. I think i need to retake in March. Sigh~a torture to go through P4 again.
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Q1) separate out the profit before tax for manufacturing and deduct the tax at 22% to get the earnings X P/E ratio of industry average (8 X 1.2) 9.6 to get value of manufacturing to sell. R&D division FCF to firm based on growths for yr1-4 and then using growth model for yr5 into perpetuity of 3%. Discounted a the new merged WACC which I got to be 9% using the 2 betas, combining based on weighted average of each MV of equity and using CAPM. Gave a small additional value to C shareholder after paying a 35% premium to A. Then added the $1,600m synergy savings for 4 years with the relevant % increase, discounted at WACC 9%.
Q3: I multiplied for the forward rates, and divide for the futures and options. Can anyone confirm we sell futures?
overall i think it was a fair paper. i got excited first reading the requirements for Q1 until Q3 as i’ve been practicing and expecting valuation and forex risk. but as i was jotting and planning my answer i’m starting to feel doubtful and start consuming time thinking and rethinking about my answer. man that was tricky.
yeah i got 9% wacc for q1 as well but couldnt finish until i got the final value, just had to be ruthless and jump to assumptions and go straight to Q2 and Q3 still i couldnt finish all especially on calculations bit because as the tutors said easy marks are given in the theory bit.
this is my first attempt, hoping for pass inshaAllah. i’m happy that i took the decision to enrolled P4 for optional papers as opposed to P7.
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If it says: replies :2 next to your post, how do you see them? Please comment on forum and not a reply as cannot see how to access them . Thanks in advance
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Ignore me! Replies means number of times I have written on forum….penny just dropped!!
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