*** P4 December 2015 Exam was.. Instant Poll and comments ***

From what i see here, q3 was divide

@harriet88 said:
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%.

Question 1
Took an identical approach and got the same figures as above, but spent a good hour and ten doing these calculations, part 1a and 1c which meant only 20 minutes to complete the actual report, discussing the assumptions and part 1d. Tried to discuss as much as I could relating to the assumptions, estimates and models (WACC, FCF to firm, P/E, ungearing equity betas etc) but was extremely time pressured.

Suggested alternative defence tactics after discussing the crown jewell (CEO recommendation) as I ran out of discussion points to get 6 marks from the scenario. Literally had to guess Q1d based on the words in the question as I’d never seen this in the syllabus (only 6 marks so hopefully not the end of the world!)

Question 3
Started with Q3 which went the best given it was fairly similar to other Hedging FX questions from past papers. Hopefully gained a fair few marks here.

Question 2
The first part was ok, but the capital rationing bit for the 2 and 3 marks completely threw me so didn’t even bother looking at these bits and only did the final part on ethics for 5 marks once finished 2a.

This is potentially the most time pressured exam I have ever sat in my ACCA qualifications. Given I only actually answered 90% of the paper I expect it to be my lowest mark to date. Certainly not anywhere near the other 4 Professional papers which I’ve averaged 74% in so far. I can imagine this might be a low pass rate!

Sam: you averaged 74% in your other P papers? I don’t think you will have trouble passing 🙂 is this your final? What other option you choose?

@sam04071989 said:
It was a dollar receip

Question 3
Think I misread the question.

The hedge was related to a 20.56m Euro receipt in 3 months time. You decide to buy or sell wrt the contract currency. Contract currency was in Euros therefore you would want to translate the receipt into dollars (buy dollars) hence sell the Euro contract currency. Surely this would be go short on the futures contract (sell futures)? Similarly this would be a put for the options, no?

Got forward as best rate to use and then explained if the rate had increased above 1.3500 to c1.3600 or 1.3700 (they gave the indirect rates and direct rates, so I just converted them so they were all comparable and consistent: (Direct rate = 1/indirect rate)) then this would have made the option worthwhile as the premium paid would have been outweighed by the exercised option. Think I may have got confused in the heat of the exam as a result of the contracts being put compared with many example calls in the question banks.

I did the same for Q3 contract size was denominated in euros therefore it was sell futures now and buy later at the date of the spot transaction in 3 months time had to calculate the futures price using the basis i guess. did any one else did the same thing?

For options it was put options since we had to sell the euro contracts.

What did you guys make of the part b of this question?

I got WACC 14% for Q2 also

@harriet88 said:
Sam: you averaged 74% in your other P papers? I don’t think you will have trouble passing 🙂 is this your final? What other option you choose?

Yeah – final exam! Potentially the final exam of my life (Hopefully – unless I decide to do CFAs…)! Really don’t fancy re-sitting in March given it’s my busy season so would probably end up waiting until June which would mean another 6 months on non-qualified salary… £££

I did P7 as the other option – employer gave me no choice and had to do the UK Variants for P2 and P7 which were a hassle learning the international stuff as well as the New UK GAAP / UK based info too.

What did you chose for your option or have you got it left to sit?

hey guys, its like no one attempted question 4.

question 4 was the easiest on paper if you read the recent article by the examiner on securitization and tranching and also islamic finance. The question really was a give away. except for the a part which involved a bit of calculation and that also was a bit strightforward.

the capital rationing was easy but didnt revise it so just wrote anythin i could but luckily it was worth just 5 marks. the investment appraisal and the discussion was quite straightforward too.

number one the beast, obviously i dont think anyone has ever got 50/50 in the number one p4 question so you are bound to make mistakes because of the time pressure and all. so it was more of like perform up to where u get stuck and then leave it. the easy marks where in the discussions and had nothing to do with the mathematics of p4. it was more of like reading the scenario and answering the questions. the method and assumptions used can also gain some marks.

so all in all i think it was an ok paper if u had read the articles but if not it would have been a tough nut to crack

Why I am not getting all your talks about forex? I got 27.95 something for forward which was the highest so was appropriate. Secondly q4 was fairly easy. Ditto GoSlo Motors from previous attempt. Q1 part a i is stupid. Examiner has given us the information which was cannot be used. So much assumptions are made. Lets see

Q4:part a based on the last article was the easiest one.calculation was easy(so 11 marks in bag)

Part b(6 marks)
Risks:(i think in dec 09)
1-correlation risk:it is assumed that defaults in the assets side of tranching is uncorrelated.
2-timinig and liqidity risk:fulfilling the obligation of various tranches depends on the timely cash reciept which is difficult in “waterfall” cashfliw modeling.
3-default and collaterasiation risk:success of securitisation depends on the quality of loan.it is crucial to have a proper credit assessment process and cotrol over loan negotiations.
(I myself donot know what are these….i ONLY keep them in mind from past paper and write it on the exam paper…as the possibility of tranche question in exam was 100%…because of new article)

Benefits for moonstar:
1-it can get in money required QICKER
2-it cannot issue shares(said that the major shareholder is not agree) and also it has a poor credit rating(it cannot borrow) so this is the best way
3-it removes risk to trancheholders

C-i:Sukuk…i dont know(lose 4 marks)

C-ii:Mudaraba:(4marks)
Bank provide capital and moonstar bring expertise.bank is not allowed to participate in decision making.profit is shared between two parties according to pre agreed rate but all losses should be beared by capital provider ie bank.

Bank may concern about it because whilst it provide money,it cannot take part in decision making.all losses should be beared by bank.
Since it is not the money of moonstar and all losses are beared by bank so moonstar may take more risky decision which is more possible because bank is not allowed to participate in decision making.

Hi Obiora06. I think very few people attempted Q4. luckily u r the one. do u remember what %age was allocated for securitization as collateral?

thanks

% of collateralise was 90

75% was the percentage of shares hold by a family as a major shareholder as was irrelevant to the collateralisation

@juve it was 90% of 200m

Does anybody have any ideas regarding mark distribution in Q1-b(I,II,II), Q2-a and Q3-a? My main concerns are the proportion of text/calculation marks and required volume of text per 1 mark for explanations.