*** P4 June 2011 Exam was … Post your comments here and vote in Instant Poll ***

sorry i deleted my post by mistake
First we had to calculate FCF (not FCFE) so we had to calculate after tax FCF before deducting interest costs and after adjusting taxable depreciation. First complication was about tax allowable depreciation. It wasnt growing at the same rate as revenue (6%), as the question said tax allowable depreciation was dependent on operating levels and for each additional $ of revenue 18 cents of new investment had to be made (kind of asset turnover $1 revenue on 18 cents of assests, $1/0.18=5.55). So first we had to calculate additional investment in each year from 1-4, based on that we had to adjust for tax allowable depreciation in those years and investments had to be deducted to get FCF in years 1-4. Present values of those cash flows had to be added along with the pv of perpetuity of FCF from year 5 onwards incorporating the growth rate in the formula. Then we had the Value of the total firm (Debt + Equity) of fodder.
Second we had to calculate the FCF of combined company using incremental cash flows as given. These cash flows had to be discounted at the WACC of combined company. Beta assets of two companies had to be weighted according to the market value of the two companies. Market value of predator was known that wasnt a problem. the value of fodder calculated from FCF had to be adjusted with the market based gearing levels given in the question for fodder to calculate value of equity and from those two market values we had to estimate asset beta of combined company. Then we had to adjust that asset beta based on what was told in the question that the capital structure of combined company wouldnt change from the predator company, so we had the gearing level of predator and we calculated beta equity of combined company. After weighting for cost of debt and cost of equity of combined company we had WACC. Then we had to discount the already calculated FCF of combined company based on that WACC. It gave us the total value of combined firms (debt +equity). Then we had to calculate the current total value of predator from its share price and market value of debt which was given in the question. Then we had to add this total (D+E) market value of predator and the total value of fodder (D+E) we had calculated from FCF. The sum of this had to be compared to the total value of combined companies calculated from combined FCF. This would have told us whether the acquisition was adding value to the shareholder or not. and finally we had to see that the 25 percent premium on equity was more than the excess value from above or not.

I want to have some feedback guys dont know how the examiner could have expected us to do all this for one part and the problem was without the first part how would you comment on the later parts. thanks
Yeah the timing killed me and most of us. The only way to do better is to do practice under timed conditions before going to exam. Practising actual past papers in 3 hours is the key i am afraid there was no point of doing individual questions from the kit without time restrictions as in the exam we knew what to do but it was too slow.

Most of the questions were not all that difficult. All the questions can be found in the study guide. Q1 was kinda lengthy but I did not find much problem this sitting.

ebby… pjones… delighted for you!! 🙂

I believed I had studied well enough but just could not apply my knowledge struggling with time just to undertsand things. I left 10 mark subquestion unsanswered in part one.
No good feeling about this one.

Planned well for the paper, started with q5 which was a p3 question but also added some financial aspects such as options as a reward for managers, etc. went quickly to q4 which was black scholes but got a little bit confused with the Pe whiles the pa was straight forward. I then answered q1 which was very time pressured and i overrun the allocated time at q1. I was only able to interpolate the forward rate and also estimated the futures price at q2 when the invigilator snatched the paper away.

To me the paper was standard but very much time pressured!!!

i’ve made a horrible exam…………..

I felt it was afair paper except that i didnt have enough time

Okay I know I’m a bit late in contributing especially as a week on it’s gone from my mind a little. Overall however I thought the exam was quite fair. In the 15 minutes reading time it seemed really daunting with a lot to take in but overall I finished in 2 hours 59 minutes, so that means it was probably perfectly timed for me. I did have to rush the second half of question 1 however but I think attempting the questions in the order I did helped.

Q4 – this was just a nice Black-Scholes model question, there were a few tricky things regarding timing however overall I thought it was manageable. I may have used the incorrect Pa and Pe as I wasn’t certain but as you aren’t negatively marked I just took a judgement and didn’t try and second guess it.

Q2 – I must admit my memory is hazy on this. The forward contracts were obviously the easy marks that everyone on the paper should be picking up, the futures had a basis calculation to perform and the options a fair bit of calculation. Then there was the second half of the question and overall it seemed like there was a lot going on but if you isolated what you needed to do on each bit it seemed very doable.

Q1 – I came into this question with over 5 minutes in the bag time wise and overran my allotment. I do not think there was anything that we shouldn’t have been able to do on here either, just ridiculously time pressured, some FCF calculations, some gearing/degearing etc. When there are 4 professional marks and you are required to write it in a report format you spend a lot of time trying to keep to this format and making it as professional as you can – this wastes a lot of time. As such I rushed my responses to the latter parts of the question, focusing my report more on the earlier, larger marks, leaving only really a paragraph or two for some of the other points – which was all there appeared to be time for.

Q5 – This seemed very much like a cross between a P1 and a P3 question and I answered it as such. I worry that I didn’t put enough of a financial spin on my answer however they only asked for issues.

Q3 – I didn’t answer this one because, although it seemed simple, when I looked at it in my head to begin with I was getting a counter-intuitive result, the one with the lower yield also having the longest duration. Admittedly I didn’t spend very long at all looking at it I thought it would only confuse me which is the last thing you need. I thought though that if you got this straight away then it appeared to be a really easy question and I was annoyed at myself for not ‘getting it’.

Although I said it was time pressured I don’t think that pressure was wrong. I tried to make my mind up quickly and go with it. If the rest of the method you use is correct having made a mistake at the beginning you still get a lot of credit – much more than if you miss out marks because you spent too long deliberating.

I’m hopeful overall without being expectant, I thought it was fair so if I don’t pass will just have another crack next time. Good luck to all, fingers crossed for the 22nd of August!

P4 is becoming hard each and every sitting. The examiner issues out articles but doesnot examine them. Some times as students, we take these articles as clues of the expected exam.

Otherwise the exam was more harder than the one of last sitting. This was my second sitting.

Section B was abit fair but A was the most complex.

interested

very unfair in terms of the (length and complexity) versus the (marks allocation and the time allocation).