AFM*** P4 June 2014 Exam was.. Instant Poll and comments ***

I did pretty much the same, except for part iii. Dont recall that part but I think it was about why companies in financial distress may have positive equity value.

Q1: (a) Futures (spread bet on a fall in futures price) 38 contracts - evaluated based on the lock in method - estimated through the trend on 3 month to 6 month futures price to give an estimated 4 month 'lock in' rate. Option was PUT - 'right to sell contract currency' 37 contracts with 25,000 covered via the FRA rate. I knew I'd struggle for time so I decided to go past (b) and (c) and concentrate on (d) Part (1d) - spoke about risk management and losses devaluing shareholder wealth. hedging with anything but options is relatively inexpensive. Talked about additional benefits of central treasury e.g netting similar currency payments and receipts, lower transaction costs etc Part (2d) - spoke about different goals for branch management v head office - the latter having SH wealth maximisation in mind. Cultural differences, Branches perhaps wanting to seek too much risk relative to the company. Spoke about mitigation through agreed strategic objectives, reward, regular performance evaluation etc. Q2: Inflated NPV's - Got 12% for Kei - used as DF - Did APV for issue costs, tax shield and subsidised loan - Got a negative NPV throughout - so something probably not quite right! Q3: Closed Div C - made $5m gain; got a valuation for Div B at around $140m and then finally got a post acq valuation for the firm plus DivA combined using combined PAT, plus $7m synergy and using bootstrapping PE method to get a valuation. Took off firms current value to give a maximum premium.

yes, share option, bonus scheme to facilitate their involvement in company success and hence increase value for s/h

Q1. A. Calculated forwards, futures (lock in rate) and option (net rate), the highest rate was selected as it was indirect quote giving lowest payment amount. I.e forwards. I did not calculate rates on transaction date as the question asked only for appropriate hedging strategy and did not ask to construct it. B. Calculated swaps with 0.4 % gain after deducting bank fees. Had to demonstrate by assuming interest rates at redemption but didn't know how to do it C. Calculated till mcculay duration only, forgot the formula of modified duration D. Proposal 1: cost of derivatives compared with benefits of hedging. Decrease in shareholder value due to adverse movements in interest rates, if transaction is not hedged. Benefits of treasury. Proposal2: issues and example of agency problems between controlling management and central management that could arise and mitigating the issues by giving divisional managers autonomy etc. Q2. A. Inflated revenues by 8% and cost by 4% Calculated inflated residual value of 4.6 Calculated 20% tax on profits Adjusted tax savings from capital allowance after calculating balancing charge on residual value. After Incremental working capital and initial investment discounted at KE of 12% .. Bas case npv was $8.6 approx. Adjusted pv of financing side effects discounted at rf of 2% at annuity factor for 4 years. Pv of tax shield Net issue cost Subsidized load Tax saving on spare debt capacity Giving adjusted apv of approx $42.1 m B. Assumption of apv, approach and corrections Q4. A. Left due to time management issues but had to discuss real options, financial distress and assumption of black schole pricing model B. Black schole pricing model used to calculate value of equity. (For business valuation purpose) Defined the determinants to put in formula. Similarly OPT used to calculate default risk probability, defined the determinants. C. The five determinants of time, rate, underlying asset, volatility and exercise price. Vega is volatility which measure change in value of option due to 1% change in volatility of underlying asset price.

@anumalik i think in Q2 the scrap value was already inflated Also there was no debt capacity left

Me too. Disaster! - editted: sorry this was supposed to be a reply to Heather1985 re Q3

Daviesks - Good attempt at q(a) but only 4 marks and struggled with the rest, will be more careful with choice of q's next time, good to read scenario first as well as requirements!

This paper was so easy to solve but time factor was more important. like first compulsory question was asked about Foreign Currency Risk, Interest Rate Risk, Forward Rate, Swap Arrangements, and bond duration. This question was so easy to solve but had massive stories. I focused on Financial values and just got through.... Second Question was the easiest question in P4 this time...APV on project was demanded on cashflows that contained errors in the context of inflation,tax,depreciation,cost of capital and Financing matters like basis rate problem and government subsidies loan rates and commentary on assumptions and errors,,,,,,Due to its easiness, much attention was given to this question and wasted 15-20 extra minutes....perhaps will get maximum in this...... Q3..was on acquisition, company shifted from organic growth strategy in the case. Reasons of shifting demanded what steps company can take to ensure that its shareholders wealth maximize if it acquired target company..and finally maximum premium that company would take and effects on existing equity of the company....again this question was simple little calculations was not performed...anyhow do well...... Final question was about the bid option, what are the options, how it operates its pros cons and limitation and implication etc....but this question was red but due to lil confusion about the correct answer, left it.......if i could go on this question, i can save 15 minutes as question 2 and 3 involved financial calculations,,,,,,,,,,,, Thank opentuition for providing the very comprehensive lectures on Foreign Exchange /Interest Risk Management......All the best

Question 2 answer was in NPV already negative, but due to the application of APV base case NPV adjustments ,tax saving on debt interest and subsidised loan rate and adjustment in cashflow w.r.t to inflation made the overall APV positive....

Workout-Today, Don't Wait for the Result..............Everyone is one's own Judge..... I myself judged that if we are unsure about our chances of success in the exam, we should not be sad and don't put the books away from our table right after completion of the exam...We can continue daily dose of single chapter as we have fresh knowledge got recently. If we wait the result, we would do the double loss...Firstly, waiting until result, takes 2 months that we waste, and if the result comes negative, we have to start right from the beginning(A-Z approach) and create pressure on. This strategy would work out......do it right now....will enjoy...as i have implemented and get successful all the time.......

I am ok with all your assumtions and have the same, hope we will pass ))))

I think overall the difficulty of the paper was not too bad, what I do have a problem with is timing. I was told that we are not expected to be able to finish this paper, which means that say we are only meant to finish 90% that that means we have to get an average mark of 55% rather than 50%. We get told over and over again that it's about exam technique but your exam technique can not be that bad to pass 13 papers on the way to P4! I didn't have anywhere near the same issues with other papers including Corporate Reporting and Advanced Tax, I think maybe this examiner just lives a little bit in his own world. Looking back I should of started with the B section first and then the written section of A and finally the calculations at the start. I over ran by a long time on section A and so struggled finishing my last section B question. I think that if I have to do this exam again, this will be my strategy!! I used to be quite proud of my ACCA studies but this final paper (which I have repeated 3 times) is making me feel like ACCA is nothing more than a means to end, I don't really care about them anymore. All I want is my practising certificate so I don't have to work for someone else:) (and get away from ACCA's super restrictive practices).

@ James, I really support what you said. This is my final Paper to qualify as ACCA and my 5th attempt. I have never in my life repeated any exam more than 2 times (never!). Most of my other papers in ACCA were just passed at one sitting. I also have ACA qualification from my country and CISA qualified too. So this is making me look like I don't know what I am doing?? Like you said, it's looking like a means to an end which shouldn't be. I do not see the point the examiner is trying to make for students to make a pass with the numerous information overload under the 3 hours. (not being reasonable). I don't know if there is any other medium to pass these feed-backs to ACCA except the survey we are asked to complete each time after the exam (which I assume has no bearing with the marking/result). ACCA cannot continue to act like 'All in All'. Many students really labor to study so hard and not expected to keep feeling like we still have not done enough. Anyways, I did my best and I just must pass this time. Good-luck to everyone too.

Yanga Iri batai Munhu maone. The paper was hard

Anyone know when the question paper will be available to view on ACCA's website (or anywhere else)?

https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/p4/exampapers/P4-2014-june-q.pdf

Can anyone recall the questions for part 3.a) and 3 b) as i have feeling i misread the question - and would we needed to write about for these

I have too got a negative APV in Q2. The NPV (disc. at all equity rate) I've got -4.9m, tax shield was +1.4m, subsidy +1.7m, issue costs -700k.

hi, for qn 2 my overall apv is about positive 7-8 mil, due to some minor mistake in issue cost, anyone similar?

It was my third attempt, still can't understand what's wrong, of course if it wasn't the last exam I would give up. The most important is attitude to acca, it changed completely after P4, before It was positive and etc. but now everything doesn't have any sense, only to go every time to see how someone is making fool of you. For example I understood today morning that I can't do it physically and that's all, what to do next I don't know

@rottenapple, yes it was around 10mil for me

@nati if you mean you couldn't complete the paper by "physically not being able to do", then pretty much no one is cuz very few people completed the paper.

hey does anyone know wat hapens if u 4get to bring id 4 exams?

in q3 how you ppl calculated dep b's value ? discounting using WACC or using APV technique ? coz i learnt dat if company xposed to financial risk (as it is, being an unlisted company) value is calculated using APV although i didnt use APV ! but after reviewing ppr now i feel i have made a mistake

Is modified duration included in any of study texts? I have prepared from Kaplan and Emile Woolf and didn't come across it or did I miss something?

@ carl I did something similar but my premium was way less than one billion though. Anyways with the numerics you did and assumptions you provided in 3(c) , how many marks do you think you'll be able to get out of 14? You think you'll get 6 or 7?

I made a mistake a in duration calculation in cashflow I only take intertest amount and not equal installment amount but my approach was right so can i get some marks or not?

That exam was not that bad .. But as usually too lengthy , additionally the fear and the tension is on which make us lost of control sometimes , even 2plus 2 become 6 , the recommendation of revising straight away is an ideal as I can see where was that exam going !

@little yes I think you might get a few.

Already uploaded in acca website