*** P4 March 2016 Exam was.. Instant Poll and comments ***

In q1…..I got less than 40million cash flow,From operating profit I add depreciation and then deduct all investments and lastly interest of 5% on bonds….than I add dividend received n deduct additional withholding tax ….total of above all divided by number of share…this is what I have done.
In currency option…I think we shld not exercise… But anyways I showd the calculation …which seems quite odd (to be honest)……question 4 no idea how to get PA….I just divide npv with cost of capital n got call option of -3.86, question 2 was OK …got Marginal +npv n than I calculated the financing impact…I ignored that interest treatment of long term loan,which say interest will b on balancing figure……Now guys…what u say, what are my chances 🙂

Yes it was a call option on dollar

Does anyone remember the questions and mark allocation for Q1?

No call because the contract was quoted in dollars and we were buying dollars. Selling euro. Call option

Yes it was fair, I forgot interest deduction. Also made it put option. But the lucky escape for me is q4. This example was done in bpp book and I actually remembered it with out much understanding. Pa was 15 m discounted at coc for three years. I actually did that question in last half hour. Short scenario was advantage. Messed up with apv question. But still completed with alot of asumptions. As I got this new exam technique of assumptions in this attempt. Left 20 marks straight bcz of time constraint. I hope I will pass this time around INSHALLAH

I dnt know how much professional marks i will get. Knew nothing about briefing paper. That was unfair 🙁

You are correct on that one , otherwise that poll is not a true representative of the actual facts.

Yeah, it is a call option. Can’t remember what I did in exam. Does anybody remember, the premiums given on the left were premiums for call or put?

Well,

in Q1
a) dividend capacity was approximately USD 24 mln.
b) i have used call option and bought futures (both June contracts), effective rate was 1.1605. Contract size 138. (receipt USD 17mln)
c) dividend growth was without project 6% and company value USD 536 mln, as I remember. With new project i got higher value, so new investment project should be undertaken.

Q2. Base case NPV – Discount cash flows using all-equity financed dis.rate (I have used given asset beta, no need of ungearing);
Financial side effect – 1. tax shield on debt 18*0.06*0.25, discounted by risk free rate -3.5%, years (2,3,4,5 – as tax is payable in the following year)
2. subsidy effect 8*0.08%*0.75 , discounted by risk free rate -3.5%, years (2,3,4,5 – as tax is payable in the following year)
3. tax shield on subsidy loan 8* (libor-0.08)%*0.25 ,discounted by risk free rate -3.5%, years (2,3,4,5 – as tax is payable in the following year)
Right issue- nothing
Issue costs – (18+8)/0.99*0.01=0.26

Q4.
Call option – P(e) – 15 mln, Pa – i assumed that npv of expansion of production would be 0+1.41(negative npv figure given), and undiscounted it using 12% to get to the 3rd year. Options rho is the measure of interest rate changes.

Sorry, tax shield on debt was calculated on reducing loan balanace (4.5 mln payment each year)

Anyone remember the mark allocation for Q1, Q2 and Q4?

For Q4 i used 15m as both Pa and Pe as the NPV was zero. But discounted both down at 3 years at 12%….think I got 10.68m for both?