*** P5 December 2012 Exam *** Instant Poll and comments***

i got WACC as 8.45%

question 2 rolling budget war really unexpected..the chapter buget altogether was unexpected!!

@ahoatran said:
Q1 had the info but I added some bits regarding controllable ROI and uncontrollable ROI due to head office costs. Overall, I felt ok after leaving the exam hall but now thinking about it, I don’t think I did enough.

I think div performance to be based on controllable costs. So, HO must be excluded

the paper is ok but i did not success in managing all the questions well. but do hope for a pass to complete the exam! exam is too long for me! 🙁

Overall it was a really time pressured exam! But I guess that’s to be expected at this level.
A bit disappointed there were no models, I learnt them inside out as tutors suggested.
Hoping for a pass!

I got 8.46% for the WACC, and a positive EVA of $0.2Mill.

ROCE was around 5.98% (using Regulated operating profit of $46m divided by the average capital employed calc’d by the regulator for the year which was around $770m).

Really time pressured!!

Q1 I panicked for a while – so much data! Ended up with a report format, and a heading for each division following by subheadings for just Profitability under each. Wrote about the third division having poor credit control with high receivabled which was inflating profits, write down of assets likely and also the inflated effect on the current ratio.

Q1 part B, never touched on the net income bit – wrote about alternative measures being both ROI and RI and spoke about measuring controllable profits and costs. Part c) remuneration – not sure how i done in that – it’s subjective isn’t it…

Q2) My EVA came out at negative 4.25 or close to that. I went onto explain the current set up was not adding value and costs needed to be cut to get into an acceptable EVA situation. Part 🙂 constraints were no motivation to seek efficiencies to reduce costs otherwise regulatory level would be breached. Only way around this would be increasing total assets, lowering liabilities. Suggestion to measure divisions independantly and to focus regulatory section on qualitative measures.

Q3) The 2 divisions, I said should be zero based, so they could be motivated and focus on increasing margins and cutting costs as no growth likely for these 2 divisions. Third division which was the star, i mentioned beyond budgeting as an option but then seen in the next requirement about rolling budgets so that was a giveaway, explained that. Marketing division i suggested activity based budgeting.

Rolling budget was easy I hope… 3% increase for revenue, 55% for COS and 9% for the other variable cost.

Spoke briefly about beyond budgeting in the 4th requirement as running out of time, never got anything for the improvements to marketing technique.

Final question, was Q4… no time!!! had to miss the main bit and answer about argenti and its lack of external view.

I don’t feel confident about this paper at all 🙁

What are we supposed to do with BDP in EVA question?

how did people tackle the figures in the rolling budget?

hey people! what did you recommend as performance measures for each of the divisions in Q1 part b)? Because they asked for different measures for each division, but I couldn’t analyse what is going on in the divisions. Q1 a) and b) were a mess for me! So much data and I still don’t know what the examiner wanted us to conclude in these two parts. Anyone has an idea?

My WACC also was 8,46% as someone mentioned before. EVA was also positive, and ROCE 5,99 or 5,98% so it failed the requirements. Then I calculated ROCE from the published FS figures and with them it met the requirements. So I concluded that these figures can be manipulated etc, that’s why the regulator wants a special measurement for the assets.

For me Q2, Q3, Q4 were okay.
I expected corporate failure, HR management (remuneration) and BUDGETING, and quality.
3 out of 4 came up in fact 🙂

Rolling budget was very easy. Everybody thought it’s something special but it were easy marks 🙂
Just multiplied revenue by 1,03, fix costs remained the same, CoS and Distribution as someone mentioned 55% and 9% of revenue.

Thats’s it!

yes, because he asked for QUALITATIVE model

Uuuuurgh in the question about the water company….

I took at it as meaning the ROCE couldn’t go above 6% for some reason!!! aaaargh! Why would I think that. I went on to explain how cutting costs would mean they would breach the 6%… I assumed it was because it was not supposed to be some massive profit making venture seen as it was regarding the country’s water supply… AAARGH

I thought if the roce is less than 6 percent then there’s are penalties!