Paper F9 Dec 2010 exam was

but when computing ROCE in question one …. we got a 26% return even though a negative npv of (77+)

i loved the evaluation of the $200 million either by debt or equity to me

equity is acceptable because of no dividend payment and gearing

You know when an exam is really easy… and you still manage to mess it up… that’s is gutting. Messed up f8 and now f9. Hope I can get through f7. Don’t know what happened to me. I passed all 3 in June! 🙁

durax
we were told to analyse the decision of the Director ..who wants a payback in 2yr on investment and not less than 20% on return

all i remember in the npv was 77…+ but what i defiantly know was that actual sales would be the deference between the selling price and the selling cost …

what als remember was the cost of debt
Market value cost
Long term bond 7% 103.5/100*20 =20.7 4.6% * 20*7/54.2 = 1.76

Perference share @ 8% 62/50 …..= 33.5 6% * 33.5/54.2 = 3.71

Kd = 1.76+ 3.71 =5.47

hope i was right 😀

I got an NPV of -400,000 or so. Way off I presume. Not sure why at all. Thought I had that question down.

I also think I was off with the discount question. My calculations meant they earned quite a lot by giving the 1% discount, due to the 750,000 saving.(have a feeling i dealt incorrectly with this.). I calculated that they could give up to 4.6% discount and still come out on top.

Made a complete balls of the 15 mark q on how to raise the 2 mill. Only had 15 mins to do it.

All in all, easy paper but made a mess of it. Fingers crossed.

@derrickagyiri said:
what als remember was the cost of debt
Market value cost
Long term bond 7% 103.5/100*20 =20.7 4.6% * 20*7/54.2 = 1.76

Perference share @ 8% 62/50 …..= 33.5 6% * 33.5/54.2 = 3.71

Kd = 1.76+ 3.71 =5.47

hope i was right 😀

Pref shares aren’t debt. Think they are a seperate source of capital which should be dealt with seperately – wacc formula had three sections to it.

4152marky… what i read was that we should analyse the targeted business purchase .,..what does overtrading have to do here … we are lloking for money to buy a company not looking for business expansion …

if share holders have a capital gain but was not paid dividend …they would accept …something in their investment must increase …so the funds of $200 million must be raised by equity … secondly the company had a high equity gearing of 1.12+ so… going for another debt would reduce their PAIT therefore reducing the weath of the shareholder …. this is definateely an equity funded target for $200 million

Can someone help me with the question on the working capital policy on receivables? Is this to do with the way its funded e.g. long tern short term or is it todo with accessing credit checks and chasing the debt?
It was funny the way it was worded. 🙁
Also the Re-gearing one was the current company funded by 80% debt and 20% equity and the other funded 75% equity and 25% debt? Thanks

@barky said:
Cost of debt after my calculations on the irr was 15 if I remember rightly? May be getting percentages confused! I got 10 somewhere, 15 somewhere and I thimj I said wacc was 12.4

what you are saying is a totally different question … they asked for the Cost of debt

before the WAAC (cost of capital) which i got 11.56 or 12% for question 4

because the market value = 8.85 *(50m/.05) = 885

@louibee said:
Can someone help me with the question on the working capital policy on receivables? Is this to do with the way its funded e.g. long tern short term or is it todo with accessing credit checks and chasing the debt?

It was funny the way it was worded. 🙁
Also the Re-gearing one was the current company funded by 80% debt and 20% equity and the other funded 75% equity and 25% debt? Thanks

I know the factors that we consider the working capital policy are many; example trade credit , trade discounting , foreign exchange , the cash cycle , Cash management technique etc

hope i am right 😀

i think its better than June 2010.also i cant remember if working capital in q1 was recoverable at the end of the period.was the debt irr or redeemable.

I got 12.4% for WACC.
Pref shares are considered loans, and thus the WACCneeds to be split up into 3 segments- Ve*Ke + Vd*Kd + Vpref*Kpref,