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In the Blipton question paper 2008 December what is the x rate used on the cash flows. The x rate is then times 1.048 divided by 1.025.
In the Yilandwe question paper 2015 June how is the variable costs calculated. It is also not clear how to apply the future rate differentials. There is 2 lines of rates, how do you decide where this need to be applied.
In future you must ask in the Ask the Tutor forum if you want me to answer – this forum is for students to help each other.
In Blipton, what you refer to is as the ‘x rate’ is the nominal/actual cost of capital which is calculated using the real cost of capital and the inflation rate, using the Fisher formula given on the formula sheet. We discount the actual/nominal cash flows at the actual/nominal cost of capital.
In Yilandwe, the question says that the variable costs are currently YR15,960 per unit. With inflation at 22% in the first year, the actual cost in the first year will be 15,960 x 1.22 = 19,471 per unit. With inflation at 14.7% in the second year, the actual cost in the second year will be 19,471 x 1.147 = 22,333 per unit. Similarly, the cost per unit in the third and fourth years are calculated by inflating at 9.8% per year.
There are 2 lines of exchange rates because one is YR to the $, whereas the other is YR to the €. Which to use depends on whether converting $’s or €’s.
All of the above is explained, with examples, in my free lectures. The lectures are a complete free course for the AFM paper and cover everything needed to be able to pass the exam well.
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