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Tampem PLC solution

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Tampem PLC solution

  • This topic has 9 replies, 3 voices, and was last updated 7 years ago by John Moffat.
Viewing 10 posts - 1 through 10 (of 10 total)
  • Author
    Posts
  • August 6, 2016 at 4:24 am #331664
    cyh
    Member
    • Topics: 26
    • Replies: 42
    • ☆☆

    Hi Sir, I refer to BPP revision kit answer.

    i have confused with following calculation:

    1. NPV answer

    (i) Cost of Debt (anwwer in the revision kit is 5.6% which is directly calculate from 8%x70%)

    my queries is since this is 4 year debenture, can i use the IRR method to find out the Kd which is 5.61%? (although there is no much difference in answer, i just want to know the correct way to calculate)

    (ii) WACC (portion of equity vs debt is 0.6 : 0.4)

    My queries is why we can’t use 0.5:0.5?

    2. APV answer

    (1) base case NPV : since $300k issue cost is related to equity, why we can’t include this in the calculation of base case NPV? (although the answer in the end is the same)

    August 6, 2016 at 9:23 am #331681
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    The current edition of the BPP Kit does not contain a question called Tampem PLC.

    If it was a past exam question then if you tell me which exam I should be able to find it elsewhere.

    August 6, 2016 at 10:46 am #331689
    cyh
    Member
    • Topics: 26
    • Replies: 42
    • ☆☆

    Hi Sir, it is December 06 question which is related to your topic the impact of financing in your study guide 🙂

    August 6, 2016 at 4:31 pm #331705
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    🙂 (I must update the Study Guide 🙂 )

    1) We do not know whether the debentures are redeemed at par or at a premium, and so we can only assume that the redemption amount is equal to the original amount borrowed. In this case, the IRR will be exactly equal to 8% x 0.7 (the fact you got different is simply due to rounding). The reason we usually do have to calculate the IRR is because usually the redemption amount is different than the current market value.

    2) There is a strong argument for using 50%/50% for the WACC and you would still the marks (even though the answer would be different).

    3) We always exclude issue costs from the base case NPV and treat it as a financing side effect, regardless of which finance they relate to.

    August 6, 2016 at 4:59 pm #331715
    cyh
    Member
    • Topics: 26
    • Replies: 42
    • ☆☆

    Sir, Thanks for your clarification.

    i would like to know if in normal NPV calculation, do we need to include the issue cost? or just ignore it?

    (assumed the question is not related to APV)

    August 6, 2016 at 5:00 pm #331717
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You are very welcome 🙂

    August 7, 2016 at 4:51 am #331760
    cyh
    Member
    • Topics: 26
    • Replies: 42
    • ☆☆

    hi Sir, i just want to know if in normal NPV calculation, do we need to include the issue cost? or just ignore it?

    (assumed the question is not related to APV)

    August 7, 2016 at 8:52 am #331793
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    The issue costs are not directly relevant – all that is relevant is the amount to be invested in the project.

    July 1, 2018 at 8:27 am #460645
    kevinchin
    Member
    • Topics: 24
    • Replies: 8
    • ☆

    When calculating Discount Factor for Base Case NPV, I don’t understand why the suggested solution using 50% equity and 50% debt to degear Beta asset for the purpose of Keu calculation. I thought the expected company gearing ratio would be more appropriate. Could you please explain?

    July 1, 2018 at 4:59 pm #460676
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    When you are degearing you must always use the gearing before degearing

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Viewing 10 posts - 1 through 10 (of 10 total)
  • The topic ‘Tampem PLC solution’ is closed to new replies.

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