CAP 2 SFMA ASSESSMENT 2010

TMB · 11-01-2010 3:31pm

Buddy the Elf wrote: »

hi all,

for the 2nd and 3rd scenario should the cost of the ord. shares not stay the same? by working out a new dividend that implies the company will pay out a dividend immediately to the new shareholders but would they not wait until next year to do this?

I didn't think of that I just assumed that they would pay the new shareholders dividends.

Thats prob why i'm getting a different Ke, are people saying they wont pay dividends on the new shares and using a Ke of 18.67%??

Buddy the Elf · 11-01-2010 3:56pm

meant to mention this aswell guys, the 3rd scenario 1 for 5 issue seems to be based on a major assumption that the minimum share holding of each share holder is 5 shares or could even go further to say number of shares each shareholder has is divisible by 5 to bring in the finance projected.
doubt this will be a realistic option to the company

wdarling · 11-01-2010 4:13pm

post_it wrote: »

MAX72 wrote: »

yeh i think the only difference is that you increased the dividend by the growth rate of 12% where as i kept it at 125m? I didnt think that the dividend would change but the dividend per share would due to increased no of shares?

What do other people think, in scenario should the divided increase to 140m?????

I don't think you should increase the dividend figure used to calculate Ke.... the dividend policy it self stays the same therefore the dividends are diluted not increased!.... anyone agree with this?

wdarling · 11-01-2010 4:16pm

Buddy the Elf wrote: »

meant to mention this aswell guys, the 3rd scenario 1 for 5 issue seems to be based on a major assumption that the minimum share holding of each share holder is 5 shares or could even go further to say number of shares each shareholder has is divisible by 5 to bring in the finance projected.
doubt this will be a realistic option to the company

It's a 1 for 5 based on shares held not individuals.... and it's assumed they will all be taken up i.e. the 1m extra shares because the discount rate of 20% would have been calculated and reviewed in order to ensure shareholders would take up the new shares.

Buddy the Elf · 11-01-2010 5:07pm

It says its a 1 for 5 rights issue and in the textbook a rights issue is defined as inviting existing shareholders to subscribe for new shares in the same proportions as their existing equity holdings i.e. if company has 2,000,000 issued shares and decides to issue a further 1,000,000 every equity holder who holds 2 shares will be entitled to purchase one additional share.

would this not apply with the case study example also or can it be offered where current shareholding isnt taken into account?

wiles9 · 11-01-2010 6:18pm

See the Sources of Funds part.. Replacing the £300m redeemable debentures, how is the WACC calculated??

Do the shares not need redeemed first? I mean what happens with the 300m already in issue? How exactly are they replaced?

Sorry if that seems a little simple, I haven't seen these yet -_-

EDIT : Another question:

If you work out the Ke to be 0.2193, do you then round this to 0.22 and carry on calculating or is it left as 0.2193 and rounded at a later date?

hawai09 · 11-01-2010 9:51pm

post_it wrote: »

Surely the cost of equity and debt changes in scenaro 1,2 & 3. As MV of equity increases the cost of that equity must increase??? My reviesd WACC figures are:

For scenario 1 14.20% (cost of debt 6.47%)
scenario 2 15.24% (cost of equity 17.87%)
scenario 3 15.04% (cost of equity 17.55%)

Anyone agree with this?

i got the same ans as you for the first two but I got 16.03% (cost of equity 18.89%) for senario 3 could you post your workings I wasnt sure how to go about this option

post_it · 11-01-2010 9:57pm

hawai09 wrote: »

i got the same ans as you for the first two but I got 16.03% (cost of equity 18.89%) for senario 3 could you post your workings I wasnt sure how to go about this option

Workings are attached above!

There seems to have been a lot of talk about the WACC, we are forgetting that there will be a lot of theory in this exam. Anyone thought about the acquisition of Rian Inc?

Im struggling at the minute with this. Does anyone have any thoughts??
Its obviosuly going to ask us to evaluate the 2 growth strategys? Any ideas

thanks

barrystealover · 11-01-2010 10:01pm

post_it wrote: »

Workings are attached above!

There seems to have been a lot of talk about the WACC, we are forgetting that there will be a lot of theory in this exam. Anyone thought about the acquisition of Rian Inc?

Im struggling at the minute with this. Does anyone have any thoughts??
Its obviosuly going to ask us to evaluate the 2 growth strategys? Any ideas

thanks

do you mean evaluate

1.investing in Rian

2.producing tooth whitenings machine for Lesbleu.

how would you go about evaluating investing in Rian incorporated???

post_it · 11-01-2010 10:10pm

barrystealover wrote: »

do you mean evaluate

1.investing in Rian

2.producing tooth whitenings machine for Lesbleu.

how would you go about evaluating investing in Rian incorporated???

The acquisition is for cash consideration - evaluate this strategy
Translation risk associated with currency exchange rates
Intereset only loan as a source of finance - alternatives.
It may give some b/sheet figures in the requirement.

You would expect to make a decision on whch is the best strategy?

Whats your views??

barrystealover · 11-01-2010 10:17pm

Due diligiance

Adv/Disadv of cash consideration

Benefits of Mergers/Acquisitions

Facotrs to consider in making a dividend policy decision

Techniques to hedge against foreign currency risk

barrystealover · 11-01-2010 10:19pm

"Post it", what kind of question could you do with tranlational risk tho,u can only really define it.there are no techniques on the course to hedge against translational risk are there??

post_it · 11-01-2010 10:24pm

barrystealover wrote: »

"Post it", what kind of question could you do with tranlational risk tho,u can only really define it.there are no techniques on the course to hedge against translational risk are there??

There is only a small paragraph in the text so it prob something that you would throw in.

They have also disregarded the other 2 strategys in Ansoffs model maybe its worth considering these.

This is a fukin nightmare!!!

barrystealover · 11-01-2010 10:34pm

i wouldnt tink they will ask you about the other 2 possible strategies in ansoffs growth strategy as it doesnt really fall in to sfma does it??

i tink between what you have identified and i have identified there will surely be something there.

We could disect this for a year and still be coming up with possible questions so just try and identift the main 's and we'l be alright

C2theLahambert · 11-01-2010 11:39pm

I havent seen anyone with workings who calculated the theoretical share price after the rights issue in scenario 3,

I calculated as

current

5 shares @ 4.20 = 21
1 new issue (4.2 *.8)= 3.36
Total holding now = 24.36 for 6 shares
Value of 1 share = 24.36/6 =4.06

New K(e) (i didnt incorp growth as assuming its not paid immeadiately

((0.25(1.12))/4.06)+0.12
= 18.90

Total Mkt Value =2436000000...

The final WACC i calculated was 16.06

Anyone have something similar

hawai09 · 11-01-2010 11:55pm

C2theLahambert wrote: »

I havent seen anyone with workings who calculated the theoretical share price after the rights issue in scenario 3,

I calculated as

current

5 shares @ 4.20 = 21
1 new issue (4.2 *.8)= 3.36
Total holding now = 24.36 for 6 shares
Value of 1 share = 24.36/6 =4.06

New K(e) (i didnt incorp growth as assuming its not paid immeadiately

((0.25(1.12))/4.06)+0.12
= 18.90

Total Mkt Value =2436000000...

The final WACC i calculated was 16.06

Anyone have something similar

yea i did this too but no one else seems to have i got 16.03% id say the difference is down to rounding

C2theLahambert · 12-01-2010 12:16am

Similarly in Scen 2 and 3 i dont see why ppl are adding the growth rate,,

= 125 *1.12 = 140

Does this not infer that they are paying a div immeadiately....

Why would they do that or do you just have to assume they will pay it when calculating??

MAX72 · 12-01-2010 12:15pm

C2theLahambert wrote: »

I havent seen anyone with workings who calculated the theoretical share price after the rights issue in scenario 3,

I calculated as

current

5 shares @ 4.20 = 21
1 new issue (4.2 *.8)= 3.36
Total holding now = 24.36 for 6 shares
Value of 1 share = 24.36/6 =4.06

New K(e) (i didnt incorp growth as assuming its not paid immeadiately

((0.25(1.12))/4.06)+0.12
= 18.90

Total Mkt Value =2436000000...

The final WACC i calculated was 16.06

Anyone have something similar

Where did you get the 0.25 from? The dividend was 125 but you now have 600 shares. If you are adjusting the MV, should you also adjust the number of shares. Cost of debt is then 17.75%....... or rather than doing dividend per share just use the totals ie (125(1.12)/2436)+.12

NIALL GAFFNEY · 12-01-2010 5:32pm

Hi Guys and Gals

I am like really stuck on this whole thing. The stress is so getting to me. Would any of you guys be up for a study session. I'm in the Bray area and would love to go through solutions. Maybe bounce some ideas of people. We could meet in McDonalds in Bray and go through some stuff.

Thanks

C2theLahambert · 12-01-2010 7:28pm

MAX72 wrote: »

Where did you get the 0.25 from? The dividend was 125 but you now have 600 shares. If you are adjusting the MV, should you also adjust the number of shares. Cost of debt is then 17.75%....... or rather than doing dividend per share just use the totals ie (125(1.12)/2436)+.12

I just used the current year dividend which was .25 or 25cent, Is this incorrect

post_it · 12-01-2010 9:05pm

C2theLahambert wrote: »

I just used the current year dividend which was .25 or 25cent, Is this incorrect

I trying to think about possible theory questions they might ask. Anyone got any ideas?

Have we even covered hedging or foreign exchange risk???

barrystealover · 12-01-2010 9:20pm

anything on cap1 and cap2 is examinable,but the things that stick out are

1.foreign currency rick
2.due diligiance
dividend policy
mergers acquisitions

Coldplayer · 12-01-2010 9:35pm

yeah anything on CAP1 and CAP2 is examinable but for the likes of due diligence there is feck all

i dislike this! · 12-01-2010 11:21pm

couple of attachements there guys on hedging and foreign currency....hopefull some of you will find it useful

does anyone have workings for each of the scenarios, still not sure how to do it so if anyone can help id appreciate it

barrystealover · 12-01-2010 11:41pm

i dislike this! wrote: »

couple of attachements there guys on hedging and foreign currency....hopefull some of you will find it useful

does anyone have workings for each of the scenarios, still not sure how to do it so if anyone can help id appreciate it

if you go back 1 or 2 pages some1 has answers in pdf format.i have the same workings and ans so im gona go with them.

Student85 · 13-01-2010 10:54am

Hi everybody, just to let ye know that a friend of mine was at a tutorial on this assignement and the tutor said that the answer to the relevant cost question is break even

TMB · 13-01-2010 11:08am

Student85 wrote: »

Hi everybody, just to let ye know that a friend of mine was at a tutorial on this assignement and the tutor said that the answer to the relevant cost question is break even

Really someone told me that he said it was a loss of 16K?? Was anyone at it??

Archer26 · 13-01-2010 11:18am

A firm tutorial?? Did they give any workings?

Student85 · 13-01-2010 11:21am

i wasn't at it now, it was a frim tutorial in Dublin, what they said was the 16,000 for unskilled labour should not be included.

Archer26 · 13-01-2010 11:29am

I haven't included it but still have a gain of 8k....*sigh*

Student85 · 13-01-2010 11:36am

Attached it what they agreed in the tutorial.

Can anyone tell me if they got im really stuck

Scenario 2 15.22%
Scenario 3 15.05%

Archer26 · 13-01-2010 12:01pm

Thanks! Were you told anything else helpful that hasn't been posted here yet?

Student85 · 13-01-2010 12:08pm

No nothing that hasn't been said. Do you know anything about the WACC scenarios?

Archer26 · 13-01-2010 12:13pm

I got the following, difference probably due to rounding??

Scenario 1: 14.28
Scenario 2: 15.27
Scenario 3: 15.15

Student85 · 13-01-2010 12:18pm

Would you mind putting up the first scenario im a bit off with 14.19%?

ELLE163 · 13-01-2010 12:33pm

aagh i am still so confused,
i still think it is might be -5000 rather than -25000 for mat fg. like in relation to the replacement material for another contract that COULD HAVE BEEN used and WOULD HAVE cost 5e per kg, i assume that the opportunity for this contract has expired as it COULD HAVE BEEN used at one point of time but not anymore therfore irrelevant.....

Anyone any thoughts????......

Student85 · 13-01-2010 12:54pm

Can anyone tell me where i went wrong here. I believe the answer is 14.28%

Student85 · 13-01-2010 1:31pm

ELLE163 wrote: »

aagh i am still so confused,
i still think it is might be -5000 rather than -25000 for mat fg. like in relation to the replacement material for another contract that COULD HAVE BEEN used and WOULD HAVE cost 5e per kg, i assume that the opportunity for this contract has expired as it COULD HAVE BEEN used at one point of time but not anymore therfore irrelevant.....

Anyone any thoughts????......

there are two possibilities for the quantity in stock. The material has realisable value oralternatively it oculd be used as a substitute for antoher material. the value to be included is the cost of the higher alternative which is the €25,000

ELLE163 · 13-01-2010 1:39pm

I no im going on about this but i do understand what you are saying that the material has realisable value or alternatively it could be used as a substitute for another material. but your saying it "could be" a substitute however in the case study it states that it "could have been" and "would have cost" isn't this past tense ie that substitute is gone now for the proposed manufacture of the equipment ???

MAX72 · 13-01-2010 2:16pm

Student85 wrote: »

Can anyone tell me where i went wrong here. I believe the answer is 14.28%

They purchase 600 million new debentures but pay off the exisiting 300 million. I have therefore in year o cash inflow 600 and and cash outflow of 300. I get a WACC of about 15.17

post_it · 13-01-2010 2:37pm

ELLE163 wrote: »

I no im going on about this but i do understand what you are saying that the material has realisable value or alternatively it could be used as a substitute for another material. but your saying it "could be" a substitute however in the case study it states that it "could have been" and "would have cost" isn't this past tense ie that substitute is gone now for the proposed manufacture of the equipment ???

See attached my workings - profit 28,000

Anyone agree with this??

ELLE163 · 13-01-2010 2:57pm

why didn't you include variable o/h cost for unskilled labour?

Coldplayer · 13-01-2010 3:38pm

MAX72 wrote: »

They purchase 600 million new debentures but pay off the exisiting 300 million. I have therefore in year o cash inflow 600 and and cash outflow of 300. I get a WACC of about 15.17

The WACC of 15.17 is right, it clearly states in the case study that the 600 is to replace the 300, you therefore have a cash outlfow in the Y1 as well as a inflow of 600. Thats what i'm going with anyway.

14.28 is too much of a drop anyway

MAX72 · 13-01-2010 3:52pm

post_it wrote: »

See attached my workings - profit 28,000

Anyone agree with this??

It has been posted here before, check task 17 from last years management accounting toolkit.

Archer26 · 13-01-2010 4:27pm

Is anyone bothering to do a SWOT analysis of the company??

post_it · 13-01-2010 4:56pm

ELLE163 wrote: »

why didn't you include variable o/h cost for unskilled labour?

because the VOH will be incurred if the proposal goes ahead or not therefore its not incremental to the decision

Buddy the Elf · 13-01-2010 5:17pm

Student 85

hate to be a pain but any chance you could repost the relevant costing as an excel 97-03 file, i cant get the xlsx file opened and im struggling with the relevant costing part.

would be much appreciated

Student85 · 13-01-2010 5:32pm

Does this work

ELLE163 · 13-01-2010 5:48pm

post_it wrote: »

because the VOH will be incurred if the proposal goes ahead or not therefore its not incremental to the decision

ya im a bit unsure about this because if this proposal doesnt go ahead there is the other contract but arent variable OH specific to the project, like how do we know the exact same var OH at the exact the same rate is applied to the other contract
Thats why i think it might be 600 x 20 = 12000

post_it · 13-01-2010 9:20pm

ELLE163 wrote: »

ya im a bit unsure about this because if this proposal doesnt go ahead there is the other contract but arent variable OH specific to the project, like how do we know the exact same var OH at the exact the same rate is applied to the other contract
Thats why i think it might be 600 x 20 = 12000

Yeh i think everyones the same. I think the best thing to do is for as many people to give their profit or loss figure and the most frequent ans is the one i will go for!!!

I reckon if you can justify your ans you may get the marks

CAP 2 SFMA ASSESSMENT 2010

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