CAP 2 SFMA Case study

jus_tin4 · 18-12-2014 12:11pm #1

So whats everyones thought on it? for me look like invest appraisal and something to do with a cash flow?

caligg · 30-12-2014 10:43pm

Definitely looks like the main focus of the question is project appraisal with an NPV calculation in there.

Hickey 91 · 31-12-2014 8:42pm

Is it just me or does the case study seem to be focused on just the finance side of the module. What kind of extra information do people think that we will need?

jus_tin4 · 31-12-2014 9:53pm

i thought i could see a cash-flow question in it too? anyone else think that?

galwaygent · 01-01-2015 4:15pm

I was thinking it looks like a relevant costing more so than a cash flow. and then an NPV for the other plan... Havent looked in great detail but will go take a better look now.

galwaygent · 02-01-2015 5:41pm

So I had a look at it there...
What it looks like to me is an NPV for the 3 year exit plan, and a relevant cost for the 1 year exit plan.

I am presuming on the day we will get information on the sons marketing report, which will give us details on the number of rentals in the future years. I am guessing we will also receive details on the pension payments, as we will need these for doing the workings.

The sons figures will allow us to get the casual wages and revenue for the next 3 years, and the pensions are also needed in both exit plans.

Anybody else spot anything I am missing??

jus_tin4 · 02-01-2015 6:13pm

Any eg of relevant costing questions? Going to stick up what I come with for material for the exam if anyone wants to compare notes?

FrStone · 03-01-2015 1:05pm

galwaygent wrote: »

So I had a look at it there...
What it looks like to me is an NPV for the 3 year exit plan, and a relevant cost for the 1 year exit plan.

I am presuming on the day we will get information on the sons marketing report, which will give us details on the number of rentals in the future years. I am guessing we will also receive details on the pension payments, as we will need these for doing the workings.

The sons figures will allow us to get the casual wages and revenue for the next 3 years, and the pensions are also needed in both exit plans.

Anybody else spot anything I am missing??

Will we need to be told what discount rate to use to calculate the NPV?

galwaygent · 03-01-2015 4:41pm

I presume they will give us some idea of the bank loan... As they are debt free we would use this rate...

galwaygent · 03-01-2015 4:42pm

jus_tin4 wrote: »

Any eg of relevant costing questions? Going to stick up what I come with for material for the exam if anyone wants to compare notes?

There was a Sean Tierney question and one about the Titanic or a museum... I think both are CAP1.

Nagnad · 03-01-2015 7:34pm

The case study does say "They asked you to compute the indicative cash flow generated by Option One". Does this not indicate that they are looking for a Cash Flow from Oct 14 to Sep 15??

galwaygent · 03-01-2015 9:43pm

It does indeed... So if we take the relevant costs away from the sources of income we would be left with a cash flow. Is this right?

jus_tin4 · 04-01-2015 7:35pm

galwaygent wrote: »

It does indeed... So if we take the relevant costs away from the sources of income we would be left with a cash flow. Is this right?

that what i originally thought... but from looking at your suggestion of relevant costing, there is much different in the 2 really.....

i can see us getting the report, an email with the pension contributions and some sort of discount rate....

claireon88 · 07-01-2015 12:19am

With regard to the computation of the indicative cash flow, with above comments are you guys thinking we should be using a relevent costing approach, so not including the costs that will arise either way, wages etc, including a cost saving of all outgoings in the 3 year plan and the income of the 3 year plan as a opportunity cost?
I'm thinking when doing the cash flow not to use a relevant costing approach and instead prepare a simple cash flow, what will come in and what will be spent to what we have left over at the end of the year, like preparing a budget?

What is everyone thinking of doing in terms of computing cash flow?

DONT PANIC · 07-01-2015 11:56am

Looks like the 1 year plan and 3 year plan are both based on cash flows so I did up draft cash flows for both based on the information available (will need to be updated with any additional information such as pensions, Bob's findings). The question seems to stress 'risk' which makes me think they could ask for NPV with Sensitivity Analysis. The variable may be sales (based on Bob's findings) to see how much sales could decrease before reaching the minimum NPV required. Looks like we may have to draft a letter or memo identifying the potential risks.

The question does seem to be mainly finance orientated. They say there is no Cost Management System in place, could there be a question on this?

If anyone has done similar and wants to compare cash flows let me know.

Dublin Student1992 · 07-01-2015 1:50pm

Hey guys,

The trainees in my practice got some really helpful notes regarding the SFMA case study last year from people in the big4!

Does anyone have a copy of this years notes that they could pop up or send directly to me?

Would really appreciate it- feeling stressed by the volume of stuff we need to cover!

Thanks a mill

claireon88 · 07-01-2015 2:17pm

Hi, I'd also greatly appreciate any notes provided to anyone from their firms.
If anyone could provide anything.
Many thanks

jus_tin4 · 07-01-2015 2:21pm

I think bobs report is more to do with the 3 year plan than the 1 year, all that's really missing is the pension bit..from what I can see, the 3 yr plan needs more details,

If anyone is will to share the big 4 notes that would also be great:)

Dublin Student1992 · 07-01-2015 10:54pm

With regards to the activity report provided in appendix 2- this is only relevant for option one right?

I'm guessing we'll be giving the no. of rentals predicted for option 2 in the exam?

Dublin Student1992 · 08-01-2015 2:16pm

Hey guys,

I got some notes off people in the big4, havn't gone through them yet, but if anyone wants them just PM me your email address- can't put them up!

Apparently KPMG arn't preparing notes this year, so the ones I have are from Deloitte and PWC!

jamesgibson22 · 10-01-2015 12:37pm

Please correct me if I am wrong but it don't believe anyone has mentioned foreign exchange which could play a roll in the questions. Risk increase over the 3 years as the dollar could weaken whereas get out within a year and there is less risk. Just a thought. Minor point on risk but could be worth a mark.

Dixie100 · 10-01-2015 2:53pm

Hi

Would you be able to help clarify the correct sales figure to use for Option 1 - 1 Year Exit Plan sales figure for the off peak weeks. should we be discounting the current rate of E1500 by 20% or the revised figure of €1500 by 20%

Thanks

HereFor · 10-01-2015 5:35pm

Dixie100 wrote: »

Hi

Would you be able to help clarify the correct sales figure to use for Option 1 - 1 Year Exit Plan sales figure for the off peak weeks. should we be discounting the current rate of E1500 by 20% or the revised figure of €1500 by 20%

Thanks

I think it can be interpreted either way but I'm going with the following -

Peak Quarter - €1,500 per week
Off-peak Quarter - €960 per week (i.e. old rate of €1,200 * 80%)

HereFor · 10-01-2015 5:38pm

Question re Three Year Exit Plan -

Sale of old cruisers, purchase of new cruisers and lease exit payment - does these happen in T0 or T1?

Similarly, sale of business for €3m - does that happen in T3 or T4?

HereFor · 10-01-2015 5:40pm

Question re Three Year Exit Plan -

Sale of old cruisers, purchase of new cruisers and lease exit payment - does this happen in T0 or T1?

Similarly, sale of business for €3m - does that happen in T3 or T4?

Wee_T · 10-01-2015 6:49pm

HereFor wrote: »

I think it can be interpreted either way but I'm going with the following -

Peak Quarter - €1,500 per week
Off-peak Quarter - €960 per week (i.e. old rate of €1,200 * 80%)

I wondered this too? Ie do we use 1500 and then discount to 1200. Or do we use the original 1200 for off peak and discount further? Also are people putting investment outlay into year 0 or year 1? Silly q I know, but panicking now

jus_tin4 · 10-01-2015 8:19pm

Wee_T wrote: »

I wondered this too? Ie do we use 1500 and then discount to 1200. Or do we use the original 1200 for off peak and discount further? Also are people putting investment outlay into year 0 or year 1? Silly q I know, but panicking now

Im sticking with 1500 and then reducing it by 20%? whats your thinking in going back to the original of 1200 for the off peak? just would seem like a change in approach? and if it is the examiner was a bit sly.....

i put it in yr 0 but just for now till i see what comes up if anything.

the fx risk, the resource management and maybe a gearing issue( no debt, all equity based and with loan what impacts does it have on the compay's strategy and ability to pay back its debt

Wee_T · 10-01-2015 8:47pm

jus_tin4 wrote: »

Im sticking with 1500 and then reducing it by 20%? whats your thinking in going back to the original of 1200 for the off peak? just would seem like a change in approach? and if it is the examiner was a bit sly.....

i put it in yr 0 but just for now till i see what comes up if anything.

the fx risk, the resource management and maybe a gearing issue( no debt, all equity based and with loan what impacts does it have on the compay's strategy and ability to pay back its debt

It was the wording of it. It said they decided to raise the price of the peak period to 1500 and discount the off peak by 20%. So wasn't clear if both were increased to 1500. What do you mean joining the forum? first time using this, so not sure how to join?

galwaygent · 11-01-2015 11:34am

I was going to use the €1500 for peak and €1200 for off peak... It is confusing however, as they expect the same sales for a higher price. However, they also expect the same sales if they charge €960 for the off peak season. Surely the the c.50% difference in price would attract a lot more customers for the off peak season??

I am putting the sale of cruisers in Y0.
The purchase in Y1 as its not "today".
I would put the lease exit plan in Y0 as it is on the year end.

Just my thinking, open to correction!!

galwaygent · 11-01-2015 12:28pm

Also, does anybody know where Deloitte are getting their figure of €79,168 from for Lough Erne??
I worked out (3/12*€50,000) is €12,500
Redundancy is (4 months * (50K/12)) =€4167.
total cost is €29167.

galwaygent · 11-01-2015 12:45pm

Just something I noticed... anybody have any thoughts on the below RE option 2, 3 year exit plan??

In SFMA all info is relevant, as they say the devil is in the detail... So would the fact that they say managers will clean and the boats in the off season mean that the last rentals at peak season wouldnt be paid for by cleaning staff but instead included in the managers salaries??

Also for the 1 year exit plan, do Directors pensions matter?? either way they will end up with the cash? the only difference is that the pensions will lower the Net Cash Flow.

mick_989 · 11-01-2015 2:54pm

Hey guys,

Would someone be able to send me the big 4 notes for the case study

Would really appreciate it

thanks

CAz93 · 11-01-2015 3:10pm

Hey,

I would also appreciate any notes people got from big4.

many thanks

davpmn89 · 11-01-2015 5:34pm

Hey guys I'd appreciate big 4 notes also.

I can send what I have to date in return if anyone is interested?

mick_989 · 11-01-2015 5:51pm

claireon88 wrote: »

With regard to the computation of the indicative cash flow, with above comments are you guys thinking we should be using a relevent costing approach, so not including the costs that will arise either way, wages etc, including a cost saving of all outgoings in the 3 year plan and the income of the 3 year plan as a opportunity cost?
I'm thinking when doing the cash flow not to use a relevant costing approach and instead prepare a simple cash flow, what will come in and what will be spent to what we have left over at the end of the year, like preparing a budget?

What is everyone thinking of doing in terms of computing cash flow?

that's what I was thinking, not just relevant costs. to put in all costs.

I'm not sure if I calculated it incorrectly but for the 1 year plan it looks like the net cash flow is already below €1,500,000 and that's before taking off the pension amount, when we get them. Has anyone else got this?

Wee_T · 11-01-2015 5:58pm

mick_989 wrote: »

that's what I was thinking, not just relevant costs. to put in all costs.

I'm not sure if I calculated it incorrectly but for the 1 year plan it looks like the net cash flow is already below €1,500,000 and that's before taking off the pension amount, when we get them. Has anyone else got this?

I have got this also. I am sitting with a CF of £1,272,193?? Also by my calculations the 3 year option is miles above the NPV of £5,000,000. Although pension will go in and rental income change. Anyone else got this?

Also I can send the big 4 notes for anyone who needs them? Let me know the best way to send it.

Dublin Student1992 · 11-01-2015 5:59pm

mick_989 wrote: »

that's what I was thinking, not just relevant costs. to put in all costs.

I'm not sure if I calculated it incorrectly but for the 1 year plan it looks like the net cash flow is already below €1,500,000 and that's before taking off the pension amount, when we get them. Has anyone else got this?

Ye, the net cash flow generate from option 1 will defiently be below the requirement of €1.5 million, so option 2 will have to be persued!

With regards to relevant costing- the case study just asks us to compute a simple net cash flow calculation. However, I've prepared a relevant costing cash flow calc for option 1 just incase we've asked to do this in the exam- just to save time.

Wee_T · 11-01-2015 6:01pm

Is anyone else worried that there is very little management accounting in this case study? Seems finance based? At ideas on any management areas I'm missing? Possible theory on balance scorecard as they pay cleaners a lot more than competitors??

mick_989 · 11-01-2015 6:10pm

Wee_T wrote: »

I have got this also. I am sitting with a CF of £1,272,193?? Also by my calculations the 3 year option is miles above the NPV of £5,000,000. Although pension will go in and rental income change. Anyone else got this?

Also I can send the big 4 notes for anyone who needs them? Let me know the best way to send it.

I've currently got €1,272,193 as well and its just the pension to go in I think. I assume this is just a simple cashflow, not need to discount back to T0 either.

Wee_T · 11-01-2015 6:18pm

Dublin Student1992 wrote: »

Ye, the net cash flow generate from option 1 will defiently be below the requirement of €1.5 million, so option 2 will have to be persued!

With regards to relevant costing- the case study just asks us to compute a simple net cash flow calculation. However, I've prepared a relevant costing cash flow calc for option 1 just incase we've asked to do this in the exam- just to save time.

I hadnt thought about relevant costs, us there many differences in your two calcs? Most look relevant?

Wee_T · 11-01-2015 6:20pm

mick_989 wrote: »

I've currently got €1,272,193 as well and its just the pension to go in I think. I assume this is just a simple cashflow, not need to discount back to T0 either.

That's what I thought. Is your option 2 looking above the requirement? You prepared any theory answers

Wee_T · 11-01-2015 6:23pm

galwaygent wrote: »

Also, does anybody know where Deloitte are getting their figure of €79,168 from for Lough Erne??
I worked out (3/12*€50,000) is €12,500
Redundancy is (4 months * (50K/12)) =€4167.
total cost is €29167.

They seem to have added in an extra €50K

Dublin Student1992 · 11-01-2015 6:28pm

Wee_T wrote: »

I hadnt thought about relevant costs, us there many differences in your two calcs? Most look relevant?

I just computed a scenario where the co. continues as is compared to if the co. went ahead with option one.

Main cost/savings are: the new increase in price per week (difference between old an new), increase in pension costs, difference in repairs, exit penalty, redundancy costs, sales on FA and so on...

Unlikely it will come up, but just looking for ideas where the mgt side might come in!

mick_989 · 11-01-2015 6:36pm

Wee_T wrote: »

That's what I thought. Is your option 2 looking above the requirement? You prepared any theory answers

Did you just make up a discount rate for now? Did you put and estimation in for the rentals as this will contribute massively to the outcome.

the thing I think need to be filled in on the 3 year plan are the rental income from boats, pension costs, casual cleaning staff costs, and I assume there will be some finance costs with the loan? are these all the thing you've got to be filled in?

also I've pm'd you my e-mail address if you could please send on the big 4 notes, thanks.

Wee_T · 12-01-2015 12:31am

mick_989 wrote: »

Did you just make up a discount rate for now? Did you put and estimation in for the rentals as this will contribute massively to the outcome.

the thing I think need to be filled in on the 3 year plan are the rental income from boats, pension costs, casual cleaning staff costs, and I assume there will be some finance costs with the loan? are these all the thing you've got to be filled in?

also I've pm'd you my e-mail address if you could please send on the big 4 notes, thanks.

Yes I used the rental Income as if it's maxed ie 100% of boats rented out. It will change when we get then demand/no of boats. But I've highlighted it to change. Pension costs I again highlighted to be changed but used the original 48K and said 24 for mgrs and 24 for dan and wife. Then obv used the months for mgrs and reduced the directors by 40%. Again this will change. I just wanted an idea of what way it was looking.

And cleaning costs will change again with the no of boats rented that will need cleaned. I put 100% of boats for this for now. Just rough though. And yes possible finance on the day.

mick_989 · 12-01-2015 10:47am

Wee_T wrote: »

Yes I used the rental Income as if it's maxed ie 100% of boats rented out. It will change when we get then demand/no of boats. But I've highlighted it to change. Pension costs I again highlighted to be changed but used the original 48K and said 24 for mgrs and 24 for dan and wife. Then obv used the months for mgrs and reduced the directors by 40%. Again this will change. I just wanted an idea of what way it was looking.

And cleaning costs will change again with the no of boats rented that will need cleaned. I put 100% of boats for this for now. Just rough though. And yes possible finance on the day.

I was aondering because I had the NPV lower than the €5m, but then I noticed that I only put in rentals for year 3 and forgot year 1 and 2. After putting them in now its way over the €5m.

mick_989 · 12-01-2015 10:51am

Wee_T wrote: »

Yes I used the rental Income as if it's maxed ie 100% of boats rented out. It will change when we get then demand/no of boats. But I've highlighted it to change. Pension costs I again highlighted to be changed but used the original 48K and said 24 for mgrs and 24 for dan and wife. Then obv used the months for mgrs and reduced the directors by 40%. Again this will change. I just wanted an idea of what way it was looking.

And cleaning costs will change again with the no of boats rented that will need cleaned. I put 100% of boats for this for now. Just rough though. And yes possible finance on the day.

I was wondering because I had the NPV lower than the €5m, but then I noticed that I only put in rentals for year 3 and forgot year 1 and 2. After putting them in now its way over the €5m.

jus_tin4 · 12-01-2015 1:49pm

i think management will come in on the resource management system, seems to me like the most obvious point! there is only so many things that really stick out, like prior case studies.... i think the fx rate and the resource are it imo anyways!

the only reason i could see option one being taking is for the fact that it has less problems associated with it.. i.e not moving to a new location with loss of goodwill, other competitors in the area or another co. just taking their prior docks.

option 2 has more risk towards the company, i.e. now in a loan(what length are they paying it of in, int charge, fx change, are they going to hedge)

there is management areas such as sourcing cleaners, is the manager involved in the decision or is it all board based decisions etc...

I think there is a lot of areas to go down into in both finance and management, just depends how you see it and consider relevant imo.

also think its going to be a report/memo so might not be a bad idea to know the layout of that just in case!

thats my plan for this! FR is a different animal! good luck!

Dublin Student1992 · 12-01-2015 8:09pm

jus_tin4 wrote: »

i think management will come in on the resource management system, seems to me like the most obvious point! there is only so many things that really stick out, like prior case studies.... i think the fx rate and the resource are it imo anyways!

the only reason i could see option one being taking is for the fact that it has less problems associated with it.. i.e not moving to a new location with loss of goodwill, other competitors in the area or another co. just taking their prior docks.

option 2 has more risk towards the company, i.e. now in a loan(what length are they paying it of in, int charge, fx change, are they going to hedge)

there is management areas such as sourcing cleaners, is the manager involved in the decision or is it all board based decisions etc...

I think there is a lot of areas to go down into in both finance and management, just depends how you see it and consider relevant imo.

also think its going to be a report/memo so might not be a bad idea to know the layout of that just in case!

thats my plan for this! FR is a different animal! good luck!

Properly a silly question- but what do you mean by hedge?

Wee_T · 12-01-2015 9:15pm

jus_tin4 wrote: »

i think management will come in on the resource management system, seems to me like the most obvious point! there is only so many things that really stick out, like prior case studies.... i think the fx rate and the resource are it imo anyways!

the only reason i could see option one being taking is for the fact that it has less problems associated with it.. i.e not moving to a new location with loss of goodwill, other competitors in the area or another co. just taking their prior docks.

option 2 has more risk towards the company, i.e. now in a loan(what length are they paying it of in, int charge, fx change, are they going to hedge)

there is management areas such as sourcing cleaners, is the manager involved in the decision or is it all board based decisions etc...

I think there is a lot of areas to go down into in both finance and management, just depends how you see it and consider relevant imo.

also think its going to be a report/memo so might not be a bad idea to know the layout of that just in case!

thats my plan for this! FR is a different animal! good luck!

Hi,

What do you mean by resource management system? Struggling to remember my CAP1 managements. Thanks

Aurellia · 12-01-2015 9:32pm

Dublin Student1992 wrote: »

Properly a silly question- but what do you mean by hedge?

Means to transfer a risky cash flow to a risk free or risk reduced one, by buying up the assets or paper assets as to make profit and reduce the risk of interest and fx rates changing. The FX on Swedish Krona will have affect on Income and the American dollar is what drives sales income ( Depending on Bobs report but would seem its all american by Visitors log)

CAP 2 SFMA Case study

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