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CAP 2 SFMA ASSESSMENT 2010

1235711

Comments

  • Closed Accounts Posts: 6 C2theLahambert


    MAX72 wrote: »
    My understanding was that the case study and information is as given. If what you are saying is true they could put in what they like on the day.
    ,

    Ya loike, agree totally, its stressful enough without them springing new info on us on the day and I think the time allocated is too short for us to do a calculation of this nature, allied with the other calculations required and whatever theory that may come up.

    x


  • Closed Accounts Posts: 2 Chargers Rule


    Hi all, 1st time at this party and gd to see plenty people mixing it up.
    Happy new year to all.

    Wanna throw out something bout the layout. This is how i reckon going to go down. Thoughts and opinions appreciated.

    3 SECTIONS

    1. WACC : Calculate basis wacc, adjust wacc for sources of finance + supply recom. as to wot source to take. (40% of Marks)

    2. Theory Part: Unsure wot to come up here, maybe bit of foriegn exchange,ethics and agency theory. including write a report of some kind. (40% of marks)

    3. Relevant Costing part: Increment actual cost to see if proposed loss is accurate. And advise based on ur calculations wot 2 go thru wit proposal or not. (20% of marks)

    Wud appreciate opinion back on this esp. on theory part coz i think WACC and relevant costing guaranteed to come up but unsure bout theory.

    Thanks


  • Registered Users Posts: 2,734 ✭✭✭Newaglish


    Howdy all,

    Not sitting this exam but I've done up a sample answer for the relevant costing to hopefully answer any questions people may have.

    The only part open to interpretation is on the variable overheads, which depends on how you read the question.

    The question reads:

    "Variable overheads are incurred at a cost of €20 per labour hour worked"

    It then budgets for €8,000 of variable overheads, or 400 hours of labour.

    Given that the question allows for 200 hours of skilled and 400 hours of unskilled labour, there are two ways to interpret the question:

    1) Variable overheads are incurred on unskilled labour only or
    2) The original budget is incorrect and should read €12,000

    I've gone with number two as it's the most literal definition of their notes.

    I've attached an Excel sheet with my calculations and reasons behind each cost included/not included.

    This should be correct but if there's anything missing/incorrect please point it out.


  • Registered Users Posts: 2,734 ✭✭✭Newaglish


    Same story as above - WACC attached


  • Registered Users Posts: 4 LoveTheAudit


    Newaglish wrote: »
    Same story as above - WACC attached

    I'm getting the same answers as you so far.
    Any joy with the scenarios?


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  • Closed Accounts Posts: 5 Student_123


    Coldplayer wrote: »
    mcloum22 wrote: »
    Hi, Could someone please tell me how ye got the 100m??[/QUOTE/]


    The 100m is just a notional amount,

    you should use the following cash flows

    yr1 290
    yr1and2 -(.13*300)(.8)
    yr2 (300)



    I agree I did it that way and got 7.27% anybody get that??


  • Registered Users Posts: 120 ✭✭Coldplayer


    no that seems a bit off, i'd check your present values


  • Closed Accounts Posts: 5 Student_123


    The difference is I'd sayis that I did Yr 0 290m (int paid), Yr 1 31.2m int and yr 2 300m I don't get why another year has to be added for interest when it's already paid in the 1st year?


  • Registered Users Posts: 63 ✭✭barrystealover


    Newaglish wrote: »
    Same story as above - WACC attached

    Could i ask you what you got for the 3 different scenarios?

    for the first scenario i got 14.25%

    for the second scenario i got 15.13%

    I am too rusty with scenario 3


  • Registered Users Posts: 63 ✭✭barrystealover


    Anybody have any suggestion on how they might phrase a due diligiance question??a tranlation risk question??presume it will be theory question


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  • Registered Users Posts: 120 ✭✭Coldplayer


    Anybody have any suggestion on how they might phrase a due diligiance question??a tranlation risk question??presume it will be theory question

    I reckon that they might ask how to counter translational risk and there is only 2 methods i know of.

    Temporal Method

    Current Rate method.

    To be honest i'm kinda stuck for the theory end of things apart from the obvious questions.

    Are we expected to research away from the text or is it only stuff from the text that we are examinable on??


  • Closed Accounts Posts: 5 Student_123


    Could they not ask about translational risk and then you go on about options and interest rate risk seeing as the manager's worried about them??


  • Closed Accounts Posts: 5 Student_123


    snipejuice wrote: »
    Hi Can anyone please post their workings for the 3 scenarios?



    I'd like that aswell I'm struggling on that part!! Where are all the % coming from??


  • Registered Users Posts: 2,734 ✭✭✭Newaglish


    The difference is I'd sayis that I did Yr 0 290m (int paid), Yr 1 31.2m int and yr 2 300m I don't get why another year has to be added for interest when it's already paid in the 1st year?

    The cash flows are:

    Year Zero (Jan 2010) -290m
    Year One (Dec 2010) 31.2m
    Year Two (Dec 2011) 31.2m
    Year Two (Dec 2011) 300m

    You don't redeem the debentures until the end of 2011 and therefore accrue interest for that year also.


  • Closed Accounts Posts: 1 S.Hanlon


    hi
    i am new to this and have only started looking now

    could somebody explain to me the formulae when working out the cost of the ordinary shares??

    thank you


  • Closed Accounts Posts: 2 KissMyAudit


    Newaglish wrote: »
    Howdy all,


    This should be correct but if there's anything missing/incorrect please point it out.



    Shouldnt the €16,000 wages for Unskilled Labour be counted as well as the forgone contribution to the other project?

    The similar question in the book does count this as a relevant cost...


  • Registered Users Posts: 63 ✭✭barrystealover


    Shouldnt the €16,000 wages for Unskilled Labour be counted as well as the forgone contribution to the other project?

    The similar question in the book does count this as a relevant cost...

    what question in what book??page number and question number??


  • Closed Accounts Posts: 2 KissMyAudit


    what question in what book??page number and question number??


    Page 33 in the Management Accounting toolkit from last year....someone posted that last week!


  • Closed Accounts Posts: 2 smith24


    TMB wrote: »
    My WACC for the three financing scenarios

    S1. 14.27%
    S2. 15.20%
    S3. 15.16%

    Anyone get close to these as i'm not sure. For S1 I said the loan is over a 21 year period, is that right?

    Hi, I take it by scenarios you are referring to
    s1) replacing £300m to £600M
    s2) Issue further 70M ord shares
    s3) consider one for 5 rights issue at 20% discount

    and applying each change (individually) to your original WACC calculation?

    I agree with your WACC for S1 but I'm coming out with different for S2 and S3, so I wanted to check I was applying the same situation as yourself in each scenario?


  • Registered Users Posts: 2,734 ✭✭✭Newaglish


    Shouldnt the €16,000 wages for Unskilled Labour be counted as well as the forgone contribution to the other project?

    The similar question in the book does count this as a relevant cost...

    If you don't go ahead with the project you will be employing 400 hours of unskilled labour on the existing contract.

    If you do go ahead with the project you will be employing 400 hours of unskilled labour on the new contract.

    Either way, you're paying €16,000 regardless of what contract they work on. It's not incremental to your decision. The only incremental cost is the lost contribution of €60,000 from the other project.


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  • Registered Users Posts: 63 ✭✭barrystealover


    CAN ANY1 SHED ANY LIGHT AS TO HOW A RISK MANAGEMENT QUESTION MIGHT BE ASKED??

    SEEING AS IT IS 8TH JANUARY2010(FIRST LINE OF CASE STUDY) AND THE DATE OF PROPOSED ACQUISITION IS 1STH FEB 2010,COULD THEY ASK ABOUT INTEREST RISK LOOKING ONLY 1 MONTH AHEAD??

    HOW COULD THEY PHRASE A TRANSLATIONAL RISK QUESTION??IF THEY RECKON THE FOREIGN CURRENCY WILL WEAKEN AGAINST DOMESTIC(€ AND £) THIS WOULD RESULT IN PROFITS AND ASSETS BEING LESS VALUE WHEN TRANSFERRED INTO € OE £.


  • Closed Accounts Posts: 11 Masjanja


    Can anyone please post the 3rd scenario WACC, the one with the rights issue, I seem to have slightly different answer?


  • Registered Users Posts: 63 ✭✭barrystealover


    Could some1 please shed some light on the calculations for the 3rd scenario? I am unsure how to do it


  • Registered Users Posts: 25 Student456


    Any one breakeven with the relevant costing??!

    Could any1 please put up workings for the three WACC Scenarios?!

    Any ideas for theory questions?!


  • Closed Accounts Posts: 12 post_it


    I worked the Irredeemable debentures cost to be 7.9% and not 8%. I have calculated the interest as follows

    5,000,000 debentures valued at 440m = £88 per debenture

    Interest = 8% of £88 = 7.04 thus MV of 1 debenture is 80.96 (88 - 7.04)

    thus 0.25(1 -0.2) = 7.9%
    80.96

    Any one else agree?


  • Registered Users Posts: 7 wdarling


    TMB wrote: »
    My WACC for the three financing scenarios

    S1. 14.27%
    S2. 15.20%
    S3. 15.16%

    Anyone get close to these as i'm not sure. For S1 I said the loan is over a 21 year period, is that right?


    Could someone please put up some workings for the 3 scenarios.... especially the replaced redeemable debentures!?

    I got a WACC of 15.51% for scenario one which seems to be wrong.... did everyone else include the cash outflow for the redemption fee on the original €300m debentures that are replaced?


  • Registered Users Posts: 4 wiles9


    Masjanja wrote: »
    I totally agree, got my WACC of 15.56%, the workings are almost identical to urs, slight difference in roundings i believe.

    I haven't got my workings in front of me, but as far as I remember, I got a WACC very similar to this! I'll try visit here and post some more over the weekend!

    EDIT : maybe .58..

    Cheers to the poster that uploaded excel workings, nice and clear. I think the costings always going to be debatable unless someone emails the institute and asks them to clarify??


  • Registered Users Posts: 2,734 ✭✭✭Newaglish


    post_it wrote: »
    I worked the Irredeemable debentures cost to be 7.9% and not 8%. I have calculated the interest as follows

    5,000,000 debentures valued at 440m = £88 per debenture

    Interest = 8% of £88 = 7.04 thus MV of 1 debenture is 80.96 (88 - 7.04)

    thus 0.25(1 -0.2) = 7.9%
    80.96

    Any one else agree?

    The cost of capital has to be calculated at the ex-interest market value of the debentures. The debentures are cum-interest €440m in value and are carrying €40m of interest (€500 * .08) therefore giving an ex-interest market value of €440m - €40m = €400m.

    The value of each debenture is €0.8 and thus you calculate as follows:

    8%*(100%-20%)
    0.8

    Answer: 8%


  • Registered Users Posts: 26 salmagoo


    I think everybody has the right answer to the relevant costing bar the skilled and unskilled labour!! It's either skilled is either 12 or 0, and unskilled is either 60 or 76, so if you could throw down what you tink and we can get a final answer for everyone ya???


    Could Student 123 please give some workings??
    I think that skilled should be zero btw!!


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  • Closed Accounts Posts: 44 MAX72


    salmagoo wrote: »
    Could Student 123 please give some workings??
    I think that skilled should be zero btw!!

    Skilled 0
    Unskilled 60 + 16 = 76

    That would appear to be the view of the majority.......


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