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CAP 2 SFMA ASSESSMENT 2010

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    #272
    ELLE163
    Closed Accounts Posts: 13 ✭ELLE163


    BlackHouse wrote: »
    I think you need to maintain shareholder epextations of prevoius dividends.
    If you offered me the option to buy more shares and then didn't hold the div per share rate constant or better it I would have no reason to buy your shares as I could invest somehwere else where I could get a better return. Part of the WACC is the cost, and the cost is deriveved from shareholder expectations of future profits.
    I held the div per share rate at .25 so the WACC rose with option 2 and 3. they aev the least effect on future cash flows and the higher effect of on gearing. What do you think?

    Do mind posting your workings for those scenarios??


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    #273
    BlackHouse
    Closed Accounts Posts: 17 ✭BlackHouse


    ELLE163 wrote: »
    Do mind posting your workings for those scenarios??


    its up there now I think, would appreciate any commetns


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    #274
    ELLE163
    Closed Accounts Posts: 13 ✭ELLE163


    BlackHouse wrote: »
    its up there now I think, would appreciate any commetns

    u workings are very well laid out:) Ya i think i agree with applying the dps to get cost of equity in the scenarios,the resulting wacc makes more sense. I think i gona go with that method!!

    Only thing i have different to you is the relevant costing. I have a question mark over the 5000 v 25000 for mat fg most peeps seem to be going with your figure of 25000 but the use of "could have been" and "would have cost" are all past tense suggesting that opportunity is gone now .... i think if i do with the 5000 im going to highlight that i made that assumption and jane needs to confirm this


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    #275
    Rickyroma
    Registered Users Posts: 149 ✭✭Rickyroma


    TMB wrote: »
    Originally Posted by MAX72
    HELP!!

    Can anyone finally put this cost to bed?

    According to task 17 in last years toolkit, the charge of €16k is included along with the €60k. I have spoken to two managers here who are of the opinion that the €16k should not be included.

    So is it a break even project or one with a €16k loss????




    Having the exact same dilemma, thinking of going with break even tho cos it can change the decision that was made, if its a loss then its the same situation really. What do other ppl think??

    I'm going for a 16k loss. There are often inconsistancies in definitions, especially w.r.t. ratios etc. and we're constantly told that the Institute published materials are definitive. If they publish the suggested solution and it's breakeven they will have, at the very least, given us a big stick to beat them with.

    I'd imagine everyone who includes the 16k would demand the marks and I think the Institute would have to acceed. It is literally word for word the question on pg 33 of the Man Acc book.


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    #276
    Rickyroma
    Registered Users Posts: 149 ✭✭Rickyroma


    ELLE163 wrote: »

    Only thing i have different to you is the relevant costing. I have a question mark over the 5000 v 25000 for mat fg most peeps seem to be going with your figure of 25000 but the use of "could have been" and "would have cost" are all past tense suggesting that opportunity is gone now .... i think if i do with the 5000 im going to highlight that i made that assumption and jane needs to confirm this

    Can't see a problem with this. If you can justify you shouldn't lose marks. Think the safe option will be to go with 25k but, as you say, caveat the answer and request clarification from Jane on this point.


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    #277
    BlackHouse
    Closed Accounts Posts: 17 ✭BlackHouse


    Rickyroma wrote: »
    I'm going for a 16k loss. There are often inconsistancies in definitions, especially w.r.t. ratios etc. and we're constantly told that the Institute published materials are definitive. If they publish the suggested solution and it's breakeven they will have, at the very least, given us a big stick to beat them with.

    I'd imagine everyone who includes the 16k would demand the marks and I think the Institute would have to acceed. It is literally word for word the question on pg 33 of the Man Acc book.


    Pg 33 soloutions discounts the 16k as this has to be paid whether the project goes ahead or not. I have seen a tutorial from one of the big 4 audit firms that discounts it as well. Their the result is breakeven and accept.


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    #278
    salmagoo
    Registered Users Posts: 26 ✭salmagoo


    tannercohen12 wrote: »
    can some nice person please tell me if you include reserves/accumulated profits when calculating gearing?:)


    nope the ward text says that gearing is the

    market value of debt (inc pref shares)
    Mv of debt + equity

    i got 30.79 r sumtin like that


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    #279
    BlackHouse
    Closed Accounts Posts: 17 ✭BlackHouse


    ELLE163 wrote: »
    u workings are very well laid out:) Ya i think i agree with applying the dps to get cost of equity in the scenarios,the resulting wacc makes more sense. I think i gona go with that method!!

    Only thing i have different to you is the relevant costing. I have a question mark over the 5000 v 25000 for mat fg most peeps seem to be going with your figure of 25000 but the use of "could have been" and "would have cost" are all past tense suggesting that opportunity is gone now .... i think if i do with the 5000 im going to highlight that i made that assumption and jane needs to confirm this

    Just to let you know I am chnaging back to the unadjusted div method.
    I hvae seen a tutorial from with the figures left the same, my Wacc's are now Scn 2 - 17.85ke, wacc 15.258, Scn 3 - 17.75ke, wacc 15.218


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    #280
    Student85
    Closed Accounts Posts: 11 ✭Student85


    What tutorial is that blackhouse?


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    #281
    BlackHouse
    Closed Accounts Posts: 17 ✭BlackHouse


    Student85 wrote: »
    What tutorial is that blackhouse?

    one of the big 4, not sure which one. I only got ot look at it and I matched up on everything but that point.


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    #282
    ELLE163
    Closed Accounts Posts: 13 ✭ELLE163


    BlackHouse wrote: »
    Just to let you know I am chnaging back to the unadjusted div method.
    I hvae seen a tutorial from with the figures left the same, my Wacc's are now Scn 2 - 17.85ke, wacc 15.258, Scn 3 - 17.75ke, wacc 15.218

    Even though there is slight drop in wacc with these two methods ( whcih does't make sense :mad:) could you just say that this figure doesn't take account of issue costs or something like that......


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    #283
    BlackHouse
    Closed Accounts Posts: 17 ✭BlackHouse


    ELLE163 wrote: »
    Even though there is slight drop in wacc with these two methods ( whcih does't make sense :mad:) could you just say that this figure doesn't take account of issue costs or something like that......


    Yeah I def think its worth mentioning that the issuee cost (5-10%) is not taken account of here and for the rights issue that the shareholders may not have the funding so should be approached for advice and also not to forget cost of underwriting the rights as well


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    #284
    Rickyroma
    Registered Users Posts: 149 ✭✭Rickyroma


    BlackHouse wrote: »
    Pg 33 soloutions discounts the 16k as this has to be paid whether the project goes ahead or not. I have seen a tutorial from one of the big 4 audit firms that discounts it as well. Their the result is breakeven and accept.

    Sorry Blackhouse but that is incorrect.

    Solution on page 125 of Man Acc Toolkit clearly includes Labour Type B as a cost, stating "Direct labour Semi Skilled - 12000 -Cost of Hours (400@€30per Hour)"

    Its confusing coz the figures are slightly different (400@30 as opposed to 400 @40) but Labour type B is referred to as semi skilled in the question.

    All they've done is separate the contribution from the labour cost.




    I have attached the KPMG tutorial that people keep referring to and in it the preparer states that she is taking a position on this point. I think she's wrong. It also says in the accompanying lecture slides that she did CAP 2 one year ago, that the presentation is her work alone and that there may be errors. Overall I think its a very good piece of work but I am going with the Institutes publication on this, and including the 16K.


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    #285
    Rickyroma
    Registered Users Posts: 149 ✭✭Rickyroma


    salmagoo wrote: »
    nope the ward text says that gearing is the

    market value of debt (inc pref shares)
    Mv of debt + equity

    i got 30.79 r sumtin like that


    Again, don't mean to be rude, but this is plain wrong.

    Ward definitely includes both retained earnings and reserves in equity for the gearing calc. Please see page 77/78. The example uses figures from page 106 and includes as equity "Share Capital, Other reserves, retained earnings and Minority interest".

    The correct figure for gearing is 1000/2489 or 40.2%


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    #286
    BlackHouse
    Closed Accounts Posts: 17 ✭BlackHouse


    Rickyroma wrote: »
    Sorry Blackhouse but that is incorrect.

    Solution on page 125 of Man Acc Toolkit clearly includes Labour Type B as a cost, stating "Direct labour Semi Skilled - 12000 -Cost of Hours (400@€30per Hour)"

    Its confusing coz the figures are slightly different (400@30 as opposed to 400 @40) but Labour type B is referred to as semi skilled in the question.

    All they've done is separate the contribution from the labour cost.




    I have attached the KPMG tutorial that people keep referring to and in it the preparer states that she is taking a position on this point. I think she's wrong. It also says in the accompanying lecture slides that she did CAP 2 one year ago, that the presentation is her work alone and that there may be errors. Overall I think its a very good piece of work but I am going with the Institutes publication on this, and including the 16K.


    Yeah I agree now, the 16k should be in there according to the book.

    Do you mind posting your WACC calc's? Also are you focusing much on the due dillegence? I think they feb 1st dealdine poses a significant risk s they only have 3 months at ost contact with the target company and its 100% cash move.


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    #287
    Rickyroma
    Registered Users Posts: 149 ✭✭Rickyroma


    BlackHouse wrote: »
    Yeah I agree now, the 16k should be in there according to the book.

    Do you mind posting your WACC calc's? Also are you focusing much on the due dillegence? I think they feb 1st dealdine poses a significant risk s they only have 3 months at ost contact with the target company and its 100% cash move.

    I'm happy with the KPMG WACC I posted previously and I think the workings areo reasnably clear (using the market values obviously - does anyone know why you would bother to prepare a WACC using book values?).

    Re Due diligence -

    While the period in question is short, I think you have to take the case study at face value on some points. It looks to me like they have boxed this off to prevent people wasting time down a blind alley - they have hired a reputable firm who have confirmed that the figures are correct and there are no outstanding issue of importance. As the target firm is open to the takeover, it is likely they provided all necesary documentation.

    I can't see that there is anything they can ask on the subject other than a general question in respect of the process which is covered in Ward pages 771-3.

    I think at most this topic will be a one bullet point answer in support of a general risk assesment analysis - and I would be inclined to comment favourably on the action they have taken. I think translational risk is more likely to be queried and political, business and cultural risk are more important.

    The one question I do have is why they are so keen to acquire a company that is only projected to break even next three years.



    Of course that is just my opinion! Could be wrong!


  • Options
    #288
    lala1987
    Closed Accounts Posts: 91 ✭✭lala1987


    Rickyroma wrote: »
    Can't see a problem with this. If you can justify you shouldn't lose marks. Think the safe option will be to go with 25k but, as you say, caveat the answer and request clarification from Jane on this point.


    I completely agree with the above, i am also going to go with the 5000, 'could have been used' suggests historical and a foregone opportunity. However if we state this and request clarification from Jane it should not be a problem. Do you get a indicative profit of 4000? (using) the 5000.


  • Options
    #289
    King007
    Closed Accounts Posts: 1 ✭King007


    Could someone please post the final calcs for WACC on the 3 scenarios please and thanks (via attachment)


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    #290
    sionnach
    Registered Users Posts: 2,543 ✭✭✭sionnach


    lala1987 wrote: »
    I completely agree with the above, i am also going to go with the 5000, 'could have been used' suggests historical and a foregone opportunity. However if we state this and request clarification from Jane it should not be a problem. Do you get a indicative profit of 4000? (using) the 5000.

    I'm also going with the €5000 for material FG resulting in a €4000 overall profit. Saying "could have been used" instead of "can be used" clearly implies a missed opportunity. Going to state it very clearly in the note to the figure to be sure of the marks.


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    #291
    lala1987
    Closed Accounts Posts: 91 ✭✭lala1987


    sionnach wrote: »
    I'm also going with the €5000 for material FG resulting in a €4000 overall profit. Saying "could have been used" instead of "can be used" clearly implies a missed opportunity. Going to state it very clearly in the note to the figure to be sure of the marks.


    Cool thank you!!! Can i ask few quick quest?

    1. Is the 300million ivest - for both rian and lesbleu?
    2. Are you recommending both/none or one?
    3. Which finance u recommending?


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    #292
    ELLE163
    Closed Accounts Posts: 13 ✭ELLE163


    BlackHouse wrote: »
    Yeah I agree now, the 16k should be in there according to the book.

    Do you mind posting your WACC calc's? Also are you focusing much on the due dillegence? I think they feb 1st dealdine poses a significant risk s they only have 3 months at ost contact with the target company and its 100% cash move.

    Ok is this really stupid but could you NOT include the 16000 labour based on the assumption that they are permanent staff and will get paid anyway even if neither of the contracts are taken up .. like where does it suggest that they are not permanent staff????


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    #293
    lala1987
    Closed Accounts Posts: 91 ✭✭lala1987


    ELLE163 wrote: »
    Ok is this really stupid but could you NOT include the 16000 labour based on the assumption that they are permanent staff and will get paid anyway even if neither of the contracts are taken up .. like where does it suggest that they are not permanent staff????


    Orignially i said the exact same thing but then i when i saw CAP 1 i was like exam suppose to be mostly CAP 1 and if insitute are doing that then i guess meant to do that. But if you can back up ur figure properely with no ambigousness then have to get marks.


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    #294
    sionnach
    Registered Users Posts: 2,543 ✭✭✭sionnach


    lala1987 wrote: »
    Cool thank you!!! Can i ask few quick quest?

    1. Is the 300million ivest - for both rian and lesbleu?

    It's to fund any of the potential growth strategies. Don't tie it specifically to just one particular project, especially the lesbleu proposal which costs practically (for a company this large) nothing. The 300m would be for a long term product development strategy of which the lesbleu proposal is the first small step.
    lala1987 wrote: »
    2. Are you recommending both/none or one?

    I'm recommending just the lesbleu proposal. Acquiring a plant in rural China with a management team about to leave is far too risky.
    lala1987 wrote: »
    3. Which finance u recommending?

    I still haven't decided on this yet. I'm leaning towards the low wacc debentures though. If we go with the debentures there's no dilution of existing shareholdings (keeping the shareholders happy is the point of the growth strategies) but there's a liquidity risk. This could result in being forced to lower dividends for safety.
    On the other hand, increasing the share count with options 2 and 3 will probably result in a greater liquidity risk if they try to preserve current dividend rates.


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    #295
    C2theLahambert
    Closed Accounts Posts: 6 ✭C2theLahambert


    lala1987 wrote: »
    Cool thank you!!! Can i ask few quick quest?

    1. Is the 300million ivest - for both rian and lesbleu?
    2. Are you recommending both/none or one?
    3. Which finance u recommending?

    I was of the opinion that none of the funds were for investment in Rian initially, only to implement growth strategy, is that not why we sourced the loan from our irish bankers????


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    #296
    sionnach
    Registered Users Posts: 2,543 ✭✭✭sionnach


    C2theLahambert wrote: »
    I was of the opinion that none of the funds were for investment in Rian initially, only to implement growth strategy, is that not why we sourced the loan from our irish bankers????

    Well we'd be paying approximately €75m cash to acquire Rian and we only have €8m cash/cash equivalents on hand so we have to use a big chunk of the ~€300m to buy Rian.


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    #297
    rums08
    Closed Accounts Posts: 49 ✭rums08


    Hi guys,
    I worked out the relevant costing and I am a bit unsure re Mat FG - The "Could have been used" seems past to me and hence the scrap Value of €5,000 looks to be more relevant.
    Also, I have not included the 400 x €40 hours since €16,000 will be incurred in another contract anyway if this project does not go ahead. Hence I am getting a €20,000 profit.

    Please let me know if this is correct!


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    #298
    sionnach
    Registered Users Posts: 2,543 ✭✭✭sionnach


    rums08 wrote: »
    Hi guys,
    I worked out the relevant costing and I am a bit unsure re Mat FG - The "Could have been used" seems past to me and hence the scrap Value of €5,000 looks to be more relevant.
    Also, I have not included the 400 x €40 hours since €16,000 will be incurred in another contract anyway if this project does not go ahead. Hence I am getting a €30,000 profit. Please let me know if this is correct!

    I'm thinking about dropping the €16,000 too, which would give me a €20,000 profit. Not sure where your extra 10,000 is coming from


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    #299
    C2theLahambert
    Closed Accounts Posts: 6 ✭C2theLahambert


    sionnach wrote: »
    Well we'd be paying approximately €75m cash to acquire Rian and we only have €8m cash/cash equivalents on hand so we have to use a big chunk of the ~€300m to buy Rian.

    Did she not source a seperate loan from the bank for this venture


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    #300
    ELLE163
    Closed Accounts Posts: 13 ✭ELLE163


    yep im going with 20000 profit too !!


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    #301
    ELLE163
    Closed Accounts Posts: 13 ✭ELLE163


    IS there a limit on the length of a report???


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