CAP2 SFMA Assessment January 2012 - Details needed

MindGuru

Question 2 Solution to put you out of your misery (or mine if I stand corrected)

(A)
To break the question down, you were told that the project had a life of 2 years and it should pay itself back in 2 years to be accepted i.e rewording this, it must give a positive NPV, as it only has a life of 2 years anyway

(B)
From your preprepared workings you would of worked out the total DISCOUNTED cashflow without the lease payments,
Lets call that figure 1,710,127 (yours may be different)
(-140,000*1 + 1,049,500*0.893+1,145,450*0.797)(i.e. the NPV over 2 years without lease payments)


(C)
The max lease payments they'll accept is the amount that sets that the NPV back to Zero.
Any higher and it'll be rejected for not meeting the 2 years discount payback, Now there are 2 equal lease payments (assume they fall in YR0 (start of year 2012) and YR1 (at the start of the year 2013/end of 2012)

(D)
So all you had to do for 35 marks in the exam was this (not including copying out your preprepared work:

Let lease payments = X

So
(X + X*discount factor) - total discounted cashflow without lease payment=0
(X + X*0.893) - 1710127 = 0
1.893X=1710127
X=903,395
Maximum lease payment acceptable is 903,395 per year (assuming only 2 lease payments are made at the start of each year).

YOUR ANSWER MAY DIFFER DEPENDING IF YOU
(A) USED BUDGETED OR ACTUAL FIGURES FOR 2011 TO CALCULATE 2012 AND 2013 SALES
(B) ASSUMED CASHFLOW OCCURRED AT YEAR ENDS (YR1 AND YR2) OR THERE WERE 3 LEASE PAYMENTS

Proof (not needed in exam)
.......................YR0....................YR1..................YR2
Lease............(903,395)......... (903,395).............

---

Cashflow........(140,000)..........1,049,500.............1145450
Net cashflow...(1,043,395)........146,105...............1145450
DF.......................1..................0.893..................0.797
DCF................(1,043,395).........130,472.............912,924
NPV = 0
Payback period= 2 years

dtmckeown

Excellent, this is what I got too. I know a lot of people have put lease payments at year 1 and year 2 though.

Is this just your workings, or is it from someone in the know? Any breakdown of the Q1 reconciliation?

MindGuru

Question 1 Solution
For space considerations and cos I'm lazy, I'll only show working where variances occur

Budget
Budget Sales...16,800,000.....(1.40*12,000,000)
Budget Costs...8,400,000.......(0.7*12,000,000)
Budget Profit....8,400,000

Sales Price Variance..............0
Sales Quantity Variance........700,000F.......(13,000,000-12,000,000)*0.7

Bread Price & Quantity..........0

Filler Price..........................0
Filler Quanity...........1,950,000A........(19,500,000oz-13,000,000oz)*0.3

Labour Cost.......................0
Labour Efficiency..............(260,000)F..(11,700,000min-13,000,000min)*0.2 Note:195,000hrs*60=11,700,000 minutes

Fixed Overhead..........110,000A......(0.065*13,000,000)-955,000
note:Doing this is technically wrong as fixed cost should be fixed regardless of output but you need to do this to get the reconciliation

Actual Profit: 7,300,000
Filler Var:......1,950,000A
Labour Var:....(260,000)F
Fixed cost:....110,000A
Sales:...........(700,000)F
Budget Profit..8,400,000
You may fall down here by adding the favourable variances to the actual profit, you actually subtract

For the theory put down any reasonable things and you get you marks. However, although you won't get extra marks for it, you should of connected the labour favourable variance to the adverse filler variance


NOTE: Q1 AND Q.2 ARE MY EXAM ANSWERS AND WORKINGS (ALTHOUGH Q.1 I'VE NOT SHOWN ALL WORKINGS)

UPC123

Hi All,

Does anyone know when the results are out for this assessment. Thanks.

Padkir

UPC123 wrote: »

Hi All,

Does anyone know when the results are out for this assessment. Thanks.

I emailed the institute the other day and they reckoned approximately 6 weeks from the date of assessment, and you'll be let know an exact date about a week from it!

Tricky1979

Hi - can you resit this continuous assessment exam before the Summer exam if you are not happy with your result? Thanks

gh001

Hey everyone,

Have people attempted the assignment to have in for tomorrow. Is there a lot in it?
I have approached it but I am very confused!

For the fixed xosts calculation do you increase the FC by 2.3% but then keep the depreciation at set cost every year???

ted2767

You never ever put depreciation in an NPV calaulation

It's not a cash flow and you would loose a load of marks by putting it in there.

Tricky1979

Stuck on part B - is there any similar question anywhere to use as a guide? Ta

ted2767

As far as I can make out all you do is an IRR this will give you effectively the breakeven of the project in discounted cashflow terms.
Your answer therefore is IRR less WACC

gh001

thanks guys,
Ok so do I increase the €460k by 2.3% and then minus the €250k depreciation and include the balance in the NPV calculation?

ted2767

gh001 wrote: »

thanks guys,
Ok so do I increase the €460k by 2.3% and then minus the €250k depreciation and include the balance in the NPV calculation?

No you take away the depreciation and the centrally allocated overheads first whats left is incremental fixed costs.
These are then increased by 2.3% per year

aca student

Does anyone know what the average was for the assessment?

dtmckeown

66/100=9.9/15

EDudder

Is that the average, or what you got? And if the average, where'd you find this out?

I got 8.9. Actually really really happy with that considering how it went.

dtmckeown

That's the average - I emailed the exam department.

myshirt

I got 10 on the button.

Sentiment shared in that I am happy considering how it went. Variance Q was a complete and utter disaster. The comment was "Incorrect calculations and insufficent recommendations"

Look, as long as we have half the marks we're not goosed. Of course it would be nice to have a leg up... but no word of a lie I was expecting 5 or 6.

How is prep going for the audit assessment? I don't work in audit at all.. a lot of material.

acc12345

gobsmacked i got 10.5 which was 70% in that sfma. I was expecting somewhere between 40-50..

those that work in audit have a huge advantage for this next exam I think

EDudder

I was hoping that would be the case. And to be honest it's caused me to do very little on audit so far. That and the fact I simply haven't had any time with work.

But Audit has quite a high failure rate doesn't it? And when you consider most of the people doing these exams are working in audit....maybe I should be a bit more worried

Noni Goggins

Working in audit isn't a big advantage at all. The majority of auditors work in Funds / Financial Services in the Big 4 and they don't deal with testing stock, debtors etc.

All you need for the audit exam is a logical mind and to make sure you follow the style of answers from previous papers. The examiners make it very obvious the type of answers they want.

I actually think pure 'audit knowledge' is overrated. Put on your audit hat and give them what they want based on previous exam reports / solutions etc.

Trend Setter in Training

Contact the Institute and let them know the circumstances would be your best bet.

This is the 2012 thread tho so guessing you missed the exam by now...

tom06

I'm just wondering how everyone is getting on for CAP 2 study. Getting really nervous, especially about SFMA. useful as the Hedging and the whole Risk Management section. Feeling a bit screwed with all of them!