CAP 2 SFMA CAse Study 2016/2017

The J Stands for Jay

CERWAT wrote: »

Should we be calculating the WACC using the current figure for ordinary shares and the bank loan & then reassess the WACC taking into consideration the additional funding?

That's what I'm thinking.

CERWAT

McGaggs wrote: »

That's what I'm thinking.

Have you calculated the WACC using the current figures - when calculating the cost of equity did you use the dividend valuation model with growth and use the figures provided for the 5 years using the square root formula?

The J Stands for Jay

CERWAT wrote: »

Have you calculated the WACC using the current figures - when calculating the cost of equity did you use the dividend valuation model with growth and use the figures provided for the 5 years using the square root formula?

I'm worried about the different number of shares in issue. I'll give it a go now.

The J Stands for Jay

CERWAT wrote: »

Have you calculated the WACC using the current figures - when calculating the cost of equity did you use the dividend valuation model with growth and use the figures provided for the 5 years using the square root formula?

I'm getting growth of 10.05% which gives me a cost of equity of 15.81%. Anyone gettign similar?

CERWAT

Yes that is what I calculated too

The J Stands for Jay

Will that cost of equity be the same as the cost of equity when the new equity is issued? Or is this a case where we need more info?

CERWAT

McGaggs wrote: »

Will that cost of equity be the same as the cost of equity when the new equity is issued? Or is this a case where we need more info?

I am not too sure about the equity aspect of Paper 1 - perhaps we need more info. on the day?

Deeman1991

Yeah I got the same numbers, we more than likely will be given more info

fe1manuals

McGaggs wrote: »

I'm getting growth of 10.05% which gives me a cost of equity of 15.81%. Anyone gettign similar?

I got the same.

fe1manuals

McGaggs wrote: »

Will that cost of equity be the same as the cost of equity when the new equity is issued? Or is this a case where we need more info?

I was operating on the basis that the cost of equity will be the same. I suppose now that you say it, the cost of equity could go up / down based on the return expected by the sovereign wealth funds. I guess we will only know this on the day of the exam.

Aoife_

McGaggs wrote: »

I'm getting growth of 10.05% which gives me a cost of equity of 15.81%. Anyone gettign similar?

McGaggs did you get the 15.81% using the formula for Ke on Pg.449 of the book?
Mines only coming out at around 14%

The J Stands for Jay

Aoife_ wrote: »

McGaggs did you get the 15.81% using the formula for Ke on Pg.449 of the book?
Mines only coming out at around 14%

Yeah, the Ke formula. I threw it into excel as well as using my calculator just to be sure.

Growth was 10.05%
=((Dividend_16/Dividend_12)^(1/4))-1

Do €0.22
Po €4.20
g 10.05%

=((Do*(1+g)/Po))+g
= 15.81%

ronnie75

Tgt16 wrote: »

Just had a general read through:
Dividend policy narrative type question perhaps & calculate dividend growth over the last few years for the WACC?

BP1: WACC before and after additional funding. Risks associated with each of the proposals.

BP2: accept or reject sunglasses order? Relevant costing question.

BP3: Investment Appraisal: determine whether or not Omagh factory acquisition meets ANTs investment criterion to deliver after 2 years a positive pre-tax NPV at a discount rate of 10%.

Hi,
Did anyone else get 14.33% for the WACC before they look at the 2 financing options, they will look to lower this with either option

The J Stands for Jay

ronnie75 wrote: »

Hi,
Did anyone else get 14.33% for the WACC before they look at the 2 financing options, they will look to lower this with either option

That's what I got.

MOY0904

Is it true that the big four do up sample questions and answers that could be asked?

Fiskar

MOY0904 wrote: »

Is it true that the big four do up sample questions and answers that could be asked?

I have heard that the big 4 pull their students in and go through the case study and direct their students as to what to expect in the un-seen material. Possibly extends to what you are indicating.
Kind a leaves the distant student and non big 4 students at a big disadvantage. I have fed back through the ACA surveys my thoughts on their support of distance students. Suggest others do likewise.

ACAguy

This is a great help for the exam for someone like myself who hasnt done mgt accounting or finance in a couple of years. Has anyone gone to the ACA revisions course or is anyone going to the Chartered Grinds School one tomorrow?

ronnie75

Phew, thought I might have been calculating the value and cost of the existing long term loan incorrectly.

Do you think they will ask us to calculate the fixed costs for the sunglasses using the high low method because it gives the existing costs for 2 months and more information to follow suggesting the fixed costs will have to be worked out. We will then be able to calculate contribution for the sunglasses in that question using the variable costs. It doesn't say how long it will take to produce the order but will probably be in the additional information.

fe1manuals

ronnie75 wrote: »

Hi,
Did anyone else get 14.33% for the WACC before they look at the 2 financing options, they will look to lower this with either option

I got the same.

fe1manuals

Fiskar wrote: »

I have heard that the big 4 pull their students in and go through the case study and direct their students as to what to expect in the un-seen material. Possibly extends to what you are indicating.
Kind a leaves the distant student and non big 4 students at a big disadvantage. I have fed back through the ACA surveys my thoughts on their support of distance students. Suggest others do likewise.

I was of the same opinion and I fed this back in the surveys too but I haven't seen any change since last year.

fe1manuals

ACAguy wrote: »

This is a great help for the exam for someone like myself who hasnt done mgt accounting or finance in a couple of years. Has anyone gone to the ACA revisions course or is anyone going to the Chartered Grinds School one tomorrow?

I'm going to the CGS one tomorrow.

fe1manuals

ronnie75 wrote: »

Phew, thought I might have been calculating the value and cost of the existing long term loan incorrectly.

Do you think they will ask us to calculate the fixed costs for the sunglasses using the high low method because it gives the existing costs for 2 months and more information to follow suggesting the fixed costs will have to be worked out. We will then be able to calculate contribution for the sunglasses in that question using the variable costs. It doesn't say how long it will take to produce the order but will probably be in the additional information.

If this is a relevant costing question are fixed costs not irrelevant in that they are fixed and won't therefore change with the amount of sunglasses produced? So why would fixed costs need to be calculated? Sorry, maybe I'm mis-understanding your point.

ronnie75

fe1manuals wrote: »

If this is a relevant costing question are fixed costs not irrelevant in that they are fixed and won't therefore change with the amount of sunglasses produced? So why would fixed costs need to be calculated? Sorry, maybe I'm mis-understanding your point.

We will have to calculate the fixed costs and then take the fixed costs out of the monthly costs in order to get the variable costs when making the sunglasses

Tgt16

fe1manuals wrote: »

If this is a relevant costing question are fixed costs not irrelevant in that they are fixed and won't therefore change with the amount of sunglasses produced? So why would fixed costs need to be calculated? Sorry, maybe I'm mis-understanding your point.

Would this be used for the high low method by adding the total overhead costs for each month and working out the incremental cost which we can assume to be the increase in variable o/h? Then dividing by the increase in batches produced to find the variable o/h cost per batch?

The J Stands for Jay

Tgt16 wrote: »

Would this be used for the high low method by adding the total overhead costs for each month and working out the incremental cost which we can assume to be the increase in variable o/h? Then dividing by the increase in batches produced to find the variable o/h cost per batch?

Of the costs listed, rent and rates are fixed, maintenance id variable and electricity is semi-variable. You need to look at high-low for electricity to get the variable cost.

Tgt16

McGaggs wrote: »

Of the costs listed, rent and rates are fixed, maintenance id variable and electricity is semi-variable. You need to look at high-low for electricity to get the variable cost.

I'm not sure I understand. I got €650 variable o/h per batched produced i.e 1000 extra batches produced in October. The increase in costs would only be a variable element I presume? Even if electricity has a fixed portion , I don't think it's fixed cost will rise with regard to the number of batches produced? So therefore it's only the variable taken into consideration.

Catherine210

Hi Guys!

Just a quick question. I came through CAP 1 exempt so is there any point in me studying the CAP 2 notes so far? Or should I just use my college notes for finance and management accounting?

The J Stands for Jay

Tgt16 wrote: »

I'm not sure I understand. I got €650 variable o/h per batched produced i.e 1000 extra batches produced in October. The increase in costs would only be a variable element I presume? Even if electricity has a fixed portion , I don't think it's fixed cost will rise with regard to the number of batches produced? So therefore it's only the variable taken into consideration.

Rent - fixed - ignore
rates - fixed - ignore
maintenance - variable - 1000000 / 2000 = 500 per batch
electricity - semi variable - ignore the fixed portion. Variable cost = 150000 / 1000 = 150 per batch.

I just looked at the electricity figure on the high low method, whereas you used it on the total overheads. Your answer of 650 per batch total variable o/h is consistent with my 150 variable electricity.

tanit

In my opinion for the sunglasses contract the first offering is a relevant costs question as they have spare capacity so any fixed costs should be disregarded, but you should consider any opportunity costs (the screws already in stock can be sold) and compare everything to the subcontract costs.

But after that first contract if it's going to become a regular contract you need to consider all costs and you will have to contrast them with the subcontract costs and see if it's profitable to produce in-house or subcontract the whole thing. Then you would have to consider the usual qualitative issues of whether it's such a good idea to subcontract the quality of the subcontracted product, the reliability of the company used and their supplies to the American client, will the client have any issues with production being subcontracted?, etc.

Quick question this come up talking with a classmate we both agree that the 5 million spent in the Omagh factory are improvement to premises and as such they will never be released back in the investment. But some people she has been talking to say those 5 million are working capital investment and that after a some time that money will be released back and be income for the company. Are there more people around thinking it's working capital?

thefox1982

Hi all. I went through all the IA papers this morning and mapped them out to see how common each topic is and what papers it appears in. I hope this helps and you can open it. It is in PDF format.