CAP 2 SFMA CAse Study 2016/2017

fe1manuals · 08-01-2017 01:37PM

fe1manuals wrote: »

Thanks for this davindub. On the gearing ratio, €300,000,000 / €800,000,000 = .375 - should the market value of the equity be used such that the gearing ratio is .121 or 12.1%?

Deeman1991 - Re the ratios - how do you / people see them coming up? I can't see what kinda question we would get on them. Would welcome peoples thoughts.

Re gearing - Just to let ye know, at one of the revision courses I went to, we were told to use book value for gearing (so my earlier comment re using market value may be wrong, but see paragraph below). Was also told the gearing formula was simply: Debt / Equity, so for ANT the current gearing would be €300,000,000 / €570,000,000 = 52.6%.

Against that, page 479 of the Finance textbook uses the formula: Debt / (Debt + Equity) and Example 14.1 on page 479 uses the market value of equity.

Sorry this doesn't exact clarify the position - just wanted to make people aware of the different 'approaches'.

Cinnym · 08-01-2017 02:55PM

Hi there. I have been working out the various workings for board paper 1&2. I'm at a loss as to board paper 3. Does anyone have any tips as to where to begin on that paper. Any suggestions greatly appreciated

thefox1982 · 08-01-2017 03:00PM

[/TABLE]

McGaggs wrote: »

That's what I got.

I am getting 15.33%
I have the cost of equity as 15.81% (same as calculated on here)

Cost of debt using untraded debt formula:-
Kdt = i(1 - t)
= 0.05(1-0.2)
= 4%

WACC
Source of funds | Total MV(€m) | Weight | Cost of Source| Weighted Cost
Ordinary Shares | 2,100 | 87.5% | 15.81% | 13.83%
5% Term Loan | 300 | 12.5% | 4.00% | 1.50%
Total WACC = 15.33%

Please can someone help me with where I have gone wrong

Cinnym · 08-01-2017 03:07PM

thefox1982 wrote: »

[/TABLE]

I am getting 15.33%
I have the cost of equity as 15.81% (same as calculated on here)

Cost of debt using untraded debt formula:-
Kdt = i(1 - t)
= 0.05(1-0.2)
= 4%

WACC
Source of funds | Total MV(€m) | Weight | Cost of Source| Weighted Cost
Ordinary Shares | 2,100 | 87.5% | 15.81% | 13.83%
5% Term Loan | 300 | 12.5% | 4.00% | 1.50%
Total WACC = 15.33%

Please can someone help me with where I have gone wrong

Hiya I think u just calculated the term loan wrong. For Equity I got 13.83% (87.5%*.1581)
For the loan is got (12.5%*.04)= .5%

13.83%+.5% = 14.33%

If I'm wrong correct me

thefox1982 · 08-01-2017 03:15PM

Cinnym wrote: »

Hiya I think u just calculated the term loan wrong. For Equity I got 13.83% (87.5%*.1581)
For the loan is got (12.5%*.04)= .5%

13.83%+.5% = 14.33%

If I'm wrong correct me

Thanks for that! Always the little calc that I tend to ignore when I am not getting the right answer.

In terms of the board paper 3, this is obvious that it will be a calculation to determine if it meets the investment criteria mentioned earlier in the case study. What I plan to do here is set out a template that I can use, fill in as much as I can and then complete the rest on the day. Also going to look at different ways to value a company, the various ways a company can block an acquisition and the advantages and risks of acquisitions

Cinnym · 08-01-2017 03:19PM

thefox1982 wrote: »

Thanks for that! Always the little calc that I tend to ignore when I am not getting the right answer.

In terms of the board paper 3, this is obvious that it will be a calculation to determine if it meets the investment criteria mentioned earlier in the case study. What I plan to do here is set out a template that I can use, fill in as much as I can and then complete the rest on the day. Also going to look at different ways to value a company, the various ways a company can block an acquisition and the advantages and risks of acquisitions

Thanks a mill. My head was fried trying to figure it out after the other 2

The J Stands for Jay · 08-01-2017 03:39PM

thefox1982 wrote: »

[/TABLE]

I am getting 15.33%
I have the cost of equity as 15.81% (same as calculated on here)

Cost of debt using untraded debt formula:-
Kdt = i(1 - t)
= 0.05(1-0.2)
= 4%

WACC
Source of funds | Total MV(€m) | Weight | Cost of Source| Weighted Cost
Ordinary Shares | 2,100 | 87.5% | 15.81% | 13.83%
5% Term Loan | 300 | 12.5% | 4.00% | 1.50%
Total WACC = 15.33%

Please can someone help me with where I have gone wrong

12.5% x 4% = 0.5%

Tgt16 · 08-01-2017 05:55PM

Catherine210 wrote: »

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 cap two notes so far would be useful and a mix of your undergrad. I guess just study what is relevant to the paper

thefox1982 · 09-01-2017 03:14PM

McGaggs wrote: »

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.

As the case study says that 80% of the order will be carried out by Arklow plant and 20% will be sub-contracted, when we are working out the costings (i am doing up a template at the moment), we should only cost for 800 batches? Am I right in saying that as the remaining batches will be sub-contracted out

The J Stands for Jay · 09-01-2017 04:16PM

thefox1982 wrote: »

As the case study says that 80% of the order will be carried out by Arklow plant and 20% will be sub-contracted, when we are working out the costings (i am doing up a template at the moment), we should only cost for 800 batches? Am I right in saying that as the remaining batches will be sub-contracted out

I don't have any if the details here in front of me, but I was only looking at the 80%; I think it was 800 batches. We'll be given prices for the subcontracting work on the day.

thefox1982 · 10-01-2017 03:30PM

Attachment not found.These are the notes that I have done up for the case study on what I believe will come up and some of my calculations/templates.

May as well put them up here so people can use if they want. Whats the point in keeping these to myself!

UPDATED THE ATTACHMENT WITH TrisHolmes comments

TrisHolmes · 10-01-2017 05:20PM

Thanks thefox1982!

I have a few of my own workings done now and just had a quick glance at yours to see if we are coming up with the same answers.

I just had a quick look at board paper 2. For the opportunity cost (loss of sale) of the screws I have the full 75,000 as they already bought the 3,000,000 screws previously which would be a sunk cost and therefore shouldn't be included.

I think this is right but correct me if I am wrong

thefox1982 · 10-01-2017 05:50PM

TrisHolmes wrote: »

Thanks thefox1982! I have a few of my own workings done now and just had a quick glance at yours to see if we are coming up with the same answers.

I just had a quick look at board paper 2. For the opportunity cost (loss of sale) of the screws I have the full 75,000 as they already bought the 3,000,000 screws previously which would be a sunk cost and therefore shouldn't be included.

I think this is right but correct me if I am wrong

Hi TrisHolmes. Yes you are right. The original cost of the screws (45,000) would be considered as sunk costs and the resale value (75,000) would be consider the relevant costs and should therefore be included. There is a good question in CAP 1 MA Session 12 question 5 which shows this (the red ink)

Thanks for pointing that out. I have amended it and replaced the attachment with the newer version

The J Stands for Jay · 10-01-2017 08:05PM

thefox1982 wrote: »

Attachment not found.These are the notes that I have done up for the case study on what I believe will come up and some of my calculations/templates.

May as well put them up here so people can use if they want. Whats the point in keeping these to myself!

UPDATED THE ATTACHMENT WITH TrisHolmes comments

Thanks for this. I'm blown away by the amount of work that's gone into this. Thanks for sharing. Very happy to see my own scribblings on a spreadsheet are matching your numbers so far.

The J Stands for Jay · 10-01-2017 09:16PM

I can add very little to The Foxes notes, but here's some of my own additonal thoughts anyway:

The Tuam plant makes shoes, so the workforce may not be any use in making sunglasses
Non-negotiable price from the customer. Dangerous with political instability and the effects of fx. Both for the US order and the Omagh purchase.
There may be a question on the buy vs manufacture option based on the outsourcing cost
I don't think variances will come up based on what's been given so far

davindub · 10-01-2017 09:22PM

McGaggs wrote: »

I can add very little to The Foxes notes, but here's some of my own additonal thoughts anyway:

The Tuam plant makes shoes, so the workforce may not be any use in making sunglasses

Non-negotiable price from the customer. Dangerous with political instability and the effects of fx. Both for the US order and the Omagh purchase.

There may be a question on the buy vs manufacture option based on the outsourcing cost

I don't think variances will come up based on what's been given so far

The guy at the lecture talked about transfer pricing a lot, I prepared something just in case.

eimeark700 · 11-01-2017 07:18PM

Hello could anyone explain how to calculate the cost of equity please?

thefox1982 · 12-01-2017 08:33AM

McGaggs wrote: »

I can add very little to The Foxes notes, but here's some of my own additonal thoughts anyway:

The Tuam plant makes shoes, so the workforce may not be any use in making sunglasses

Non-negotiable price from the customer. Dangerous with political instability and the effects of fx. Both for the US order and the Omagh purchase.

There may be a question on the buy vs manufacture option based on the outsourcing cost

I don't think variances will come up based on what's been given so far

Thanks McGaggs for that, a few more things to think about. You are right about the variances, I don't see them come up in under board paper two, but possibly under board paper three. They have come up a good few times over the last few years, so just threw them in just in case.

In relation to the normal loss of 20% in the Omagh factory, what are your thoughts on this? Are the cost of these less any scrap value, absorbed by the remaining 80%?

thefox1982 · 12-01-2017 08:35AM

davindub wrote: »

The guy at the lecture talked about transfer pricing a lot, I prepared something just in case.

Thanks davindub, I will print that off and bring with me on the day. However, I do not see where this can come up. I know that the guy went into it in detail on the night, but he was going through the last IA paper which dealt with transfer pricing.

On a side note, he was a sound lecture!

thefox1982 · 12-01-2017 08:40AM

eimeark700 wrote: »

Hello could anyone explain how to calculate the cost of equity please?

Hi eimeark700,

it is a bit hard to type it up on this as the format comes up ****e. If you look at page 4 of my notes in the attachment below, it shows how to calculate it. If you have any problems, give me a shout either on this or by PM.

Deeman1991 · 12-01-2017 10:55AM

http://www.charteredgrindschool.com/index.php?mact=News,cntnt01,detail,0&cntnt01articleid=27&cntnt01returnid=15

Heres the link for Chartered Grind School notes, the lecturer has a template of all potential calcs and has highlighted areas where information will change

The J Stands for Jay · 12-01-2017 05:12PM

thefox1982 wrote: »

Thanks McGaggs for that, a few more things to think about. You are right about the variances, I don't see them come up in under board paper two, but possibly under board paper three. They have come up a good few times over the last few years, so just threw them in just in case.

In relation to the normal loss of 20% in the Omagh factory, what are your thoughts on this? Are the cost of these less any scrap value, absorbed by the remaining 80%?

I took it that their cost was absorbed into the cost of the 80%. I didn't see anything else mentioning the 20%.

Crazednuttyboy · 13-01-2017 12:39PM

I only knew there was this thread for SFMA IA yesterday. Thank you thefox1982, fantastic notes by the way. I had a look, and I want to ask something about BP2. In your notes P9, i see you have included all fixed cost of Arklow, which I think it is irrelevant. The only part that should form part of the calculation should be just variable cost in my opinion, as the fixed cost would incur regardless. What are your thoughts on this?

thefox1982 · 13-01-2017 12:43PM

Crazednuttyboy wrote: »

I only knew there was this thread for SFMA IA yesterday. Thank you thefox1982, fantastic notes by the way. I had a look, and I want to ask something about BP2. In your notes P9, i see you have included all fixed cost of Arklow, which I think it is irrelevant. The only part that should form part of the calculation should be just variable cost in my opinion, as the fixed cost would incur regardless. What are your thoughts on this?

Hi! Yeah you are absolutely correct, I realised this yesterday and have amended my notes!

davindub · 13-01-2017 08:26PM

Anyone else doing Discounted CF on board paper 3?

Have a loss on the figures given, SP * (3m*.8) - VC of 5.70 * 3m

The J Stands for Jay · 13-01-2017 08:35PM

davindub wrote: »

Anyone else doing Discounted CF on board paper 3?

Have a loss on the figures given, SP * (3m*.8) - VC of 5.70 * 3m

It'll be at a discount rate of 10% IIRC, but without details of the improvements, it's not possible to say. The current setup is making a loss though

thefox1982 · 13-01-2017 08:36PM

davindub wrote: »

Anyone else doing Discounted CF on board paper 3?

Have a loss on the figures given, SP * (3m*.8) - VC of 5.70 * 3m

Hi davindub,

I don't think it will work out at a loss. We are to assume the production amount with increase and the loss level to decrease. Also I think the sales price will be increasing as the quality will be increasing.

davindub · 13-01-2017 08:47PM

thefox1982 wrote: »

Hi davindub,

I don't think it will work out at a loss. We are to assume the production amount with increase and the loss level to decrease. Also I think the sales price will be increasing as the quality will be increasing.

Thanks, that makes sense.

The J Stands for Jay · 14-01-2017 12:40PM

Many thanks to thefox1982 for doing such a great job on the notes, and for sharing them.

I'm going to guess from your username that, like me, you won't be at the Everleigh to be bought all those pints you deserve (don't think it's a thirty-something crowd in there).

Fiskar · 14-01-2017 05:43PM

Yes, Mr or Mrs Fox, thanks very much, used your tabular format for the WAAC. Went well enough but time pressure versus presentation was my issue, as well as forgetting a bloody ruler and tippex!

CAP 2 SFMA CAse Study 2016/2017

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