CAP 2 SFMA ASSESSMENT 2010

wannabe_auditor · 18-12-2009 1:01am #1

well guys let the fun begin! please use this space to share any ideas you may have on this years assessment. Get any help you can from managers and buddies and maybe even your own grey matter, I know the intake in my firm are planning to meet on Monday and bash out some ideas, I'll post those here.
good luck!

Coldplayer · 22-12-2009 3:10am

Yeah cheers for setting this up, they did it last year and it worked well. I'll post ideas up as i get them

Buddy the Elf · 22-12-2009 3:48pm

Hoping this service will be of good value to everyone, could be a great asset in preparing for the assessment.
Few brainstorming ideas here on topics i think are likely to come up and would be beneficial to have prepared, let me know if you are thinking on the same lines or if theres anything i may have missed out

WACC
Ratio Analysis - not sure as theres only one years p&l and b/s
Acquisitions/Mergers
Due Diligence
Foreign Currency Transactions
Variance Analysis
Decision Making - product development proposal
Dividend Policy
Sources of Finance
Stock Market

I also think theres a chance it could be required in report format recommending whether to choose geographic market development or product development

Coldplayer · 22-12-2009 4:01pm

Yeah i was thinking along those lines too.

I so think ratio analysis will be required even if there is only one set of financials to work with.

Dividend Policy would appear to be a stand out aswell.

The product development section reminds me an awful lot of the questions in the pack on Decision making in CAP1 Mgmt.

eoin99 · 22-12-2009 10:47pm

Buddy the Elf wrote: »

Hoping this service will be of good value to everyone, could be a great asset in preparing for the assessment.
Few brainstorming ideas here on topics i think are likely to come up and would be beneficial to have prepared, let me know if you are thinking on the same lines or if theres anything i may have missed out

WACC
Ratio Analysis - not sure as theres only one years p&l and b/s
Acquisitions/Mergers
Due Diligence
Foreign Currency Transactions
Variance Analysis
Decision Making - product development proposal
Dividend Policy
Sources of Finance
Stock Market

I also think theres a chance it could be required in report format recommending whether to choose geographic market development or product development

Had a read through the assignment and this seems like a good list, pretty much all the major points I had picked out too.

It might also be worth preparing Company Valuations & the different methods used - Asset based, div based etc...probably the only thing I noticed that isn't on your list.

Not too sure on the ratio analysis, as there is only one years figures. Last years assessment required a detailed ratio analysis, but there was 2 years figures provided & some benchmarks to compare results with. No harm having it prepared anyway though.

Newaglish · 22-12-2009 11:35pm

If someone could upload a copy of the assignment and the date it's going to be sat on, a few of us here could probably lend a hand!

eoin99 · 22-12-2009 11:59pm

Newaglish wrote: »

If someone could upload a copy of the assignment and the date it's going to be sat on, a few of us here could probably lend a hand!

Here ya go!

MAX72 · 23-12-2009 2:59pm

Hi Guys,

A lot of the stuff you have listed looks good. I am working in industry so I do not have any other students to work with.

Are there any groups working together in Kildare or near Dublin?

I have done some workings on the WACC and the decision to make the product. i would like to have some one look over these.

If anyone needs another person in their group, let me know.

Coldplayer · 23-12-2009 3:40pm

I'm the same as yourself so if you want to pm me your email address we could cross check each others workings?

Coldplayer · 23-12-2009 3:47pm

or even just throw them up here and let everyone check them.

Anyone got last years finance notes for CAP1?

rums08 · 23-12-2009 4:49pm

Hi all,
I am new to the forum and would like to know if there are any group studies re SFMA assessment...so that I can cross check my workings with some of you...
Any help would be deely appreciated.

Thanks

wannabe_auditor · 23-12-2009 6:17pm

Hey guys glad to see the ball is rolling, the list above is quite comprehensive, areas that I think call for the most interest are:

Investment appraisal - theres 2 potential projects China and France.
The Chinnesse investment has a lot of non financial info in it and perhaps this is where risk management and strategic thinking come into play (Eg: have a month to decide whether to acquire Rain Inc and also the fx risks:..Translation,Transaction,Economic )
The French investment is quite a number cruncher, I haven't done management accounting in two years so I aint sure what there are going for here. Are we to just reassess that report with costs that will actually be incurred if the inv goes ahead?

COC & WACC: I think its def going to be a question, perhaps what is the current WACC under the exsisting capital structure and what will change to under the three options

Anyways that all for now, keep the ideas coming in, hope you all have a nice Christmas!

wannabe_auditor · 23-12-2009 6:23pm

Buddy the Elf wrote: »

I also think theres a chance it could be required in report format recommending whether to choose geographic market development or product development

Isn't the French option only a €300,000 investment compared to the €300,000,000 there going to try and raise. I think their going to do both and that one assess strat and non financial aspects and the other is going to be a number cruncher

Archer26 · 27-12-2009 5:04pm

Hey All,

Glad to have somewhere to bounce ideas around, has anyone started working on the WACC calculation??

I got a WACC of 15.62%, can anyone confirm if they think I'm anywhere close to correct?? I got stuck a fair few times!

Thanks!

wannabe_auditor · 28-12-2009 2:00am

hey all jus finished the wacc, i got a figure of 14.51%

my costs of capital where as follows:
ordinary share capital:18.7%
pref shares: 5%
Irredeemable Debentures: 1.6%
Redeemable Debentures: 9.87%

not entirely sure if mine is correct esp on the pref shares and the Irredeemable D's. let me know what you all think

SFMA · 28-12-2009 5:36pm

I got 15.8% as my WACC

Ke=18.7%
Kp= 5% (wasn't too sure to put in market value ex/cum div for the preference shares but thought it made more sense to put in ex-div)
K(irr deb)= 7.2%
K(red deb)= 11.79%

I've also done the relevant costing for the special order (Lesbleu) as the workings were wrong and have accepted the order for the teeth whitening equipment, they have used historical prices and haven't included opportunity costs/gains in their calculations to come to the expected loss on the project. Wasn't too sure about the unskilled labour though as the question says "labour will be removed from another contract, which cannot otherwise be delayed" the wording isn't great, and if it has to be stopped do we not need the contribution foregone on the stopped project for our calculations? I reckon there will be a non-financial consideration question for that part too.

flashtash · 28-12-2009 5:54pm

I got 12.52% for WACC

Ord. Shares: 16.14% (did you guys use 4 or 5 periods to calculate the dividend growth?)

Pref Shares: 5%
Irred Debentures: 8%
Redeem Debentures: 11.95%

It was last may since I did one of these so I may be a bit rusty

Masjanja · 28-12-2009 6:05pm

Hey! Did anyone got the profit for relevant costing bit? Also, kind of confused with the first Material CX , is it the 10,000 selling price, or it is an actual cost those guys will have to pay to scrap the material?

wannabe_auditor · 28-12-2009 6:47pm

seems like my Irredeemable rate of 1.6 was too good to be true! I was putting 8% in for i, as opposed to using the 40 (value of 8%)

are we too use the value cum interest or ex interest
thats what makes them 7.2% (Cum Interest) and 8% (Ex Interest)

I would be of the opinion that the calculation should be based on the current market price less the interest due to be paid (i.e the 400)

Coldplayer · 28-12-2009 6:52pm

Hey guys i was exempt from finance last year, for this assessment are you all using the formula from the Anne Marie Ward Text???

SFMA · 28-12-2009 7:57pm

I'm pretty sure that the irredeemable debt calculations are to be all ex interest making it 8%!

Masjanja · 28-12-2009 8:10pm

I've also done the relevant costing for the special order (Lesbleu) as the workings were wrong and have accepted the order for the teeth whitening equipment, they have used historical prices and haven't included opportunity costs/gains in their calculations to come to the expected loss on the project. Wasn't too sure about the unskilled labour though as the question says "labour will be removed from another contract, which cannot otherwise be delayed" the wording isn't great, and if it has to be stopped do we not need the contribution foregone on the stopped project for our calculations? I reckon there will be a non-financial consideration question for that part too.

[/QUOTE]
Please, would you mind telling me how did u interpret the first note on materials, is 10, 000 is a cost for F Plc or it is income from disposal of materials. By the way, consideration for labour hours is given in the question 150 per lab. hr

SFMA · 28-12-2009 8:14pm

The cost materials of CX is an opportunity gain which is a positive figure in your calculations, they are saving money by not having to pay the costs of disposal.. No that €150 is the contribution for this contract we need the contribution foregone..

flashtash · 28-12-2009 8:30pm

SFMA wrote: »

I'm pretty sure that the irredeemable debt calculations are to be all ex interest making it 8%!

thats what I did too. here are my calcs (briefly!)

Ke=(0.25(1+.1199)/4.20)+0.1199
= 18.65%

Kp=0.3/6
=5%

Kd=8(1-.2)/80
=8%

Redeem Deb:
NPV5% NPV10%
IRR Y0 97 97
Y1+2 (13-2.6) 1.859 (19.33) 1.736 (18.05)
Y2 (100) 0.907 (90.7) 0.826 (82.6)

Totals: -13.03 -3.65

IRR= 0.05 + (-13.03(0.05))/(-13.03+3.65)
=11.95%

WACC MV % Cost Total
Issued 1000mill 52% 18.65% 9.698
Pref 200 mill 10% 5% 0.5
Irred 440 mill 23 8% 1.84
Redeem 290 mill 15 11.95 % 1.79

WACC=13.828

Anyone else agree/disagree?

flashtash · 28-12-2009 8:31pm

sorry,tried to edit this so it would make sense, but you might ba able to make out what im getting at

Masjanja · 28-12-2009 8:32pm

SFMA wrote: »

The cost materials of CX is an opportunity gain which is a positive figure in your calculations, they are saving money by not having to pay the costs of disposal.. No that €150 is the contribution for this contract we need the contribution foregone..

Cheers:)

jhn_noln · 28-12-2009 8:37pm

i may be a it rusty at this kind of craic but flashtash shouldn't you use the market value for you equities aswell instead of book value?

Masjanja · 28-12-2009 9:52pm

What is wrong with these guys, the wording is pretty vague overall. Why there is no indication of whether labor used for French project is full time employees, anyway does anyone have an idea whether to treat labor costs as incremental or committed?

Masjanja · 28-12-2009 11:17pm

Hey, dont know if anyone at this point yet, so if I treat both skilled and unskilled labor costs including foregone contribution as incremental, I again arrive at loss of 28,000, which I dont think make sense for the purpose of the question. If I take labor costs as committed, i.e they had been guaranteed salary anyways, then i break-even. So anyone else got any suggestions? Please let know!

flashtash · 28-12-2009 11:59pm

jhn_noln wrote: »

i may be a it rusty at this kind of craic but flashtash shouldn't you use the market value for you equities aswell instead of book value?

to be honest, i'm not sure. I have to do a bit of research on last years notes still, so apologies for any errors.

Rickyroma · 29-12-2009 1:10am

Coldplayer wrote: »

Hey guys i was exempt from finance last year, for this assessment are you all using the formula from the Anne Marie Ward Text???

Yep - we were told that while different texts will use different definitions (esp. re ratios) we should always look on Ward as definitive.

Masjanja · 29-12-2009 1:27am

Ke = 18.45%
Pref.Shares = 5%
Kd = 8%
Redeemable = 12.46%
WACC = 15.44%

Guys dont foreget to apply tax at all times!

Coldplayer · 29-12-2009 10:28am

Rickyroma wrote: »

Yep - we were told that while different texts will use different definitions (esp. re ratios) we should always look on Ward as definitive.

Cheers Rick

tywy · 29-12-2009 11:51am

Just thinking about the suggestion of getting a question on variance analysis...

We don't really have enough information to complete a question on this. For this we need the actual cost and the standard cost in order to compare. We don't have a budget for the French project just some financial analysis.

I think if we're asked a management accounting question on the French project, it will be on relevant costing... or am I missing something here?

John_P_C · 29-12-2009 2:56pm

I agree, do not see where Variance analysis fits in. If you look at page 33 on the management accounting CAP 1 toolkit there is a costing question very similar to the one in the assignemnt. The solution is on page 125.

I worked out the costing part to get a loss of €36,000. Anyone agree?

For the acquisition and currency risk part, would anyone have any ideas on what calculation questions they could ask here?

For the WACC mine worked out to be 15.34%. Did anyone work out the effect of the 3 possible sources of finance? i.e. replacing the redeemable debentures, issuing 70m ordinary shares and the rights issue

tywy · 29-12-2009 3:23pm

i got a profit of €5000. Don't forget anything that's reapportioned isn't a relevant cost i.e. anything that would have to be paid whether the project went ahead or not. Like the estimation costs have to be paid whether the project goes ahead or not so I didn't include them as a relevant cost...

John_P_C · 29-12-2009 3:59pm

Below is what I got, any of yours different?

Material CX = 10,000
Material FG = 25,000 Replacement cost
Material NF = 170,000 Replacement cost
Skilled Labout = 0 As it is idle if project does not go ahead
Unskilled Labour = 76,000 400*40 + 400*150
Variable O/H's 12,000 Relevant as they are incremental
Fixed OH's = 18,000 stepped cost
Estimation costs = 0 Sunk cost
Engineering fees = 25,000
Head Office = 0

tywy · 29-12-2009 4:13pm

That should be -10,000 for material CX because they're saving the cost of disposal if the project goes ahead...

For material FG, that should be €20,000 replacement cost because they will get a scrap value of €1 per kg if the project goes ahead... so the replacement cost is €4 per kg.

For the unskilled labour... the contribution per hour is worked out using the hourly rate so you just used the contribution to calculate it... So it should be €60,000.

John_P_C · 29-12-2009 4:38pm

For the Unskilled labour you also have to take into account the cost of it to this project i.e. 400 hours at €40 an hour. = €16,000

The contribution forgone from taking the labour away from the the other contract is €60,000 like you said.

Total cost is the €60,000 + €16,000 therefore €76,000. That's the way I did it!

tywy · 29-12-2009 4:43pm

Oh yeah, that makes sense, then I still end up making a loss

John_P_C · 29-12-2009 4:47pm

lol! ye me too! Some xmas this is!

For the WACC part of the question; I was wondering will they ask us the impact of the three financing options on the company's share price and gearing etc. Not sure will it be a straight forward WACC question?

wannabe_auditor · 29-12-2009 5:01pm

Masjanja wrote: »

Ke = 18.45%
Pref.Shares = 5%
Kd = 8%
Redeemable = 12.46%
WACC = 15.44%

Guys dont foreget to apply tax at all times!

how are u applying the tax do get this figure? i'm getting the 11.95%

flashtash · 29-12-2009 5:43pm

John_P_C wrote: »

lol! ye me too! Some xmas this is!

For the WACC part of the question; I was wondering will they ask us the impact of the three financing options on the company's share price and gearing etc. Not sure will it be a straight forward WACC question?

Yeah, that's what I thought too. Can't imagine it will be straight forward. But in saying that, they did promise no suprises. (I take no responsibilty if that is not the case!)

My WACC is only 13.82%, with Ke=18.6%; Kp=5%;Irred=8%; Redeem=12.6%. what MV's are you guys using?

Coldplayer · 29-12-2009 11:12pm

Guys for the second point on Material FG

Is it not just the scrap value that we use. If you look at the wording it says "could have been used" not "could be used" as a replacement material for another contract.

The opportunity to plug it in at €5 per kg is gone surely?/

Coldplayer · 29-12-2009 11:30pm

Material CX (4000 Kg) -10,000.00
Materials FG (5000 Kg) 5,000.00
Materials NF (10000 Kg) 170,000.00
Skilled Labour (200 Hours) -
Unskilled Labour 76,000.00
Variable Overheads 8,000.00
Fixed Overheads 18,000.00
Contract estimation -
Engineers Fees 25,000.00
Headquarter Costs -
Total Projected Cost 292,000.00
Income Proposed 300,000.00
Expected (Loss)/Gain 8,000.00

Thats what i got,

Headquarters cost is already incurred

MAX72 · 30-12-2009 11:20am

I got the following for the WACC

Oridnary Shares 18.67%
Pref Shares 5%
Irredeemable Debs 8%
Redeemable Debs 13.78%

Overall WACC 15.72%

The costings of the new machine

Point 1 -10000
Point 2 25000
Point 3 170000
Point 4 0
Point 5 60000
Point 6 8000
Point 7 18000
Point 8 0
Point 9 25000
Point 10 0

Overall cost 296000

Would appreciate your comments

MAX72 · 30-12-2009 11:38am

flashtash wrote: »

thats what I did too. here are my calcs (briefly!)

Ke=(0.25(1+.1199)/4.20)+0.1199
= 18.65%

Kp=0.3/6
=5%

Kd=8(1-.2)/80
=8%

Redeem Deb:
NPV5% NPV10%
IRR Y0 97 97
Y1+2 (13-2.6) 1.859 (19.33) 1.736 (18.05)
Y2 (100) 0.907 (90.7) 0.826 (82.6)

Totals: -13.03 -3.65

IRR= 0.05 + (-13.03(0.05))/(-13.03+3.65)
=11.95%

WACC MV % Cost Total
Issued 1000mill 52% 18.65% 9.698
Pref 200 mill 10% 5% 0.5
Irred 440 mill 23 8% 1.84
Redeem 290 mill 15 11.95 % 1.79

WACC=13.828

Anyone else agree/disagree?

Your growth of 11.99%. I used 12% as i got the figure to be 11.999915.

Hence my cost of debt 18.67 v 18.65

MAX72 · 30-12-2009 11:54am

flashtash wrote: »

thats what I did too. here are my calcs (briefly!)

Ke=(0.25(1+.1199)/4.20)+0.1199
= 18.65%

Kp=0.3/6
=5%

Kd=8(1-.2)/80
=8%

Redeem Deb:
NPV5% NPV10%
IRR Y0 97 97
Y1+2 (13-2.6) 1.859 (19.33) 1.736 (18.05)
Y2 (100) 0.907 (90.7) 0.826 (82.6)

Totals: -13.03 -3.65

IRR= 0.05 + (-13.03(0.05))/(-13.03+3.65)
=11.95%

WACC MV % Cost Total
Issued 1000mill 52% 18.65% 9.698
Pref 200 mill 10% 5% 0.5
Irred 440 mill 23 8% 1.84
Redeem 290 mill 15 11.95 % 1.79

WACC=13.828

Anyone else agree/disagree?

I think you may need to look at some of your MVs

Ordinary share 2,100 ie 4.20 x 500 (not 1000 thats book value)
Pref 240 ie 6 x 40 (not 200 thats book value)
Irred 400 (not 440 as that includes interest)
Redeem 290 (thats what I used)

Would like an opinion on this..........

flashtash · 30-12-2009 12:04pm

MAX72 wrote: »

I think you may need to look at some of your MVs

Ordinary share 2,100 ie 4.20 x 500 (not 1000 thats book value)
Pref 240 ie 6 x 40 (not 200 thats book value)
Irred 400 (not 440 as that includes interest)
Redeem 290 (thats what I used)

Would like an opinion on this..........

Appreciate that Max. I wasn't sure of the MV's. I was using the 1000 for the Ord Share so that was my main confusion. The other figures you used were the same as mine (I've since corrected the others from what I posted first). My WACC is now 15.54%. My Redeem Debs are only 12.6% v your 13.7%.

flashtash · 30-12-2009 12:07pm

MAX72 wrote: »

The costings of the new machine

Point 1 -10000
Point 2 25000
Point 3 170000
Point 4 0
Point 5 60000
Point 6 8000
Point 7 18000
Point 8 0
Point 9 25000
Point 10 0

Overall cost 296000

Would appreciate your comments

You forgot the 16000 for the unskilled labour (Point 5) and the var o/h should be 12000 (600 hours total). What you think?

MAX72 · 30-12-2009 12:32pm

flashtash wrote: »

You forgot the 16000 for the unskilled labour (Point 5) and the var o/h should be 12000 (600 hours total). What you think?

Thanks for that. That would result in a loss. Does that mean that point 2 should read 5,000 as the words used are 'could have been used'.... This would result in a small profit. Otherwise if its sill 25k, its a bigger loss!!

CAP 2 SFMA ASSESSMENT 2010

Comments