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CAP 2 SFMA ASSESSMENT 2010

2456711

Comments

  • Closed Accounts Posts: 11 ✭✭✭ Masjanja


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

    Guys dont foreget to apply tax at all times!


  • Registered Users Posts: 120 ✭✭ Coldplayer


    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


  • Closed Accounts Posts: 1,240 tywy


    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?


  • Closed Accounts Posts: 6 ✭✭✭ John_P_C


    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


  • Closed Accounts Posts: 1,240 tywy


    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...


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  • Closed Accounts Posts: 6 ✭✭✭ John_P_C


    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


  • Closed Accounts Posts: 1,240 tywy


    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.


  • Closed Accounts Posts: 6 ✭✭✭ John_P_C


    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!


  • Closed Accounts Posts: 1,240 tywy


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


  • Closed Accounts Posts: 6 ✭✭✭ John_P_C


    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?


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  • Registered Users Posts: 8 ✭✭✭ wannabe_auditor


    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%


  • Closed Accounts Posts: 11 ✭✭✭ flashtash


    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?


  • Registered Users Posts: 120 ✭✭ Coldplayer


    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?/


  • Registered Users Posts: 120 ✭✭ Coldplayer


    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


  • Closed Accounts Posts: 44 ✭✭✭ MAX72


    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


  • Closed Accounts Posts: 44 ✭✭✭ MAX72


    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


  • Closed Accounts Posts: 44 ✭✭✭ MAX72


    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..........


  • Closed Accounts Posts: 11 ✭✭✭ flashtash


    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%.


  • Closed Accounts Posts: 11 ✭✭✭ flashtash


    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?


  • Closed Accounts Posts: 44 ✭✭✭ MAX72


    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!!


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  • Closed Accounts Posts: 44 ✭✭✭ MAX72


    flashtash wrote: »
    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%.


    Re Redeem Debs

    You used a value of 97 in yr 0 and then 97 less tax.

    I assume that this is 290/3 = 96.666666666

    I used 290 in yr 0 and cash out flows in yrs 1&2 of 39 less 7.8 (tax). In year 2 out flow of 300. The rounding you used might be contributing to the difference. Want do you think??


  • Closed Accounts Posts: 3 s.m.c


    My answer for the WACC is as follows:
    Ordinary Shares 18.65%
    Pref Shares 5%
    Irredeemable Debentures 8%
    Redeemable Debentures 12.11%

    WACC 15.51%

    There seems to be differences in the figures for redeemable debentures
    My workings were as follows:

    Year cashflow discount(5%) PV Discount(10%) PV
    0 96.66 1 96.66 1 96.66
    1-2 (13(1-.20)) 1.859 (19.33) 1.735 (18.04)
    2 100 .907 (90.7) .826 (82.6)


    PV of (13.37) and (3.98)

    Kd = 5 + 13.37(5)/9.39

    Kd = 5 + 7.119

    Kd = 12.11%


    My workings for WACC are:

    2100(18.7%)/2100+240+400+290 + 240(5%)/3030 + 400(8%)/3030 + 290(12.11%)/3030


    =15.51%

    Anyone Agree/Disagree with this?


  • Closed Accounts Posts: 3 s.m.c


    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..........


    I agree with you. I used the same MV. See my answer above.


  • Closed Accounts Posts: 11 ✭✭✭ Masjanja


    s.m.c wrote: »
    My answer for the WACC is as follows:
    Ordinary Shares 18.65%
    Pref Shares 5%
    Irredeemable Debentures 8%
    Redeemable Debentures 12.11%

    WACC 15.51%

    There seems to be differences in the figures for redeemable debentures
    My workings were as follows:

    Year cashflow discount(5%) PV Discount(10%) PV
    0 96.66 1 96.66 1 96.66
    1-2 (13(1-.20)) 1.859 (19.33) 1.735 (18.04)
    2 100 .907 (90.7) .826 (82.6)


    PV of (13.37) and (3.98)

    Kd = 5 + 13.37(5)/9.39

    Kd = 5 + 7.119

    Kd = 12.11%


    My workings for WACC are:

    2100(18.7%)/2100+240+400+290 + 240(5%)/3030 + 400(8%)/3030 + 290(12.11%)/3030


    =15.51%

    Anyone Agree/Disagree with this?


    I totally agree, got my WACC of 15.56%, the workings are almost identical to urs, slight difference in roundings i believe.


  • Registered Users Posts: 274 ✭✭ eoin99


    I got my WACC to work out at 15.55%. Pretty similar to most people here. The difference is probably due to rounding & I used a slightly diff method to get the cost of redeemable debentures from my college notes. I'd imagine there would be a reasonable range of anwers accepted for the WACC calculation though.


  • Closed Accounts Posts: 11 ✭✭✭ Masjanja


    Coldplayer wrote: »
    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?/

    Is anyone else agree with this suggestion? Are they seriously trying to catch us out on the wording? As a not native speaker I would never even notice it, if not u mentioned.


  • Closed Accounts Posts: 4 martina16b


    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?


    Hi there I am new to this was just wondering If you know how they will bring in the three sources of finance on last page of case study into the WACC . Will we have to work out each individually using the WACC.


  • Registered Users Posts: 274 ✭✭ eoin99


    martina16b wrote: »
    Hi there I am new to this was just wondering If you know how they will bring in the three sources of finance on last page of case study into the WACC . Will we have to work out each individually using the WACC.

    I've calculated an updated WACC for each scenario:
    1. 14.21%
    2. 15.82%
    3. 15.86%

    Anyone else calculated these & got similar answers? ( I was working off 15.55% as my original WACC)

    On the theory side I suppose you could be asked the pro's/con's of each, issuing shares/increasing debt. Any other suggestions?


  • Closed Accounts Posts: 44 ✭✭✭ susie-q


    tywy wrote: »
    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.

    Looking back on my college notes I have relevant cost of materials will be the greater of alternative use value or the net realisable value. So for the case of FG would this not be the greater of scrap value €1 and replacement value €5.?
    i.e. 5000 kg x €5 = €25000??


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  • Closed Accounts Posts: 4 martina16b


    eoin99 wrote: »
    I've calculated an updated WACC for each scenario:
    1. 14.21%
    2. 15.82%
    3. 15.86%

    Anyone else calculated these & got similar answers? ( I was working off 15.55% as my original WACC)

    On the theory side I suppose you could be asked the pro's/con's of each, issuing shares/increasing debt. Any other suggestions?


    I was also thinking they could ask the gearing ratio using the book values and the market values. Just calculating adjusted WACC Now will get back to you.


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