CAP 2 SFMA ASSESSMENT 2010

eomahoney2000 · 05-01-2010 10:46am

ava 10 wrote: »

got pretty much the same answer for wacc on debentures..just a bit confused tho with the year zero if its 2009 or 2010 and the market value of debentures nt sure if its 100 r has interest 2be subtracted etc..

I was just wonderin wat is the purpose of calculating wacc for each of these three situations... I mite sound stupid askin as i do not understand how ye know if they raise the necessary 300 mill required

Mark McDermott · 05-01-2010 11:39am

OMG GUYS, THIS SFMA ASSESSMENT IS LIKE SOOOO STRESSFULL!!!:eek::eek::eek:

I've spent my entire Christmas Holidays trying to work out the alternative WACC calculations for the 3 sources of finance so I hope they're correct;

Scenario 1: 14.28%
Scenario 2: 15.23%
Scenario 3: 15.19%

Can anybody agree these??

Over and out

ava 10 · 05-01-2010 11:56am

Mark McDermott wrote: »

OMG GUYS, THIS SFMA ASSESSMENT IS LIKE SOOOO STRESSFULL!!!:eek::eek::eek:

I've spent my entire Christmas Holidays trying to work out the alternative WACC calculations for the 3 sources of finance so I hope they're correct;

Scenario 1: 14.28%
Scenario 2: 15.23%
Scenario 3: 15.19%

Can anybody agree these??

Over and out

can i ask how ur calculating redeem debentures???

MAX72 · 05-01-2010 11:59am

Mark McDermott wrote: »

OMG GUYS, THIS SFMA ASSESSMENT IS LIKE SOOOO STRESSFULL!!!:eek::eek::eek:

I've spent my entire Christmas Holidays trying to work out the alternative WACC calculations for the 3 sources of finance so I hope they're correct;

Scenario 1: 14.28%
Scenario 2: 15.23%
Scenario 3: 15.19%

Can anybody agree these??

Over and out

Got the exact same figures myself......

Vaioer · 05-01-2010 12:30pm

One point

- On Page 1 it states that the dividend has been paid to ordinary shareholders(€125M) but that the dividend has not been paid to preference shareholder yet.

Surely preference shareholders have to be paid first and therefore another €12m has to be factored in for the payment to them.

MAX72 · 05-01-2010 2:39pm

Vaioer wrote: »

One point

- On Page 1 it states that the dividend has been paid to ordinary shareholders(€125M) but that the dividend has not been paid to preference shareholder yet.

Surely preference shareholders have to be paid first and therefore another €12m has to be factored in for the payment to them.

I do not think that has any affect on the WACC. Shares are trading cum dividend so just back it out.

The divident payment has already been accrued for in the P&L

See finance cost 91 - 8% Irredeemable 40
13% Redeemable 39
6% Pref 12

Total 91

Anyone else an opinion on this............
So it has been accounted for in the P&L, just not paid over.......

mcloum22 · 05-01-2010 2:58pm

ava 10 wrote: »

got pretty much the same answer for wacc on debentures..just a bit confused tho with the year zero if its 2009 or 2010 and the market value of debentures nt sure if its 100 r has interest 2be subtracted etc..

Hi, Could someone please tell me how ye got the 100m??

TMB · 05-01-2010 3:30pm

My WACC for the three financing scenarios

S1. 14.27%
S2. 15.20%
S3. 15.16%

Anyone get close to these as i'm not sure. For S1 I said the loan is over a 21 year period, is that right?

05-01-2010 6:08pm

MAX72 wrote: »

I do not think that has any affect on the WACC. Shares are trading cum dividend so just back it out.

The divident payment has already been accrued for in the P&L

See finance cost 91 - 8% Irredeemable 40
13% Redeemable 39
6% Pref 12

Total 91

Anyone else an opinion on this............
So it has been accounted for in the P&L, just not paid over.......

I agree, all the interest expenses have been provided for in the pl and bs

Student_123 · 05-01-2010 7:07pm

I think everybody has the right answer to the relevant costing bar the skilled and unskilled labour!! It's either skilled is either 12 or 0, and unskilled is either 60 or 76, so if you could throw down what you tink and we can get a final answer for everyone ya???

barrystealover · 05-01-2010 7:59pm

Mark McDermott wrote: »

OMG GUYS, THIS SFMA ASSESSMENT IS LIKE SOOOO STRESSFULL!!!:eek::eek::eek:

I've spent my entire Christmas Holidays trying to work out the alternative WACC calculations for the 3 sources of finance so I hope they're correct;

Scenario 1: 14.28%
Scenario 2: 15.23%
Scenario 3: 15.19%

Can anybody agree these??

Over and out

mark

for scenario 1 i got 14.25% so ireckon our difference is just down to rounding.

for scenario 2 i got 15.13%.if possible could you publish ur calculations so we could compare?

scenario 3 i am very rusty on so any help would be greatly appreciated

Underpaid_ACA · 05-01-2010 8:09pm

Hi guys thanks for all the help on this forum

I believe that is likely that we could get a calculation question in the area of foreign currency translational risk. We have been told that the Asian currency is likely to weaken over the next three years.

I think that we could be presented with a report that has been commissioned from the USD economist which will show a specific FX rate change over three years. They then could then ask us a two part question
1) to show how the companies FX exposure could be hedged and
2) show how the hedge works.

This is similar to example on page 863 in Wards book.

I haven’t seen anyone discuss this yet, thought I would throw it in to the mix.
:cool:

Coldplayer · 05-01-2010 8:22pm

MAX72 wrote: »

Got the exact same figures myself......

Exactly the same too

snipejuice · 05-01-2010 8:28pm

Hi Can anyone please post their workings for the 3 scenarios?

Coldplayer · 06-01-2010 12:39am

mcloum22 wrote: »

Hi, Could someone please tell me how ye got the 100m??[/QUOTE/]

The 100m is just a notional amount,

you should use the following cash flows

yr1 290
yr1and2 -(.13*300)(.8)
yr2 (300)

Vaioer · 06-01-2010 9:41am

Underpaid_ACA wrote: »

Hi guys thanks for all the help on this forum

I believe that is likely that we could get a calculation question in the area of foreign currency translational risk. We have been told that the Asian currency is likely to weaken over the next three years.

Yeah, we had considered that there might be a question on this as well.

However the example you mention is one which hedges interest rate risk(which might also be a possible question, given that the bank is preferred to offer an interest only loan, which we aren't told if it will be floating or fixed).

Surely translational risk is related to the exchange rate risk from transferring the assets and liabilities in Yuan back into €? In that case you would need to agree a currency future, not a interest rate future?

MAX72 · 06-01-2010 10:19am

Underpaid_ACA wrote: »

Hi guys thanks for all the help on this forum

I believe that is likely that we could get a calculation question in the area of foreign currency translational risk. We have been told that the Asian currency is likely to weaken over the next three years.

I think that we could be presented with a report that has been commissioned from the USD economist which will show a specific FX rate change over three years. They then could then ask us a two part question
1) to show how the companies FX exposure could be hedged and
2) show how the hedge works.

This is similar to example on page 863 in Wards book.

I haven’t seen anyone discuss this yet, thought I would throw it in to the mix.
:cool:

My understanding was that the case study and information is as given. If what you are saying is true they could put in what they like on the day.

MAX72 · 06-01-2010 11:03am

Student_123 wrote: »

I think everybody has the right answer to the relevant costing bar the skilled and unskilled labour!! It's either skilled is either 12 or 0, and unskilled is either 60 or 76, so if you could throw down what you tink and we can get a final answer for everyone ya???

Skilled 0

Unskilled 76 (ie 60+12)

Thats only my opinion.............

I have an overall loss of €16k

mcloum22 · 06-01-2010 11:40am

For senario 1 I got WACC of 14.27%. Does anyone agree?

I am unsure if we should use 1-22 years or 1-21 years?

Running Bing · 06-01-2010 11:45am

So anything final on the cost of unskilled labour for lesbleu proposal?

Its either 60,000 or 76,000.

Im not sure which one I would say. On one hand 76,000 makes sense because your forgoing the contribution of 60k and paying the labour of 16k that could be used elsewhere.

But my question is is'nt the 16k included already in the contribution for the other contract?

C2theLahambert · 06-01-2010 11:57am

MAX72 wrote: »

My understanding was that the case study and information is as given. If what you are saying is true they could put in what they like on the day.

,

Ya loike, agree totally, its stressful enough without them springing new info on us on the day and I think the time allocated is too short for us to do a calculation of this nature, allied with the other calculations required and whatever theory that may come up.

x

Chargers Rule · 06-01-2010 1:17pm

Hi all, 1st time at this party and gd to see plenty people mixing it up.
Happy new year to all.

Wanna throw out something bout the layout. This is how i reckon going to go down. Thoughts and opinions appreciated.

3 SECTIONS

1. WACC : Calculate basis wacc, adjust wacc for sources of finance + supply recom. as to wot source to take. (40% of Marks)

2. Theory Part: Unsure wot to come up here, maybe bit of foriegn exchange,ethics and agency theory. including write a report of some kind. (40% of marks)

3. Relevant Costing part: Increment actual cost to see if proposed loss is accurate. And advise based on ur calculations wot 2 go thru wit proposal or not. (20% of marks)

Wud appreciate opinion back on this esp. on theory part coz i think WACC and relevant costing guaranteed to come up but unsure bout theory.

Thanks

Newaglish · 06-01-2010 1:34pm

Howdy all,

Not sitting this exam but I've done up a sample answer for the relevant costing to hopefully answer any questions people may have.

The only part open to interpretation is on the variable overheads, which depends on how you read the question.

The question reads:

"Variable overheads are incurred at a cost of €20 per labour hour worked"

It then budgets for €8,000 of variable overheads, or 400 hours of labour.

Given that the question allows for 200 hours of skilled and 400 hours of unskilled labour, there are two ways to interpret the question:

1) Variable overheads are incurred on unskilled labour only or
2) The original budget is incorrect and should read €12,000

I've gone with number two as it's the most literal definition of their notes.

I've attached an Excel sheet with my calculations and reasons behind each cost included/not included.

This should be correct but if there's anything missing/incorrect please point it out.

Newaglish · 06-01-2010 3:19pm

Same story as above - WACC attached

LoveTheAudit · 06-01-2010 3:57pm

Newaglish wrote: »

Same story as above - WACC attached

I'm getting the same answers as you so far.
Any joy with the scenarios?

Student_123 · 06-01-2010 7:44pm

Coldplayer wrote: »

mcloum22 wrote: »

Hi, Could someone please tell me how ye got the 100m??[/QUOTE/]

The 100m is just a notional amount,

you should use the following cash flows

yr1 290
yr1and2 -(.13*300)(.8)
yr2 (300)

I agree I did it that way and got 7.27% anybody get that??

Coldplayer · 06-01-2010 7:48pm

no that seems a bit off, i'd check your present values

Student_123 · 06-01-2010 7:57pm

The difference is I'd sayis that I did Yr 0 290m (int paid), Yr 1 31.2m int and yr 2 300m I don't get why another year has to be added for interest when it's already paid in the 1st year?

barrystealover · 06-01-2010 8:05pm

Newaglish wrote: »

Same story as above - WACC attached

Could i ask you what you got for the 3 different scenarios?

for the first scenario i got 14.25%

for the second scenario i got 15.13%

I am too rusty with scenario 3

barrystealover · 06-01-2010 8:07pm

Anybody have any suggestion on how they might phrase a due diligiance question??a tranlation risk question??presume it will be theory question

Coldplayer · 06-01-2010 8:13pm

barrystealover wrote: »

Anybody have any suggestion on how they might phrase a due diligiance question??a tranlation risk question??presume it will be theory question

I reckon that they might ask how to counter translational risk and there is only 2 methods i know of.

Temporal Method

Current Rate method.

To be honest i'm kinda stuck for the theory end of things apart from the obvious questions.

Are we expected to research away from the text or is it only stuff from the text that we are examinable on??

Student_123 · 06-01-2010 8:18pm

Could they not ask about translational risk and then you go on about options and interest rate risk seeing as the manager's worried about them??

Student_123 · 06-01-2010 8:50pm

snipejuice wrote: »

Hi Can anyone please post their workings for the 3 scenarios?

I'd like that aswell I'm struggling on that part!! Where are all the % coming from??

Newaglish · 07-01-2010 2:37am

Student_123 wrote: »

The difference is I'd sayis that I did Yr 0 290m (int paid), Yr 1 31.2m int and yr 2 300m I don't get why another year has to be added for interest when it's already paid in the 1st year?

The cash flows are:

Year Zero (Jan 2010) -290m
Year One (Dec 2010) 31.2m
Year Two (Dec 2011) 31.2m
Year Two (Dec 2011) 300m

You don't redeem the debentures until the end of 2011 and therefore accrue interest for that year also.

S.Hanlon · 07-01-2010 2:46pm

hi
i am new to this and have only started looking now

could somebody explain to me the formulae when working out the cost of the ordinary shares??

thank you

KissMyAudit · 07-01-2010 7:38pm

Newaglish wrote: »

Howdy all,

This should be correct but if there's anything missing/incorrect please point it out.

Shouldnt the €16,000 wages for Unskilled Labour be counted as well as the forgone contribution to the other project?

The similar question in the book does count this as a relevant cost...

barrystealover · 07-01-2010 7:51pm

KissMyAudit wrote: »

Shouldnt the €16,000 wages for Unskilled Labour be counted as well as the forgone contribution to the other project?

The similar question in the book does count this as a relevant cost...

what question in what book??page number and question number??

KissMyAudit · 07-01-2010 8:28pm

barrystealover wrote: »

what question in what book??page number and question number??

Page 33 in the Management Accounting toolkit from last year....someone posted that last week!

smith24 · 07-01-2010 8:34pm

TMB wrote: »

My WACC for the three financing scenarios

S1. 14.27%
S2. 15.20%
S3. 15.16%

Anyone get close to these as i'm not sure. For S1 I said the loan is over a 21 year period, is that right?

Hi, I take it by scenarios you are referring to
s1) replacing £300m to £600M
s2) Issue further 70M ord shares
s3) consider one for 5 rights issue at 20% discount

and applying each change (individually) to your original WACC calculation?

I agree with your WACC for S1 but I'm coming out with different for S2 and S3, so I wanted to check I was applying the same situation as yourself in each scenario?

Newaglish · 07-01-2010 8:46pm

KissMyAudit wrote: »

Shouldnt the €16,000 wages for Unskilled Labour be counted as well as the forgone contribution to the other project?

The similar question in the book does count this as a relevant cost...

If you don't go ahead with the project you will be employing 400 hours of unskilled labour on the existing contract.

If you do go ahead with the project you will be employing 400 hours of unskilled labour on the new contract.

Either way, you're paying €16,000 regardless of what contract they work on. It's not incremental to your decision. The only incremental cost is the lost contribution of €60,000 from the other project.

barrystealover · 07-01-2010 9:01pm

CAN ANY1 SHED ANY LIGHT AS TO HOW A RISK MANAGEMENT QUESTION MIGHT BE ASKED??

SEEING AS IT IS 8TH JANUARY2010(FIRST LINE OF CASE STUDY) AND THE DATE OF PROPOSED ACQUISITION IS 1STH FEB 2010,COULD THEY ASK ABOUT INTEREST RISK LOOKING ONLY 1 MONTH AHEAD??

HOW COULD THEY PHRASE A TRANSLATIONAL RISK QUESTION??IF THEY RECKON THE FOREIGN CURRENCY WILL WEAKEN AGAINST DOMESTIC(€ AND £) THIS WOULD RESULT IN PROFITS AND ASSETS BEING LESS VALUE WHEN TRANSFERRED INTO € OE £.

Masjanja · 07-01-2010 10:36pm

Can anyone please post the 3rd scenario WACC, the one with the rights issue, I seem to have slightly different answer?

barrystealover · 07-01-2010 10:55pm

Could some1 please shed some light on the calculations for the 3rd scenario? I am unsure how to do it

Student456 · 07-01-2010 11:20pm

Any one breakeven with the relevant costing??!

Could any1 please put up workings for the three WACC Scenarios?!

Any ideas for theory questions?!

post_it · 08-01-2010 12:20pm

I worked the Irredeemable debentures cost to be 7.9% and not 8%. I have calculated the interest as follows

5,000,000 debentures valued at 440m = £88 per debenture

Interest = 8% of £88 = 7.04 thus MV of 1 debenture is 80.96 (88 - 7.04)

thus 0.25(1 -0.2) = 7.9%
80.96

Any one else agree?

wdarling · 08-01-2010 12:39pm

TMB wrote: »

My WACC for the three financing scenarios

S1. 14.27%
S2. 15.20%
S3. 15.16%

Anyone get close to these as i'm not sure. For S1 I said the loan is over a 21 year period, is that right?

Could someone please put up some workings for the 3 scenarios.... especially the replaced redeemable debentures!?

I got a WACC of 15.51% for scenario one which seems to be wrong.... did everyone else include the cash outflow for the redemption fee on the original €300m debentures that are replaced?

wiles9 · 08-01-2010 1:46pm

Masjanja wrote: »

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

I haven't got my workings in front of me, but as far as I remember, I got a WACC very similar to this! I'll try visit here and post some more over the weekend!

EDIT : maybe .58..

Cheers to the poster that uploaded excel workings, nice and clear. I think the costings always going to be debatable unless someone emails the institute and asks them to clarify??

Newaglish · 08-01-2010 2:55pm

post_it wrote: »

I worked the Irredeemable debentures cost to be 7.9% and not 8%. I have calculated the interest as follows

5,000,000 debentures valued at 440m = £88 per debenture

Interest = 8% of £88 = 7.04 thus MV of 1 debenture is 80.96 (88 - 7.04)

thus 0.25(1 -0.2) = 7.9%
80.96

Any one else agree?

The cost of capital has to be calculated at the ex-interest market value of the debentures. The debentures are cum-interest €440m in value and are carrying €40m of interest (€500 * .08) therefore giving an ex-interest market value of €440m - €40m = €400m.

The value of each debenture is €0.8 and thus you calculate as follows:

8%*(100%-20%)
0.8

Answer: 8%

salmagoo · 08-01-2010 3:20pm

Student_123 wrote: »

I think everybody has the right answer to the relevant costing bar the skilled and unskilled labour!! It's either skilled is either 12 or 0, and unskilled is either 60 or 76, so if you could throw down what you tink and we can get a final answer for everyone ya???

Could Student 123 please give some workings??
I think that skilled should be zero btw!!

MAX72 · 08-01-2010 4:39pm

salmagoo wrote: »

Could Student 123 please give some workings??
I think that skilled should be zero btw!!

Skilled 0
Unskilled 60 + 16 = 76

That would appear to be the view of the majority.......

CAP 2 SFMA ASSESSMENT 2010

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