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CAP 2 SFMA ASSESSMENT 2010

1…34689…11

Comments

  • #152
    Newaglish
    Registered Users Posts: 2,734 ✭✭✭Newaglish


    MAX72 wrote: »
    Skilled 0
    Unskilled 60 + 16 = 76

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

    Skilled is 0
    Unskilled is 60

    I've posted a couple of times as to why I think this is the case.

    What is the reasoning behind including the 16 as an incremental cost?


  • #153
    im_ron_burgundy
    Registered Users Posts: 4 ✭im_ron_burgundy


    in scenario 2 of the wacc calc, where further ordinary shares are being issued, is it just the market value of the shares on the calculation that has to be changed or does the cost of equity change?


  • #154
    salmagoo
    Registered Users Posts: 26 ✭salmagoo


    im_ron_burgundy wrote: »
    in scenario 2 of the wacc calc, where further ordinary shares are being issued, is it just the market value of the shares on the calculation that has to be changed or does the cost of equity change?

    No I think that the cost of equity remains the same. All you do is increase the shares by 70 * 4.2 = 294


  • #155
    smith24
    Closed Accounts Posts: 2 ✭smith24


    Student456 wrote: »
    Any one breakeven with the relevant costing??!

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

    Any ideas for theory questions?!

    S1 = 14.28%
    Market value is increased to £600M currently trading at £100
    Cost: Calculated over 21years (found present value tables on the internet)

    S2 = 15.24%
    Adjusted market value to include new £70M issued ordinary shares
    Cost: Adjust the market value in the cost formula, all other figures remain the same.

    S3 = 15.19%
    A 1 for 5 rights issue will result in an additional £336M of equity,
    Cost: Adjust the market value in the cost formula, all other figures remain the same.

    Can anyone agree or disagree with these workings? not 100% sure they are that accurate but hopefully they are along the right track.


  • #156
    Student456
    Registered Users Posts: 25 ✭Student456


    smith24 wrote: »
    S1 = 14.28%
    Market value is increased to £600M currently trading at £100
    Cost: Calculated over 21years (found present value tables on the internet)

    S2 = 15.24%
    Adjusted market value to include new £70M issued ordinary shares
    Cost: Adjust the market value in the cost formula, all other figures remain the same.

    S3 = 15.19%
    A 1 for 5 rights issue will result in an additional £336M of equity,
    Cost: Adjust the market value in the cost formula, all other figures remain the same.

    Can anyone agree or disagree with these workings? not 100% sure they are that accurate but hopefully they are along the right track.

    Yep I did the exact same! Hopefully we're right!!:):):)

    Anyone else get this??


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  • #157
    Cocomonkey
    Registered Users Posts: 32 ✭Cocomonkey


    smith24 wrote: »
    S1 = 14.28%
    Market value is increased to £600M currently trading at £100
    Cost: Calculated over 21years (found present value tables on the internet)

    S2 = 15.24%
    Adjusted market value to include new £70M issued ordinary shares
    Cost: Adjust the market value in the cost formula, all other figures remain the same.

    S3 = 15.19%
    A 1 for 5 rights issue will result in an additional £336M of equity,
    Cost: Adjust the market value in the cost formula, all other figures remain the same.

    Can anyone agree or disagree with these workings? not 100% sure they are that accurate but hopefully they are along the right track.


    Hi just wondering why you didn't change the cost of equity Ke in both scenario 2 and 3 aswell as the market value. I think thats why I got slightly different answers to you! Also for scenario 1 should the period not be 20 years from 2011 to 2031? Again i'm not too sure either so just wondering if I was completely on the wrong track?


  • #158
    jhn_noln
    Closed Accounts Posts: 99 ✭✭jhn_noln


    Newaglish wrote: »
    Skilled is 0
    Unskilled is 60

    I've posted a couple of times as to why I think this is the case.

    What is the reasoning behind including the 16 as an incremental cost?

    I am with the 76000 people on this one too! The way to look at it is (this is explained very well in the Drury books if anyone gets a chance to look at them) that the €150/hour contribution is after taking away labour cost of €40 euro also!


    Therefore the total lost contribution is €190 per hour (as you should disregard labour as it will be used either way) and thus 190*400 = 76000

    What confuses many is the other way to calculate it by using the 150*400 = 60000 and then add back the labour of 16000. This method is basically a shortcut and doesnt explain what you are doing.


    Again the drury books explain it very well imo!


  • #159
    im_ron_burgundy
    Registered Users Posts: 4 ✭im_ron_burgundy


    Cocomonkey wrote: »
    Hi just wondering why you didn't change the cost of equity Ke in both scenario 2 and 3 aswell as the market value. I think thats why I got slightly different answers to you! Also for scenario 1 should the period not be 20 years from 2011 to 2031? Again i'm not too sure either so just wondering if I was completely on the wrong track?
    Should the period for scenario one not be 22 years, as yr 1 is y/e 31/12/10, yr 2 is 31/12/11, therefore y/e 31/12/2031 will be year 22. I dont think when it says replacing the debentures (30/12/2011), that it is talking about replacing them from that date, i think it just means replacing those debentures which are redeemable in 30/12/2011, anyone else agree?


  • #160
    barrystealover
    Registered Users Posts: 63 ✭✭barrystealover


    im_ron_burgundy wrote: »
    Should the period for scenario one not be 22 years, as yr 1 is y/e 31/12/10, yr 2 is 31/12/11, therefore y/e 31/12/2031 will be year 22. I dont think when it says replacing the debentures (30/12/2011), that it is talking about replacing them from that date, i think it just means replacing those debentures which are redeemable in 30/12/2011, anyone else agree?


    i agree "im ron burgundy" it should be 1-22years.if the original scenario from 2009 to 2011 is 2 years then for the second scenario 2009 to 2031 its 22 years.2009 will be years 0 and then count on from there.


  • #161
    Chargers Rule
    Closed Accounts Posts: 2 ✭Chargers Rule


    salmagoo wrote: »
    No I think that the cost of equity remains the same. All you do is increase the shares by 70 * 4.2 = 294

    yeah i got 294 as well.

    What did you use as market value for 1st option??
    Did you subtract the interest
    i.e is it 600m or (100-8) x 6 = 552m


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  • #162
    ava 10
    Closed Accounts Posts: 3 ✭ava 10


    im_ron_burgundy wrote: »
    Should the period for scenario one not be 22 years, as yr 1 is y/e 31/12/10, yr 2 is 31/12/11, therefore y/e 31/12/2031 will be year 22. I dont think when it says replacing the debentures (30/12/2011), that it is talking about replacing them from that date, i think it just means replacing those debentures which are redeemable in 30/12/2011, anyone else agree?

    Ya agree with that it should be 22years..


  • #163
    Trumanshow
    Closed Accounts Posts: 3 ✭Trumanshow


    You know if im working out the capital structure gearing %

    Long Term Liabilities/LTL + Equity *100

    It seems to me that Preference shares are part of long term liabilities along with debentures, loan stock and any long term debt but txt seem to include prefs as equity.

    Anyone have any strong feelings or is it a bit of a grey area??

    Also at the start of the case study it states EE no.s are 2100 of whom 1900 are direct production EE's. Anyone think of why they have specifically provided this info?? It's nagging at me..:confused::confused:

    Also Giles Fabian has to be the coolest name i've ever heard!


  • #164
    Masjanja
    Closed Accounts Posts: 11 ✭Masjanja


    smith24 wrote: »
    S1 = 14.28%
    Market value is increased to £600M currently trading at £100
    Cost: Calculated over 21years (found present value tables on the internet)

    S2 = 15.24%
    Adjusted market value to include new £70M issued ordinary shares
    Cost: Adjust the market value in the cost formula, all other figures remain the same.

    S3 = 15.19%
    A 1 for 5 rights issue will result in an additional £336M of equity,
    Cost: Adjust the market value in the cost formula, all other figures remain the same.

    Can anyone agree or disagree with these workings? not 100% sure they are that accurate but hopefully they are along the right track.

    I was doing the same until one of my colleagues at work suggested that we meant to use the ex-rights price for our MV and on this basis revise our Ke. I tried to research on this one, could not find anything specific, but it made me thinking that it can be right. Does anyone else have some idea about it?


  • #165
    barrystealover
    Registered Users Posts: 63 ✭✭barrystealover


    Coldplayer wrote: »
    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??

    Coldplayer
    i dont tink that these methods (Temporal Method Current Rate method) are on the cap1 or cap2 course so they are not examinable.i got these two methods on google myslef but not relevent i tink as not on course


  • #166
    barrystealover
    Registered Users Posts: 63 ✭✭barrystealover


    jhn_noln wrote: »
    I am with the 76000 people on this one too! The way to look at it is (this is explained very well in the Drury books if anyone gets a chance to look at them) that the €150/hour contribution is after taking away labour cost of €40 euro also!


    Therefore the total lost contribution is €190 per hour (as you should disregard labour as it will be used either way) and thus 190*400 = 76000

    What confuses many is the other way to calculate it by using the 150*400 = 60000 and then add back the labour of 16000. This method is basically a shortcut and doesnt explain what you are doing.


    Again the drury books explain it very well imo!


    just read a very similar example in the "cost accounting,practise and principles" 2002 book by alan upchurch on page 392.so i agree it is 190 contribution x 400 hours = 76000.
    what are up putting in for variable overheads if you dont mind me asking??


  • #167
    Big Face
    Closed Accounts Posts: 4 ✭Big Face


    Quote:
    Originally Posted by jhn_noln viewpost.gif
    I am with the 76000 people on this one too! The way to look at it is (this is explained very well in the Drury books if anyone gets a chance to look at them) that the €150/hour contribution is after taking away labour cost of €40 euro also!


    Therefore the total lost contribution is €190 per hour (as you should disregard labour as it will be used either way) and thus 190*400 = 76000

    What confuses many is the other way to calculate it by using the 150*400 = 60000 and then add back the labour of 16000. This method is basically a shortcut and doesnt explain what you are doing.


    Again the drury books explain it very well imo!


    just read a very similar example in the "cost accounting,practise and principles" 2002 book by alan upchurch on page 392.so i agree it is 190 contribution x 400 hours = 76000.
    what are up putting in for variable overheads if you dont mind me asking??

    The whole problem imo is wether in the €150 contribution that the "company" calculated they included the unskilled labour cost and the variable overheads. Variable overheads is either the 12,000 or 4,000. Problem being it is not well enough explained wether the Variable overheads in the "other contract" are also €/£20 per labour hour worked or if they have been included in the €150 contribution.

    Whichever way people choose to go with, we must make sure that the figure taken for unskilled labour and variable costs is explained well and in line with each other - as they are interlinked.


  • #168
    post_it
    Closed Accounts Posts: 12 ✭post_it


    Cocomonkey wrote: »
    Hi just wondering why you didn't change the cost of equity Ke in both scenario 2 and 3 aswell as the market value. I think thats why I got slightly different answers to you! Also for scenario 1 should the period not be 20 years from 2011 to 2031? Again i'm not too sure either so just wondering if I was completely on the wrong track?


    Surely the cost of equity and debt changes in scenaro 1,2 & 3. As MV of equity increases the cost of that equity must increase??? My reviesd WACC figures are:

    For scenario 1 14.20% (cost of debt 6.47%)
    scenario 2 15.24% (cost of equity 17.87%)
    scenario 3 15.04% (cost of equity 17.55%)

    Anyone agree with this?


  • #169
    hawai09
    Closed Accounts Posts: 10 ✭hawai09


    can anyone tell me how to calculate the present value for years 1-22 I cant remember the formula for this for the life of me and as you know the tables jump from 20-25 not helpful!
    I know that for calculating present value to be received after t periods is 1/(1+r)n


  • #170
    seven-iron
    Closed Accounts Posts: 451 ✭✭seven-iron


    Formula's in the book


  • #171
    wdarling
    Registered Users Posts: 7 ✭wdarling


    post_it wrote: »
    Surely the cost of equity and debt changes in scenaro 1,2 & 3. As MV of equity increases the cost of that equity must increase??? My reviesd WACC figures are:

    For scenario 1 14.20% (cost of debt 6.47%)
    scenario 2 15.24% (cost of equity 17.87%)
    scenario 3 15.04% (cost of equity 17.55%)

    Anyone agree with this?

    I got 15.55% for the current WACC

    Scenario 1: 14.28% (cost of debt 6.84%)
    Scenario 2: 15.26% (cost of debt 17.84%)
    Scenario 3: 15.22% (cost of debt 17.74%)


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  • #172
    Trumanshow
    Closed Accounts Posts: 3 ✭Trumanshow


    wdarling wrote: »
    I got 15.55% for the current WACC

    Scenario 1: 14.28% (cost of debt 6.84%)
    Scenario 2: 15.26% (cost of debt 17.84%)
    Scenario 3: 15.22% (cost of debt 17.74%)

    I got the same..


  • #173
    wdarling
    Registered Users Posts: 7 ✭wdarling


    Trumanshow wrote: »
    I got the same..

    Just out of interest.... for scenario 1 I calculated the redeemable debenture cost of capital using cashflows for Yr 0 as (600m) but I can't help wondering if we should factor in the fact that there will have to be a redemption fee paid for the existing 300m debentures. No one else seems to have applied this... just wondering if anyone else had a think about this ?


  • #174
    lala1987
    Closed Accounts Posts: 91 ✭✭lala1987


    Which do people recommend they invest in CHina or France and with which fiance option?


  • #175
    post_it
    Closed Accounts Posts: 12 ✭post_it


    wdarling wrote: »
    I got 15.55% for the current WACC

    Scenario 1: 14.28% (cost of debt 6.84%)
    Scenario 2: 15.26% (cost of debt 17.84%)
    Scenario 3: 15.22% (cost of debt 17.74%)

    Can you put your workings up for this as i see someoen else has got the same. I want to compare to my workings to see were the differences are

    If you want i can put mine up

    thanks


  • #176
    Cocomonkey
    Registered Users Posts: 32 ✭Cocomonkey


    wdarling wrote: »
    I got 15.55% for the current WACC

    Scenario 1: 14.28% (cost of debt 6.84%)
    Scenario 2: 15.26% (cost of debt 17.84%)
    Scenario 3: 15.22% (cost of debt 17.74%)


    yep got practically the same... difference down to rounding i'd say

    15.55% for the current WACC

    Scenario 1: 14.27% (cost of debt 6.81%)
    Scenario 2: 15.24% (cost of debt 17.86%)
    Scenario 3: 15.23% (cost of debt 17.78%)[/quote]


  • #177
    Trumanshow
    Closed Accounts Posts: 3 ✭Trumanshow


    Is it an issue that Pref share dividend hasn't been paid and ordinary dividend has been this year?

    If they declare/pay a pref dividend after balance sheet date and b4 completion of accounts it goes in next years accounts and just a note disclosure of an event after balance sheet date in this years accounts.

    Is this correct?

    Should we just assume this is whats happening and forget about it?

    6% dividend of 200m pref shares is 12m and they only have 8m cash, so i suppose they couldnt pay it if they wanted...


  • #178
    i dislike this!
    Closed Accounts Posts: 2 ✭i dislike this!


    Hey all,

    fair play for all the work everyones put in so far, will try to help out as best i can!

    if possible, could someone help us out in relation to redeemable debentures calculation? as im not sure i have it right!

    for my final wacc figure im getting 15.58%. most people seem to be getting between 15.51 - 15.56% am i correct in saying this?

    my breakdown is as follows

    ord shares : 18.67%
    pref sh : 5%
    irredeemable deb : 8%
    redeemable : 12.39%

    so im out by a couple point percentages, if someone could help, id appreciate, if workings need to be shown, just ask :)


  • #179
    francie_delish
    Closed Accounts Posts: 1 ✭francie_delish


    Hi Guys
    Sorry me title is wrong hehe - should be redeemable debentures

    So I have calculated my WACC and I have been able to get my new WACC's under the options for a new share issue and a rights issues. They basically work out the same as a lot of the other posters bar rounding.

    However I cannot for the life of me work out how to begin with the redeemable debentures being replaced by 600m 8% ones and was wondering if anyone could help me. I don't get how to calculate the cost of debt or where the 22 years in the annuity tables fits in yet and I can't find the formula in the book.

    Thanks very much,

    Francie D x


  • #180
    wiles9
    Registered Users Posts: 4 ✭wiles9


    For the WACC I got:

    Ord:
    Value 21.b , Cost 18.67%

    Pref
    Value 240m , Cost 5%

    Irredeem
    Value 400m, Cost 8%

    Redeem
    Value 290m, Cost 12.39%

    WACC : 15.58 %

    Thats my answers without breakdown of how I got there, but I could upload workings?

    Could someone upload workings of how they got the new WACC for each scenario? I am a bit stuck on this one!


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  • #181
    Us against them
    Closed Accounts Posts: 13 ✭Us against them


    Just looking at everyones posts about the the wacc adjustments for the 3 sources of finance and most peoples Wacc seems to decrease from scenario 2 to Scenario 3. If all that changes is the Market value should this not increase as there will be a higher weighting for ordinary shares which have the highest ke. got 14.2% which is similar to a lot of your posts but for Scenario 2 and 3 i have 15.8 & 15.91. Would appreciate any views on this as i can't get my head around it


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