CAP 2 SFMA ASSESSMENT 2010

post_it · 13-01-2010 2:37pm

ELLE163 wrote: »

I no im going on about this but i do understand what you are saying that the material has realisable value or alternatively it could be used as a substitute for another material. but your saying it "could be" a substitute however in the case study it states that it "could have been" and "would have cost" isn't this past tense ie that substitute is gone now for the proposed manufacture of the equipment ???

See attached my workings - profit 28,000

Anyone agree with this??

ELLE163 · 13-01-2010 2:57pm

why didn't you include variable o/h cost for unskilled labour?

Coldplayer · 13-01-2010 3:38pm

MAX72 wrote: »

They purchase 600 million new debentures but pay off the exisiting 300 million. I have therefore in year o cash inflow 600 and and cash outflow of 300. I get a WACC of about 15.17

The WACC of 15.17 is right, it clearly states in the case study that the 600 is to replace the 300, you therefore have a cash outlfow in the Y1 as well as a inflow of 600. Thats what i'm going with anyway.

14.28 is too much of a drop anyway

MAX72 · 13-01-2010 3:52pm

post_it wrote: »

See attached my workings - profit 28,000

Anyone agree with this??

It has been posted here before, check task 17 from last years management accounting toolkit.

Archer26 · 13-01-2010 4:27pm

Is anyone bothering to do a SWOT analysis of the company??

post_it · 13-01-2010 4:56pm

ELLE163 wrote: »

why didn't you include variable o/h cost for unskilled labour?

because the VOH will be incurred if the proposal goes ahead or not therefore its not incremental to the decision

Buddy the Elf · 13-01-2010 5:17pm

Student 85

hate to be a pain but any chance you could repost the relevant costing as an excel 97-03 file, i cant get the xlsx file opened and im struggling with the relevant costing part.

would be much appreciated

Student85 · 13-01-2010 5:32pm

Does this work

ELLE163 · 13-01-2010 5:48pm

post_it wrote: »

because the VOH will be incurred if the proposal goes ahead or not therefore its not incremental to the decision

ya im a bit unsure about this because if this proposal doesnt go ahead there is the other contract but arent variable OH specific to the project, like how do we know the exact same var OH at the exact the same rate is applied to the other contract
Thats why i think it might be 600 x 20 = 12000

post_it · 13-01-2010 9:20pm

ELLE163 wrote: »

ya im a bit unsure about this because if this proposal doesnt go ahead there is the other contract but arent variable OH specific to the project, like how do we know the exact same var OH at the exact the same rate is applied to the other contract
Thats why i think it might be 600 x 20 = 12000

Yeh i think everyones the same. I think the best thing to do is for as many people to give their profit or loss figure and the most frequent ans is the one i will go for!!!

I reckon if you can justify your ans you may get the marks

MAX72 · 14-01-2010 12:45pm

HELP!!

Can anyone finally put this cost to bed?

According to task 17 in last years toolkit, the charge of €16k is included along with the €60k. I have spoken to two managers here who are of the opinion that the €16k should not be included.

So is it a break even project or one with a €16k loss????

TMB · 14-01-2010 12:49pm

MAX72 wrote: »

HELP!!

Can anyone finally put this cost to bed?

According to task 17 in last years toolkit, the charge of €16k is included along with the €60k. I have spoken to two managers here who are of the opinion that the €16k should not be included.

So is it a break even project or one with a €16k loss????

Having the exact same dilemma, thinking of going with break even tho cos it can change the decision that was made, if its a loss then its the same situation really. What do other ppl think??

Student85 · 14-01-2010 1:20pm

Does anyone know which scenario to go for and how much each scenario earns?

MAX72 · 14-01-2010 2:49pm

Hi Guys,

When calculating the cost of debt for this option, has anyone in year 0 got a cash inflow of 600 and a cash out flow of 300 ie they are paying off the current 300??

Most people seem to have got 14.28% which indicates they have not done this....... What do you think??

BlackHouse · 14-01-2010 3:23pm

i dislike this! wrote: »

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

I go thpse exact figures as well, its just rounding in the calc's or different discount/annuity factors, not going to loose any points on that I think.

BlackHouse · 14-01-2010 4:00pm

MAX72 wrote: »

They purchase 600 million new debentures but pay off the exisiting 300 million. I have therefore in year o cash inflow 600 and and cash outflow of 300. I get a WACC of about 15.17

I got 15.52, can you give me you factors and COD for the debentures?

BlackHouse · 14-01-2010 4:10pm

Buddy the Elf wrote: »

meant to mention this aswell guys, the 3rd scenario 1 for 5 issue seems to be based on a major assumption that the minimum share holding of each share holder is 5 shares or could even go further to say number of shares each shareholder has is divisible by 5 to bring in the finance projected.
doubt this will be a realistic option to the company

sharescan be sold in fractions so this is not really an issue when considerig rights issues.

MAX72 · 14-01-2010 4:37pm

Anyone from KPMG on here??

MAX72 · 14-01-2010 4:39pm

BlackHouse wrote: »

I got 15.52, can you give me you factors and COD for the debentures?

I got a cost of debt of 11.842%.

Year 0 inflow of 600
Year 0 outflow of -300
Year1-22 outflow -38.40
Year 22 outflow -600

BlackHouse · 14-01-2010 5:00pm

MAX72 wrote: »

They purchase 600 million new debentures but pay off the exisiting 300 million. I have therefore in year o cash inflow 600 and and cash outflow of 300. I get a WACC of about 15.17

Not sure about your take on this for a few reasons:
1. If you do the calc on a bond price basis you get the much lower CoD
2. The WACC should be coming down as the int. rate drops and debt is generally cheaper than issuing shares
3. the Old bonds don't exist after the restructure of the Debt.
the fact they used the 300m they recieved to pay off the older debt is irrelevant I think as the old debt is no longer in exstance. Cashflow should only feature in that 300 are priced at 96.67 and the other 300 is priced at 100 weighted price of 98.335, so inflow in first 0 is 98.335, outflow in r 22 is 100.

Any thoughts?

MAX72 · 14-01-2010 5:11pm

BlackHouse wrote: »

Not sure about your take on this for a few reasons:
1. If you do the calc on a bond price basis you get the much lower CoD
2. The WACC should be coming down as the int. rate drops and debt is generally cheaper than issuing shares
3. the Old bonds don't exist after the restructure of the Debt.
the fact they used the 300m they recieved to pay off the older debt is irrelevant I think as the old debt is no longer in exstance. Cashflow should only feature in that 300 are priced at 96.67 and the other 300 is priced at 100 weighted price of 98.335, so inflow in first 0 is 98.335, outflow in r 22 is 100.

Any thoughts?

The WACC has come down but only slightly. In my opinion its one of two options, in year 0 pay off the old ones and get cod or in year 0 600 in and nothing out giving a cod of 6.49and a WACC of 14.28.

Just need to decide which one!!

BlackHouse · 14-01-2010 5:27pm

MAX72 wrote: »

The WACC has come down but only slightly. In my opinion its one of two options, in year 0 pay off the old ones and get cod or in year 0 600 in and nothing out giving a cod of 6.49and a WACC of 14.28.

Just need to decide which one!!

I thinks its the lower one, on a pure smell test it makes more sense.

MAX72 · 14-01-2010 5:37pm

BlackHouse wrote: »

I thinks its the lower one, on a pure smell test it makes more sense.

Right so we are going with the lower one of 14.28%.

ie year 0 600
year1-22 -38.40
year 22 -600

Thanks. On your head be it lol................

ELLE163 · 14-01-2010 5:51pm

hey guys im not sure what do about these calculations like my wacc decreases slightly from the current for the both of them - it doesn't make sense shuldnt wacc increase with greater equity. My question is could you get last yr div
125m/500 share and multiply it by 570 and plug that into growth formula for Ke??? am i way off track ???

ELLE163 · 14-01-2010 5:55pm

forgot to say that you'l end up with same ke as current but maybe u should just multiply the increased equity by the same ke that will give increased wacc and make more sense.....

salmagoo · 14-01-2010 6:44pm

MAX72 wrote: »

Hi Guys,

When calculating the cost of debt for this option, has anyone in year 0 got a cash inflow of 600 and a cash out flow of 300 ie they are paying off the current 300??

Most people seem to have got 14.28% which indicates they have not done this....... What do you think??

Hey Max,

I see your logic here. Could you show your workings for the IRR please? I got 14.28 for WACC 1. Using the revised WACC then in your qualitative analysis which source of finance would you recommend??

salmagoo · 14-01-2010 6:46pm

ELLE163 wrote: »

hey guys im not sure what do about these calculations like my wacc decreases slightly from the current for the both of them - it doesn't make sense shuldnt wacc increase with greater equity. My question is could you get last yr div
125m/500 share and multiply it by 570 and plug that into growth formula for Ke??? am i way off track ???

it does make sense that more equity would increase wacc but decreased levels of gearing.....

ELLE163 · 14-01-2010 7:28pm

it does make sense that more equity would increase wacc but decreased levels of gearing.....[/QUOTE]
but the gearing is a separate calculation it would still increase

tannercohen12 · 14-01-2010 8:33pm

can some nice person please tell me if you include reserves/accumulated profits when calculating gearing?:)

BlackHouse · 14-01-2010 9:37pm

ELLE163 wrote: »

forgot to say that you'l end up with same ke as current but maybe u should just multiply the increased equity by the same ke that will give increased wacc and make more sense.....

I think you need to maintain shareholder epextations of prevoius dividends.
If you offered me the option to buy more shares and then didn't hold the div per share rate constant or better it I would have no reason to buy your shares as I could invest somehwere else where I could get a better return. Part of the WACC is the cost, and the cost is deriveved from shareholder expectations of future profits.
I held the div per share rate at .25 so the WACC rose with option 2 and 3. they aev the least effect on future cash flows and the higher effect of on gearing. What do you think?

CAP 2 SFMA ASSESSMENT 2010

Comments