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CAP 2 SFMA Case study

jus_tin4

So whats everyones thought on it? for me look like invest appraisal and something to do with a cash flow?

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caligg

Definitely looks like the main focus of the question is project appraisal with an NPV calculation in there.

Hickey 91

Is it just me or does the case study seem to be focused on just the finance side of the module. What kind of extra information do people think that we will need?

jus_tin4

i thought i could see a cash-flow question in it too? anyone else think that?

galwaygent

I was thinking it looks like a relevant costing more so than a cash flow. and then an NPV for the other plan... Havent looked in great detail but will go take a better look now.

galwaygent

So I had a look at it there...
What it looks like to me is an NPV for the 3 year exit plan, and a relevant cost for the 1 year exit plan.

I am presuming on the day we will get information on the sons marketing report, which will give us details on the number of rentals in the future years. I am guessing we will also receive details on the pension payments, as we will need these for doing the workings.

The sons figures will allow us to get the casual wages and revenue for the next 3 years, and the pensions are also needed in both exit plans.

Anybody else spot anything I am missing??

jus_tin4

Any eg of relevant costing questions? Going to stick up what I come with for material for the exam if anyone wants to compare notes?

FrStone

galwaygent wrote: »

So I had a look at it there...
What it looks like to me is an NPV for the 3 year exit plan, and a relevant cost for the 1 year exit plan.

I am presuming on the day we will get information on the sons marketing report, which will give us details on the number of rentals in the future years. I am guessing we will also receive details on the pension payments, as we will need these for doing the workings.

The sons figures will allow us to get the casual wages and revenue for the next 3 years, and the pensions are also needed in both exit plans.

Anybody else spot anything I am missing??

Will we need to be told what discount rate to use to calculate the NPV?

galwaygent

I presume they will give us some idea of the bank loan... As they are debt free we would use this rate...

galwaygent

jus_tin4 wrote: »

Any eg of relevant costing questions? Going to stick up what I come with for material for the exam if anyone wants to compare notes?

There was a Sean Tierney question and one about the Titanic or a museum... I think both are CAP1.

Nagnad

The case study does say "They asked you to compute the indicative cash flow generated by Option One". Does this not indicate that they are looking for a Cash Flow from Oct 14 to Sep 15??

galwaygent

It does indeed... So if we take the relevant costs away from the sources of income we would be left with a cash flow. Is this right?

jus_tin4

galwaygent wrote: »

It does indeed... So if we take the relevant costs away from the sources of income we would be left with a cash flow. Is this right?

that what i originally thought... but from looking at your suggestion of relevant costing, there is much different in the 2 really.....

i can see us getting the report, an email with the pension contributions and some sort of discount rate....

claireon88

With regard to the computation of the indicative cash flow, with above comments are you guys thinking we should be using a relevent costing approach, so not including the costs that will arise either way, wages etc, including a cost saving of all outgoings in the 3 year plan and the income of the 3 year plan as a opportunity cost?
I'm thinking when doing the cash flow not to use a relevant costing approach and instead prepare a simple cash flow, what will come in and what will be spent to what we have left over at the end of the year, like preparing a budget?

What is everyone thinking of doing in terms of computing cash flow?

DONT PANIC

Looks like the 1 year plan and 3 year plan are both based on cash flows so I did up draft cash flows for both based on the information available (will need to be updated with any additional information such as pensions, Bob's findings). The question seems to stress 'risk' which makes me think they could ask for NPV with Sensitivity Analysis. The variable may be sales (based on Bob's findings) to see how much sales could decrease before reaching the minimum NPV required. Looks like we may have to draft a letter or memo identifying the potential risks.

The question does seem to be mainly finance orientated. They say there is no Cost Management System in place, could there be a question on this?

If anyone has done similar and wants to compare cash flows let me know.

Dublin Student1992

Hey guys,

The trainees in my practice got some really helpful notes regarding the SFMA case study last year from people in the big4!

Does anyone have a copy of this years notes that they could pop up or send directly to me?

Would really appreciate it- feeling stressed by the volume of stuff we need to cover!

Thanks a mill

claireon88

Hi, I'd also greatly appreciate any notes provided to anyone from their firms.
If anyone could provide anything.
Many thanks

jus_tin4

I think bobs report is more to do with the 3 year plan than the 1 year, all that's really missing is the pension bit..from what I can see, the 3 yr plan needs more details,

If anyone is will to share the big 4 notes that would also be great:)

Dublin Student1992

With regards to the activity report provided in appendix 2- this is only relevant for option one right?

I'm guessing we'll be giving the no. of rentals predicted for option 2 in the exam?

Dublin Student1992

Hey guys,

I got some notes off people in the big4, havn't gone through them yet, but if anyone wants them just PM me your email address- can't put them up!

Apparently KPMG arn't preparing notes this year, so the ones I have are from Deloitte and PWC!

jamesgibson22

Please correct me if I am wrong but it don't believe anyone has mentioned foreign exchange which could play a roll in the questions. Risk increase over the 3 years as the dollar could weaken whereas get out within a year and there is less risk. Just a thought. Minor point on risk but could be worth a mark.

Dixie100

Hi

Would you be able to help clarify the correct sales figure to use for Option 1 - 1 Year Exit Plan sales figure for the off peak weeks. should we be discounting the current rate of E1500 by 20% or the revised figure of €1500 by 20%

Thanks

HereFor

Dixie100 wrote: »

Hi

Would you be able to help clarify the correct sales figure to use for Option 1 - 1 Year Exit Plan sales figure for the off peak weeks. should we be discounting the current rate of E1500 by 20% or the revised figure of €1500 by 20%

Thanks

I think it can be interpreted either way but I'm going with the following -

Peak Quarter - €1,500 per week
Off-peak Quarter - €960 per week (i.e. old rate of €1,200 * 80%)

HereFor

Question re Three Year Exit Plan -

Sale of old cruisers, purchase of new cruisers and lease exit payment - does these happen in T0 or T1?

Similarly, sale of business for €3m - does that happen in T3 or T4?

HereFor

Question re Three Year Exit Plan -

Sale of old cruisers, purchase of new cruisers and lease exit payment - does this happen in T0 or T1?

Similarly, sale of business for €3m - does that happen in T3 or T4?

Wee_T

HereFor wrote: »

I think it can be interpreted either way but I'm going with the following -

Peak Quarter - €1,500 per week
Off-peak Quarter - €960 per week (i.e. old rate of €1,200 * 80%)

I wondered this too? Ie do we use 1500 and then discount to 1200. Or do we use the original 1200 for off peak and discount further? Also are people putting investment outlay into year 0 or year 1? Silly q I know, but panicking now

jus_tin4

Wee_T wrote: »

I wondered this too? Ie do we use 1500 and then discount to 1200. Or do we use the original 1200 for off peak and discount further? Also are people putting investment outlay into year 0 or year 1? Silly q I know, but panicking now

Im sticking with 1500 and then reducing it by 20%? whats your thinking in going back to the original of 1200 for the off peak? just would seem like a change in approach? and if it is the examiner was a bit sly.....

i put it in yr 0 but just for now till i see what comes up if anything.

the fx risk, the resource management and maybe a gearing issue( no debt, all equity based and with loan what impacts does it have on the compay's strategy and ability to pay back its debt

Wee_T

jus_tin4 wrote: »

Im sticking with 1500 and then reducing it by 20%? whats your thinking in going back to the original of 1200 for the off peak? just would seem like a change in approach? and if it is the examiner was a bit sly.....

i put it in yr 0 but just for now till i see what comes up if anything.

the fx risk, the resource management and maybe a gearing issue( no debt, all equity based and with loan what impacts does it have on the compay's strategy and ability to pay back its debt

It was the wording of it. It said they decided to raise the price of the peak period to 1500 and discount the off peak by 20%. So wasn't clear if both were increased to 1500. What do you mean joining the forum? first time using this, so not sure how to join?

galwaygent

I was going to use the €1500 for peak and €1200 for off peak... It is confusing however, as they expect the same sales for a higher price. However, they also expect the same sales if they charge €960 for the off peak season. Surely the the c.50% difference in price would attract a lot more customers for the off peak season??

I am putting the sale of cruisers in Y0.
The purchase in Y1 as its not "today".
I would put the lease exit plan in Y0 as it is on the year end.

Just my thinking, open to correction!!

galwaygent

Also, does anybody know where Deloitte are getting their figure of €79,168 from for Lough Erne??
I worked out (3/12*€50,000) is €12,500
Redundancy is (4 months * (50K/12)) =€4167.
total cost is €29167.

galwaygent

Just something I noticed... anybody have any thoughts on the below RE option 2, 3 year exit plan??

In SFMA all info is relevant, as they say the devil is in the detail... So would the fact that they say managers will clean and the boats in the off season mean that the last rentals at peak season wouldnt be paid for by cleaning staff but instead included in the managers salaries??

Also for the 1 year exit plan, do Directors pensions matter?? either way they will end up with the cash? the only difference is that the pensions will lower the Net Cash Flow.