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@Seagoat

I get your point..!

But I’,m glad you have commented on the substance of my post and not only on houmourous side of it!

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Very funny Seagoat ….Perhaps if you take off your anti-arsenal glasses,you may just see my point in there somewhere.

And regarding my passing P5 at the fourth attempt?I learnt more from failling this paper 3 times than I ever learnt from papers I passed first time ie, P4 and P2.

@Clairr :I just read the usual business sites such as Mckinsey,businesstimes,bbc business,bloomberg,CNN money etc ….If you have gone through the P5 syllabus properly, you will be able to pick up relevant articles.

Oh and the technical articles on ACCA global are an absolute must!

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Seagoat is spot on..100% “You cant fatten a cow on market day”

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@zohaib8100 said:
Do not go with practicality in p5 . It was clearly mentioned d/e was 100% . Which means that company was financed by 100% debt

Then the whole question was wrong because we were calculating Eva and Eva is about increasing shareholder value…and the mission of the company was to increase shareholder value…so what shareholders are they talking about if as you say it was 100% debt financed?

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If the company has 100% gearing,it means it has no capital and so the WACC was going to be the cost of debt adjusted for tax only?surely this is wrong.

I used the 50:50 that they used in the calculation and stated my assumption.

Am I missing something..and practically speaking,is there a company that is 100% debt financed without its own capital?

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@seagoat said:

@flexi

I also assumed 50:50 was ok and moved on although not sure if correct..

It’s a correct assumption though..I’m sure they will mark it as correct on that one

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– in calculation of WACC post-tax cost of debt whould have been taken, which gave 4.7%
– some comments about economic depreciation and replacement costs of assets, although there was no info in the question
-also discussed other assumptions used in teh calculation

Yes another interesting one was the gearing..in the assumptions it said 100% but in the calculation they used 50:50…so I went with the 50:50 as it made sense and do the tax adjustment on the cost of debt which was not done in the question

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@agrigoryan said:
The same feeling. I wrote a lot, but I guess most of it was meaningless(

I got $221 on EVA but the easy marks where in picking out what was wrong and what was right as you were asked to evaluate.whatever the correct Eva ..highly unlikely to get 15 out of 15 but very likely to get over 10 marks for pointing out what was wrong and what was right.

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What a disaster…going into the exam,I told myself I will ignore transfer price if it comes in optional questions and that’s what I did.

I did Q 3 and 4…(I passed question 1 and 3)

But 10 minutes into question 4,I realized I had zero idea what was required…I spent another 5 minutes trying to unpack it but NO..

Then I started warming up to transfer pricing with only 25 min to go..

I ended up just cleaning up Q 1 and 3 as I had no idea what was required in q4.
wish I had chosen the transfer price question because I could have at least got 7 marks..but I realized that too late in the exam

Oh ..what al disaster indeed..

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one question 1 ..what did you guys do with the lost contribution.?

The question just said the amounts are….!

…but didn’t say in which currency these were..

so I ignored them but mention that I have left the lost contribution because they currency has not been given.And then i further said if I included them they were going to reduce my cash inflows and therefore affect my NPV

So instead of just leaving them out completely ..i told the examiner what the treatment would have been if I knew the currency..

Or maybe I missed something guys?

The question just said the amounts are: and then gave the figures in years 1 to 4..

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Thankyou Sir and yes it was APV questions. So I will only use the asset beta when doing APV questions.

And again, the profit issue clears things up .They are charging it for profit purposes not for DCF purposes. now it makes sense.

Thank you ????

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Its a deal.

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Thank you Sir..

And that answers my question.The formula for kd in this case is for irredeemable debt.. That was were my confusing was because i know the IRR approach.

I saw a mock exam question where they had given the equity beta and debt beta.

They used CAPM to get Ke using the equity beta (which I was ok with ) but then they again used CAPM to get kd (by using the debt beta this time).

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Thank you very much Jay…i was just wondering when you will need them given that most of the time you can find ke and Kd using formula given in the exam.

And yes I know about beta but only equity beta and it’s relationship with the asset beta..

My question was what DEBT beta is.

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Thank you for all your help Sir..!

If you were in South Africa,I would have bought you a bottle of vintage wine from Cape Town.

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Thank you Sir,

So are you saying adjusting the WACC for inflation is the alternative to adjusting the cash flows for inflation and either way you will get the same answer?

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Noted sir.Thankyou

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Never mind..I got it..

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Thank you

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Thank you sir…!

Happy..

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It’s all about application

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At P 4 level the examiner does not ask which method you use to get to any answer .use whatever method you are comfortable with.

Remember they are not testing you on the methods here but they are asking you to apply what you know to a scenario !

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What a disaster …I literally didn’t know where to start with Q1 .so I only did q2 and 4 just as a practice match safe in the knowledge that I will be writing this paper again in June.

question 2 and 4 was all about the proverbial “test yourself under exam conditions.” if you know what I mean ..haha

And so I had all the time in the world since I only attempted like 15% of Q1

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Thank you very much John.Much appreciated.

So if today is 1Dec and I need to borrow money in 8 months for a period of 4 months.

I need to sell Sept Futures right?

Because the loan is actually starting in July

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Hi ,

FCF that you get is the value of the whole company. To get the cost of equity you have to remove the debt element.

What is left is the value of equity and you can then use that to value shares and also find the cost of equity

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