[muneebnawaz90]

@angleo86 said:
Did you convert the component sales price from Euro?

That conversion really increased the revenue figures for the cash flows.

Yes i did
700 x inflation rate x 150000 units x exc rate

[muneebnawaz90]

@lunix said:
I think it was reasonable to get positive NPV in Q1 as the initial outlay was not big in comparison with the cash flows in the following years.

Inflows were indeed good but in last 2 years where tax has taken 40 percent of the profits. But 21000 + 18000 and i think 3000 millions rand investment was a huge amount. Cashflows were not that of large amount.

[muneebnawaz90]

In question one my NPV was around Negative 125 million. I dont understand how can people get positive npv. Knowing that large investment amount with lower exc rate and no effect of discount factor because of year 0. First year was a loss. And only the two big inflow chunks were in year 3 and year 4 , exc rates were high in year 3 and 4 moreover discount factor also applied so how can it goes positive? I dont know. May be you guys didnt convert it to $ and taken out npv first.

Moreoever number of contracts i calculated were 124. I m not really sure but i read that twice the borrowing period was 11 months.

I had only 15 minutes left . And i had to do q2 part b worth 20 marks and Q4(b) which worth 10 marks. I decided to do part b q2 as it carries more marks. I read the question and menawhile i had 8 mins left and in 8 minutes i just calculated dividend yield decline in growth and intrest cover. I was actually writing that and time was over , dint even recommend whther to dispose off equirt stake or not!

Hoping to pass inshaAllah

[muneebnawaz90]

Thank u so v much !! 🙂

[muneebnawaz90]

Thanks sir

[muneebnawaz90]

I discounted the project 5 cash flows for year 4 — 15 like this.

Cash flows : $970000

Annuity for 15 years : 7.19
Less annuity for 1-3 years : 2.44

I.e 7.19-2.44= 4.75

Present value ( 4-15 years inflows ) : 970000×4.75= 4607500

Present value of investments ( year 1-3 ) : 4718000

Npv : 4718000-4607500=negative npv of : (110,500)

Please help me out.

[muneebnawaz90]

Can u please share the link of ur lecture on q1 DEC 14. ?

[muneebnawaz90]

Risk of default and advance payment !! Thats the key difference

[muneebnawaz90]

Kamdar yes q1 has blacksholes and most of the people missed it because dont know what this examiner actually wants! Instead of volatality he gave probabilities n all that ! This was not just limited to blackscholes. Q1 was completely a diasaster. Used maximum time and almost all of us ran out of time

[muneebnawaz90]

Cant we be unethical for a while to say few words for this p4 examiner?

Such scattered info in q1 and asked for every single thing in question 1 from blackscholes to wacc and valuation to benefits.

[muneebnawaz90]

Both treatments are acceptable.

But if question gives u hint about losses then use the second treatment which is less dep and add back.

[muneebnawaz90]

3v7 means investment required in 3months time and for 7-3 = 4 months

[muneebnawaz90]

hi there,

for ur very first query regarding cost of finance 16.32

finance required 800 .. transaction cost ( cost of finance ) is 2%

what amount of finance will you raise to get exact 800 for project = 800/0.98 = 816.32

so 816.32 – 800 is 16.32 which is cost of finance 🙂

and for ur second question regarding discounting of tax savings 7.2%

so its LIBOR + 180 basis points = 5.4 % + 1.8% = 7.2%

Libor = 5.6% ( given ) and 100 basis points = 1 % in question it was 180 basis points so 1.8%

i hope it helps you but u can wait for tutors reply.

[muneebnawaz90]

Cap value 800

Year
0 – first yr allowance (50%) = 400
1 – reducing balance (40%) = 160
2 – reducing balance (40%) = 96
3 – reducing balance (40%) = 57.6
4 – reducing balance (40%) = 34.56
5 – reducing balance (40%) = 20.7

total cap allowance = 769

cost 800 – cap all 769 = written down value 31 🙂

or u can wait for tutor reply for better understanding.

[muneebnawaz90]

You need to calculate expected lockin rate through unexpired or expired basis.

Tutor how can forward rates be acceptable for taking as spot rates ? Banks incorporates their risk n premium into forward quotes.

[muneebnawaz90]

Risk : share price go down

For example :

Share price ( today ) 100

Share price after 2 months : 95

What will be your hedge strategy ? Obviously right to sell now at 100 and buy at 95
( right to sell now is put )

Situation after 2 month
Share price 95
Gain on options 5
So risk hedged.

P.S it cant be equal because of options premium. Which i didnt consider in example. And wait for tutor reply for more detail.

[muneebnawaz90]

and what 7+ 7 ? simply ignored?

[muneebnawaz90]

thank you sir 🙂

[muneebnawaz90]

Why do we need to pay current + non current liabilities in management buyout ? Cant we run the business with same liabilities? Only paying off the existing shareholders ( the real owners ).

I understand it around 80%. This last query will really help me understand it fully.

Thanks tutor.

[muneebnawaz90]

Q1 – audit risk
Inventory
Intra group transactions
Revenue ( inherent risk due to scheme attached )
lynott company controls ( control risk ) as new
Investment revaluation ( who did that internally / externally )
Associate ( demonstrate significant control )
Brand – impairment
Clapton co ( as subs material and component auditor ) always risk
One more i dont remember

Q2 – pfi procedures

– Obtain a break up of operating expenses and verify the expenses against payroll record , and for dep expense
– Review board minutes to confirm the approval of capital expenditure
– Discuss with management and confirm the charging of price increase from September instead of May
– Obtain a loan application from the management and verify the finance cost as the increase in finance cost doesn’t look appropriate considering $8m
– confirm the remaining half of the funding of $8m against cash book/bank statement
– break up of cap expenditure and verify the expenses against supplier quotations etc

Few of the procedures arenot linked to profit and loss but it was necessary for the proper examination of profit and loss.

The point i missed was . Increase in ticket price was reasonable or not they can be confirm through competitions prices

Q5- going concern disclosures !

Because identification of all going concern event / situations can lead to

Better understandability
Reliability
Transparency
Independence
Better decision making

There was so much to write on that , something u really need to add to make ur answer strong.

[muneebnawaz90]

@ayodele

Well u can search out google for financial due diligence reports and none of the due dilgence reports have opinions but a conclusion and those conclusion are fact finding like controls are ok , growth claim is right and all the requested details .. And i have read some where the same thing about due diligence in past paper 🙂

[muneebnawaz90]

Sorry but audit procedures are not same as audit evidence

You can confirm here

https://www.accaglobal.com/content/dam/acca/global/PDF-students/2012b/examiningEvidence.pdf

As auditor deals with the appropriates of amounts in financial statement ..

You can say ( xyz document showing the agreement of xyz amount to a xyz area of financial statement )

Audit procedure : performing circularization to debtors
Audit evidence : replies from debtors ..

The words inspect review obtain is totally inapporiate as far as evidences are concerns ..

Evidences are the document which you document in your working file !

[muneebnawaz90]

Well i said acturial service acceptabale as it is immaterial to financial statement plus i said that acturial valuation expert partner cant be the partner for audit and indepedent partner review should be required to mitigate self review threat

[muneebnawaz90]

Well due diligence is fact finding report . I dont think we give any negative assurance there.

I just checked few financial due diligence report on internet and they all have conclusions rather than any opinion 🙂

Do you guys have any idea ?

Question asked the difference between conclusion ( not opinion ) of due diligence and opinion in audit ?

[muneebnawaz90]

Provision of non audit service to listed audit client is allowed if it is immaterial to financial statement and it was immaterial to FS so allowed but there should be seperate team with seperate partners ! Actuary partner shouldnt involve with audit and independent partner review should be required to mitigate the self review threat 🙂 !!
in due diligence i wrote

Effectivesness of internal controls
Condition attached to venture capital comp loan
Market share of Mizzen co
Cashflow forecast and the growth considering the claim that growth increased dramatically !!
Organizational structure
Penalities attached with venture capital loan because early repayment may impose penalties
Staff level and their skills and experties so mgmt decide who to retain .

Further info
Balance sheet
Cashflow forecast

🙂

YA ALLAH MADAD 🙂

[Author]

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