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FINS1613 past papers (1 Viewer)

APCSfan

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Btw anyone help me on Q13 of the 2006 S1 paper. I don't seem to be getting any of the answers, which is ironic :/

Are the flotation costs relevant to the question? :O
yeh they are, Re = 2(1.08)/30(1-0.15) + 0.08 = 16.47% (flotation cost essentially reduces its value)
same for preference shares ==> Rp = 2/20(1-0.1) = 11.11%
you should end up with WACC = 12.3%
And then just solve for Tax, end up with T = 32.86% (B)
 

DforDANNY

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oh wait nvm i found why for Q6. but for Q5.

As for Q5, for after tax salvage value, do they include the total cost of depreciation (i.e the 1 million dollars been depreciated every year) into finding what the after tax salvage value is?
I'll have a go at it after reading page 271 of the textbook -
As the expected salvage value does not equal the depreciatedbook value of the store (7.5mil and 6.mil, respectively), adjusting for tax is necessary
tax payable = (salvage value - book value)*(1-T) = (7.5-6.9)(1-0.4)=0.9mil
after-tax salvage value? = book value + tax payable = 6mil + 0.9mil = 6.9mil

lol. other than that, I don't know :-(
 

natebrah1

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Q44 of 2006 paper - i keep finding that the answer is A) $32.00 i.e the stock price does not change due to the new capital structure and using the debt funds to repurchase outstanding shares. The solution says the answer is e) $34.72. Anyone know how to get $34.72 or is my logic correct haha?

and any help with Q47?
 
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Omnipotence

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I'll have a go at it after reading page 271 of the textbook -
As the expected salvage value does not equal the depreciatedbook value of the store (7.5mil and 6.mil, respectively), adjusting for tax is necessary
tax payable = (salvage value - book value)*(1-T) = (7.5-6.9)(1-0.4)=0.9mil
after-tax salvage value? = book value + tax payable = 6mil + 0.9mil = 6.9mil

lol. other than that, I don't know :-(
It depreciates 1 mil/year so at the 4th year it is worth a book value of 6
Umm its tax = (salvage value - book value)(tax rate) = (7.5 - 6)(0.4) = 0.6
After-tax salvage value = salvage value - tax = 7.5 - 0.6 = 6.9
 

APCSfan

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Q44 of 2006 paper - i keep finding that the answer is A) $32.00 i.e the stock price does not change due to the new capital structure and using the debt funds to repurchase outstanding shares. The solution says the answer is e) $34.72. Anyone know how to get $34.72 or is my logic correct haha?

and any help with Q47?
Ummm, because they use debt now they have interest payments, and the outstanding shares are less than before:
Current shares outstanding = NI/EPS = $480m/$3.2 = 150m shares
We know interest expense is 84m (given, or you can figure it out for yourself 0.07 x $1200m = $84m)
Shares rebought = New Debt/Price = $1200m/$32 = 37.5m shares
Therefore, New shares outstanding = 150m - 37.5m = 112.5m shares
So now, New EPS: (EBIT - INT)(1-T)/New Shares outstanding = (800m-84m)(1-0.4)/112.5m = $3.8187
So new share Price = EPS/Ks = $3.8187/0.11 = $34.72 (D) !
 
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DforDANNY

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It depreciates 1 mil/year so at the 4th year it is worth a book value of 6
Umm its tax = (salvage value - book value)(tax rate) = (7.5 - 6)(0.4) = 0.6
After-tax salvage value = salvage value - tax = 7.5 - 0.6 = 6.9
cheers for clearing that up
 

APCSfan

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I need help w/ Q6 lol
Im assuming you understand the other 2 parts so,

NPV = -13m + 5.2m x PVIFA(10%,3) + 8.2m/1.1^4 + 6.9m/1.1^4 = 10.25m = D

-13m is initial outlay, 5.2m is the cash flow from t=1 to t=3, and 8.2m is t=4 cash flow.
the after tax salvage value is 6.9m which you receive at t=4 as well, so you have to discount it too!
 

DforDANNY

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Im assuming you understand the other 2 parts so,

NPV = -13m + 5.2m x PVIFA(10%,3) + 8.2m/1.1^4 + 6.9m/1.1^4 = 10.25m = D

-13m is initial outlay, 5.2m is the cash flow from t=1 to t=3, and 8.2m is t=4 cash flow.
the after tax salvage value is 6.9m which you receive at t=4 as well, so you have to discount it too!
Ah cheers. It was the net working capital part that threw me off, I thought there was 0 net change since CA =+2, CL= +2, 2-2=0 :-/
Reminds me that I'm terrible at accounting. LOL
 

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yeh they are, Re = 2(1.08)/30(1-0.15) + 0.08 = 16.47% (flotation cost essentially reduces its value)
same for preference shares ==> Rp = 2/20(1-0.1) = 11.11%
you should end up with WACC = 12.3%
And then just solve for Tax, end up with T = 32.86% (B)
WTF I got a overly high tax rate this time. wtf?? =_=

Anyway, making sure, is the Rd = 11%

And what I did was this:

WACC = E/V *Re + P/V *Rp + D/V *Rd*(1-Tc)

then i let E/V = 0.5, PV = 0.1 and D/V = 0.4. Now given the rest above as you stated, I got some ridiculously high Tc =_=

Think I'm doing something wrong here =_='

I'll have a go at it after reading page 271 of the textbook -
As the expected salvage value does not equal the depreciatedbook value of the store (7.5mil and 6.mil, respectively), adjusting for tax is necessary
tax payable = (salvage value - book value)*(1-T) = (7.5-6.9)(1-0.4)=0.9mil
after-tax salvage value? = book value + tax payable = 6mil + 0.9mil = 6.9mil

lol. other than that, I don't know :-(
It depreciates 1 mil/year so at the 4th year it is worth a book value of 6
Umm its tax = (salvage value - book value)(tax rate) = (7.5 - 6)(0.4) = 0.6
After-tax salvage value = salvage value - tax = 7.5 - 0.6 = 6.9
holy fuck thanks mate. far out i even need to remember my accounting 1A stuff =_=
 

APCSfan

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ok so D/V = 0.4, E/V = 0.5, P/V = 0.1
Rd = 0.11
Rp = 0.1111
Re = 0.1647
WACC = 0.123
therefore: 0.123 = 0.4(0.11)(1-Tc) + 0.1(0.1111) + 0.5(0.1647). ===> Tc = 0.3286 (B)
Is this what u put in? maybe u might be mixing up percent/decimals
 

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ok so D/V = 0.4, E/V = 0.5, P/V = 0.1
Rd = 0.11
Rp = 0.1111
Re = 0.1647
WACC = 0.123
therefore: 0.123 = 0.4(0.11)(1-Tc) + 0.1(0.1111) + 0.5(0.1647). ===> Tc = 0.3286 (B)
Is this what u put in? maybe u might be mixing up percent/decimals
Okay i think it's the percent/decimals crap atm.

perhaps ill just use wolfram alpha to confirm my answer
 

Omnipotence

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WTF I got a overly high tax rate this time. wtf?? =_=

Anyway, making sure, is the Rd = 11%

And what I did was this:

WACC = E/V *Re + P/V *Rp + D/V *Rd*(1-Tc)

then i let E/V = 0.5, PV = 0.1 and D/V = 0.4. Now given the rest above as you stated, I got some ridiculously high Tc =_=

Think I'm doing something wrong here =_='
Yeah Rd = 0.11
Rp = 2 / 20(0.9) = 1/9

P = Div0(1+g)/Re-g
30(0.85) = 2(1.08)/Re-0.08
Re = 14/85

Should be easy from there.
 

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Oh as for the 2006 paper, for Q14, how does one manage to get to the expected dividend ratio? like do we need to calculate the existing one first?

If we get Q15 wrong, would it be likely we get Q16 wrong? =_=

*sigh* I can't even do either of those two questions. T_T
 

APCSfan

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Oh as for the 2006 paper, for Q14, how does one manage to get to the expected dividend ratio? like do we need to calculate the existing one first?
EBIT = 2M
D/V = 0.4, E/V = 0.6
T = 0.4
current shares outstanding = 1m shares
current debt = 5m

New Project:
Capital Budget = $1.2m
EBIT = 2M
INT = 0.1*5m + 0.4*1.2*0.1 (Original debt interest + new interest where you finance 40% of it with debt)
==> = $0.548m
therefore, NI = (EBIT - INT)(1-Tc) = (2-0.548)*0.6 = $0.8712

Now, Retained Earnings = Capital budget*E/V = 1.2m*0.6 = $0.72m
Therefore, you have dividends = 0.8712m - 0.72m = $0.1512m
Therefore, payout ratio = Dividends/NI = 0.1512m/0.8712m = 17.4% (D)
 

APCSfan

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If we get Q15 wrong, would it be likely we get Q16 wrong? =_=

*sigh* I can't even do either of those two questions. T_T
Yeh, cos you need the right growth to get the right price. :x
 

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