BSAS 2012 Questions Help

CFA Level II
#1

  1. For Question 50 on the Afternoon Session, the use the difference in net fixed assets as FCInv to calculate FCFF - shouldn’t it be the difference in net fixed assets + depreciation as your FCInv. Do you incorporate the given amount of 73 of capital expenditures for the equation at all?

  2. For Question 36 of the Afternoon Session, to solve for the P/B of Store A (given retention rate, cost of equity, g, roe, and net profit margin) wouldn’t you calculate (ROE-g)/(r-g)? Also, b x ROE gets you a growth rate much higher than the 8% thats given. How does ROE x trailing P/E get you the P/B ratio that they are looking for in the answers?

#2

anyone know where to find the BSAS 2012 errata?

#3

Both these Q’s I got wrong as well. #2 I gave up trying to understand. I thought Justified P/B = (ROE-g)/(r-g), but in the Q it asks you to calculate based on the Gordon Growth Model, so I guess thats a different way? Gave up trying to understand as I’ve never seen that formula in the CFA texts.

#4

I don’t have access to these questions but here are my comments based on what you have posted here.

  1. If the capex is given directly, why do you even need to calculate it? Capex is supposed be FCInv. But I do agree that FCInv is either difference in the gross PPE or net PPE + dept without any asset disposals.

  2. Both the approaches should yield you the same result. ROE*trailing P/E does give you the P/B ratio because ROE is nothing but NI/Equity and equity in this ratio is the book value of the equity(Remember E = A - L, and this E is based on the book value), so you can restate ROE as E/B or EPS/BVPS. Now E/B*P/E or EPS/BVPS*PPS/EPS, should give you P/B. Now there could some of caveats in the question that what if clean surplus equation does not hold. If this is the case books value of equity in ROE many not reflective of actual book value of the firm. Also, you have to take into account that equity in ROE formula is the average equity but in the trailing P/E, I don’t think it is but there must be something in the question to say whether they are considered equal or not.

#5

I think the BSAS exam answers might be wrong. I think the errata come out May 25th or so? It says on the first page on the exam when it comes out.