i’m pretty sure i had the above answers too: 3600 RI , -3000 EVA , 31$. As for the most likely reason for inaccurate forecasts, i picked the one with items missing from the balance sheet. Remember–according to the RI model, most of the value comes from book value.
how did you get 31$ When i devided PV at share number ( 50000), I got share price less then 10. Much time lost onthis problem. Probably rate of return I used wasn’t correct. did yo take the rate done in table 2 or calculated it?
You probably got 3,1 as the answer. Add book value to it of 28 = 31,1 (or something in that region).
The question on clean surplus relationship said, if the clean surplus relationship holds which of the following is incorrect 1) comprehensive income is zero 2)no adjustment is required for balance sheet 3)no adjustment is required for income statment and 4th option i dont remember…i chose the 3rd one There was another questions which asked that intrinsic value based on RI would contain an upward bias if 1)fixed assets are taken at book value instead of market value 2) intangibles are excluded from the balance sheet 3) PV of dividends is ignored in calculation and again i m missing the last option…i spent a hell of time reading these statements again and again…just randomly selected dividends options at that time but i got it after the exam that this answer is correct…ignoring dividends will result in higher book value and higher RI thus inflating the intrinsic value…
NR2, the same with you! the second question 1)probably be downwards 2)downwards4)the answer i can’t remember.
“The question on clean surplus relationship said, if the clean surplus relationship holds which of the following is incorrect 1) comprehensive income is zero 2)no adjustment is required for balance sheet 3)no adjustment is required for income statment and 4th option i dont remember…i chose the 3rd one” I think the 2nd option more accurately was no adjustment for off-balance sheet items, and option 4) something to do with R&D. I think i might have put option 3, but can’t figure out the reason why?
singlesong80 Wrote: ------------------------------------------------------- > for the one about clean surplus, i chose > comprehensive income. anything else requires an > adjustment, which do not support clean surplus > directly. my reasoning too
You missed an option for the upward bias question… “he makes a naive assumption that growth in RI is constant.” That is the correct anwser. Assuming that RI will grow in perpetuity is naive as other firms should come into the fray seeing positive RI, competition will place pressure, and RI will decline (theoretically to 0) over time.
i know for sure comprehensive income was not the right answer for clean surplus. If you post something like currency translation to comprehensive income(balance sheet) means you are bypassing the income statement. Thus your NI does not include all your “income”, violating clean surplus. There was a sample, mock or qbank on this, thats why I am pretty sure on this. I am not sure what the right answer is but i chose the depreciation one, because capitalizing is the right thing to do (I think) so there would not be any adjustments needed.
mcpass Wrote: ------------------------------------------------------- > dirtydirty Wrote: > -------------------------------------------------- > ----- > > 3600 RI > > -3000 EVA > > 31$ share price? > > > > wording questions - one about clean surplus > what > > was the answer tehre? > > My answers exactly. In fact, I didn’t figure it > out at first so went back at the end and got it. > I’m pretty sure they are correct. +3 for me too
dirtydirty Wrote: ------------------------------------------------------- > 3600 RI > -3000 EVA > 31$ share price? > These are definitely right. I don’t remember the others.
NR2 Wrote: ------------------------------------------------------- > The question on clean surplus relationship said, > if the clean surplus relationship holds which of > the following is incorrect 1) comprehensive income > is zero 2)no adjustment is required for balance > sheet 3)no adjustment is required for income > statment and 4th option i dont remember…i chose > the 3rd one > > There was another questions which asked that > intrinsic value based on RI would contain an > upward bias if 1)fixed assets are taken at book > value instead of market value 2) intangibles are > excluded from the balance sheet 3) PV of dividends > is ignored in calculation and again i m missing > the last option…i spent a hell of time > reading these statements again and again…just > randomly selected dividends options at that time > but i got it after the exam that this answer is > correct…ignoring dividends will result in > higher book value and higher RI thus inflating the > intrinsic value… +1 for me!
Higher book value does not increase the RI Higher book value means lower ROE and a higher equity charge, an thus a lower RI
I agree with Mark4124 on the upward bias question. I picked the naive assumption about growth holding constant.
I picked the one saying excluding intan assets coz that deflate the bv and RI should be biased upwards.
I agree with Mark 4124 on the upward bias question…I picked the constant growth assumption.
lizzie404 Wrote: ------------------------------------------------------- > I picked the naive assumption about growth holding > constant. yay! +2
I chose the one saying off-balance don’t affect book value or something like this cause clean surplus is all about book value
Did anyone get $28 for the RI per share. I remember the question asked to use the single-stage model. I used (ROE-r)Bo/r-g + Bo and got $28. The PV of the residual income per share was very small, and was closest to 28. However, everyone here is agreeing to 31. Did anyone else get $28?
tito26 Wrote: ------------------------------------------------------- > Did anyone get $28 for the RI per share. I > remember the question asked to use the > single-stage model. I used (ROE-r)Bo/r-g + Bo and > got $28. The PV of the residual income per share > was very small, and was closest to 28. However, > everyone here is agreeing to 31. Did anyone else > get $28? Dudes, I spent f*cking 10 MINUTES on this goddamn question. I had this formula SOLID in my head. We had to compute ROE, then G, etc. I got BV = $28 and then I had to add to it whatever was in the [(ROE-r)xBV/r-g] and COULD NOT FOR THE F*CKING LIFE OF ME, get the answer…I kept getting something like way high, so I finally picked 59. I don’t understand how I didn’t get this. If I can remember correctly, g = 0.111, r=0.12, b = 0.8 and I can’t remember ROE, but thought it was 0.144 or 0.159 SO, I was getting: $28 + [(0.159 - 0.12) x $28/(0.12 - 0.11) and did this THREE F*CKING TIMES, cuz I knew this formula cold. I don’t know how I could’ve possibly f*cked up my inputs. I seriously kept getting something like in the 50’s, which I knew was wayyy off, so I ended u choosing $59. WANKERS!