RI vignette

CFA Level II
#41

I think its because you had to use RI per share and discount that at r-g. I remember they gave the number of shares outstanding, so you would divide (ROE - r)xBo by the number of shares…

#42

I did that, though. It would’ve been $28 for the first component and then I would’ve used that BV again on the numerator line in the formula to multiply the (ROE - r) by. WTF was I doing wrong?

#43

well you’re using the right formula, which I used as well, and I got an answer that was closest to 28…that was a wierd question I have to admit, I guess maybe I could have used the wrong ROE, r, or g…

#44

i think i answer was " D"

#45

NJerseyGuy Wrote: ------------------------------------------------------- > i think i answer was " D" “D” is what I put…something like $59.

#46

Not sure if someone’s already addressed this, but I used the following to derive Int. Exp (to back out from EBIT). Book Value was $X Invested Capital was $Z Recognize that Invested Capital = BV of Debt + BV of Equity. Book Value of equity was given ($X), Invested Capital was give ($Z). Find Book Value of debt by Investment Capital - BV of Equity. That’s your D. Multiply D by r(d). That’s your Int. Expense. Take (EBIT - Int. Expense)*(1-t). That’s your NI. Back out r(e)*BV of Equity out of it - that’s your RI. Solving this problem might have cost me passing L2 this year (I spent too much time on it), but I solved it. Makes me a little proud.

#47

zim, same here…I think I spent ATLEAST a half-hour on this vignette with about 20min on this flipping problem. I kept getting 4 or 5 on the continuing RI so I just went with 31…very frustrating…also, I got like 4160 or something on that first question (the 100% div growth totally threw me off)

#48

zimzim78 Wrote: ------------------------------------------------------- > NJerseyGuy Wrote: > -------------------------------------------------- > ----- > > i think i answer was " D" > > > “D” is what I put…something like $59. Agreed $59. Was very confident.

#49

i dont know how it could be 59 if the RI for the next period was 7 cents and in RI the MAJORITY of the value is in the BV, which was given as 28

#50

That was my philosophy. I wasnt sure but picked $31

#51

the formular is constant residual BV+ (ROE - r) ----------- * BV, BV is 28 and continuing RI was higher amount (r - g)

#52

I got 31 too, maybe different exam versions?? I was pretty confident w/ my calculation.

#53

well if you do the formula BV0 = 28 + ROE (around 12% I think) minus k (around 9% I think) over k - g (I think around 7%) times BV0 You come up with a higher number than 31. The spread between the ROE and k was bigger thanthe spread between the k and g

#54

dude g was .098, req was 12, r-g was .022, but you were only dividng 3600/.022 = 165000, divide by whatever, 50,000 shares gets you 3 bucks to add to the 28

#55

cuz the roe was 12.26 vs r of 12

#56

how did u calculate ROE?

#57

ni/equity, 171600/1.4m

#58

yep I got 12.26 for ROE too and around 31 for the answer

#59

for the question to calculate RI, I knew I had to come up with the interest expense. It says the firm is financed with 70% equity and 30% debt, so I use (Equity/70%)*30% to get total debt, and then multiplied by interest rate. Anybody did the same?

#60

it had invested capital as 2m, but 1400/.7 gets to the same place, no?