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Kaplan IP1 - Please help

Discussion in 'Financial Planning Study Group' started by anital, 30th Jun, 2010.

  1. anital

    anital New Member

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    Hi

    I have just started my IP1 assignment and could do with a little help.

    Q4b I got NPV of $565,032 and for the PV $147,032. Q4c IRR = 15.8%.
    Am on the right track and if not can you help.

    Q5a EPS = $1.072 and P/E Ratio = 24.7. How did I do?
    I am stuck on Q5b and c. Any help would be appreciated.
     
  2. anital

    anital New Member

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    I can see where I have gone wrong in question 4.

    PV = $500,422 and NPV = $82,422

    Still need help with Q5. ANy help would be very much appreciated.
     
    Last edited by a moderator: 1st Jul, 2010
  3. HOCFP

    HOCFP Active Member

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    did you get the help you needed, if so could you please assist me with questions 5 B and c?
     
  4. Jon728

    Jon728 New Member

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    WOW Fair Price

    I worked this out yesterday afternoon, the sections of the book you need to look at is 4:6.1 and 4:7.1. The actual explanation isn't done well in the book but is in 4:7.1 and involves a bit of thinking.

    For section b you're trying to establish a fair price based upon the forecasted EPS of $1.485 supplied by the equities broker. In establishing his forecasted EPS the equities broker has done all the hard yards around forecasting WOW's Net Profit so you don't have to worry about establishing the net profit as it's already been done for you.

    Now, with that established to get a fair price you need to multiply that forecasted EPS by the Industry Average Price/Earning ratio (which was given to you as 14.05) because you're effective trying to identify a fair trading price on the market so must compare the forecasted EPS with everyone else, not just WOW. Third paragraph under 4:7.1 explains this bit.

    The calculation is:

    Fair price = Forecasted EPS x Industry Average Price/Earning Ratio

    The example under 4:7.1 is using the company's profit for the calculation and if you want to you could calculate back the equity broker's forecasted net profit for woolworths from the forecasted EPS however I discovered yesterday the answer will be the same and it does make sense that it would because as I pointed out earlier the forecasted net profit is accounted for within the forecasted EPS.

    I hope i've explained that well enough for people to follow me as i don't feel like i've been terribly articulate.

    When it comes to section c you are comparing your fair price to the current market price and then advising whether they should buy, sell or hold. 4:6.1 should help you reach that decision.
     
  5. HOCFP

    HOCFP Active Member

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    thanks Jon728

    jon thank you so much for your assistance here. I actually did exactly as you pointed out. I ended up deciding to sell the WOW stocks for a number of reasons, but your assistance really helped me.

    If you have completed the case study are you able to provide me with a couple tips to get me started please?
     
  6. Jon728

    Jon728 New Member

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    Sorry I've only done part a of question 6 so far but am planning on doing some work thursday night. What part in particular are you struggling with?
     
  7. overkamp

    overkamp New Member

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    hi anital,

    i've got some different numbers for PV and NPV
    PV = $$500,422.16
    NPV = $64,518.10

    i think our difference is that i discounted the $418k by -0.5 because it was purchased 6 months ago?

    also, i am starting the case study now, but it says to provide an investment plan proposal, does this mean we need to make a proper document like the SOA? or can we just answer the questions part a to g? cos the notes does not say anything about an investment plan proposal?

    thanks all
     
    Last edited by a moderator: 3rd Oct, 2010
  8. HOCFP

    HOCFP Active Member

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    hi mate....you dont have to do a SOA, it merely requires you to answer the questions as per normal. if you need any hints lemme know...im so excited, i just passed the assignment and let me tell ya i thought i wouldnt :)
     
  9. overkamp

    overkamp New Member

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    thanks HOCFP! I just got my assignment back and I got a pass as well! gonna do the exam in November. Good luck with yours!
     
  10. HOCFP

    HOCFP Active Member

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    well done thats awesome my exam is next month