[jeff]

Welcome to the Q1 2016 CPA Exam Study Group for BEC.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[monikernc]

cortes…you won't like this answer very much because i can't figure out a way to simplify it. but to put it back in terms of the % of change equation, (Current Balance – Prior Balance)/Prior Balance, when the dollars are indexed to CPI you have to first convert the older dollars $72,800 to current dollars to get the Prior Balance in Current Dollars for the % of change equation to resolve in current dollars.

Prior Balance in Current Dollars is = $72,800 *(168.5/121.3) and Current Balance is already in current dollars so it is = $100,500.

So the % of change equation in Current Dollars is now:

(100,500 – (72,800(168.5/121.3)) / (72,800(168.5/121.3)) = .00621 or .6%

doing it this way may simplify it a bit…or not, remember, this is BEC…enough said

if you still want to know why you use the ratio 168.5/121.3 to convert the 72,800 to current dollars, i suggest you read this simple tutorial. https://qrc.depaul.edu/bbeck/misc/CPITutorial.htm

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[payaza2000]

@cortes

100,500/ (168.5/121.3)=72354-72800=-445

-445/72800=-.006 or .60%

FAR 5/6/2015- 84
REG 8/3/2015 - 87
AUD 10/25/2015- 69 1/20/2016 -75
BEC 2/26/2016- 80

Thank you God

[Anonymous]

Thanks payaza2000! I think I am overthinking this and that I should just know the calculation 🙂

[Anonymous]

Thanks monikernc. I will check your link later and after that I will focus on knowing the calculation as it is and move forward. I feel that I am overthinking this 🙂

[payaza2000]

@cortes

Don't sweat it man. you seem to have a solid conceptual understanding. I really suck at BEC, I was hoping that this was gonna be my “easy one.” not quite. :p

@monikernc

Could you take a look at my answer to Cortes, worked backwards, is that not how you are supposed to do it? Or is that also acceptable? Thanks.

FAR 5/6/2015- 84
REG 8/3/2015 - 87
AUD 10/25/2015- 69 1/20/2016 -75
BEC 2/26/2016- 80

Thank you God

[monikernc]

payaza yours is fine. i think this is one of those questions that helps us understand the full concept but is more in depth than any one question on the exam. i could be wrong. but i think the exam will have us do parts of this, like calculate the current amount for the prior year expenses. you just never know which part they will want at any given time.
cortes, i think you can think this one through once, know it and be ready for it.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[SaveBandit]

Does anyone have a good way to memorize how appreciation/depreciation in foreign currency impacts AR/AP/Imports/Exports?

I miss every single question I get on these. I really don't understand the concept at all. I would really like just a chart or something to memorize so I don't have to struggle over it anymore.

4 for 4

FAR 85
AUD 94
BEC 86
REG 90

[monikernc]

savebandit – this short article helped me a lot. just simpler to understand.

https://finance.zacks.com/appreciation-dollar-mean-10052.html

simple notes i've made:
A/P – buy a call
A/R – buy a put

money mkt hedges:
to hedge a receivable – borrow foreign currency and buy US$ today
to hedge a payable – borrow us$ and buy foreign currency today

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[FAR_WARS]

CAPM:

c=r+b(m-r)

If we find c, we can use this number as equity (times the relative percent) when calculating WACC? But this is only true when there is no debt?

FAR- 80
BEC- 75
AUD- 78
REG- ?

[monikernc]

savebandit, the other thing i do for those questions that give a change in the foreign currency to the US$, for example, british pounds go from 1.5 to $1 to 1.7 to $1, is do the inverse to see what the change in US currency is. $1/1.5 = 1 Pound = $.6667, and $1/1.7 = 1 Pound = $.5882, so i know that one pound buys fewer $'s, and then think through the question.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[monikernc]

Farwars, you lost me on that question. Is there a mcq you can post?

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[FAR_WARS]

First we use the CAPM formula to find 16.5%. We then use this number in the WACC formula to get our answer. We can only do this because we are dealing with 100% equity and 0% debt. Is this correct? Here is the question, have fun:

Datacomp Industries, which has no current debt, has a beta of .95 for its common stock. Management is considering a change in the capital structure to 30% debt and 70% equity. This change would increase the beta on the stock to 1.05, and the after-tax cost of debt will be 7.5%. The expected return on equity is 16%, and the risk-free rate is 6%. Should Datacomp's management proceed with the capital structure change?

A- No, because the cost of equity capital will increase
B- Yes, because the cost of equity capital will decrease
C- Yes, because the weighted-average cost of capital will decrease
D- No, because the weighted-average cost of capital will increase

Choice “c” is correct. First, compute Datacomp's current weighted-average cost of capital by using the capital asset pricing model (CAPM):
R = RF+B(RM-RF)
R = .06+.95(.16-.06)
R = 15.5%

Because there is no debt, the WACC is equal to the CAPM formula for equity or 15.5%. When debt is introduced, the WACC is calculated by first using the CAPM to determine the required retum on equity:
R = .06+1.05(.16-.06)
R = 16.5%

Assuming an after-tax cost of debt is equal to 7.5%, the WACC becomes:
(.165 * (.70)) + (.075 , (.3)) = 13.8%

Therefore, Datacomp should change its capital structure because its WACC will decrease.

FAR- 80
BEC- 75
AUD- 78
REG- ?

[Anonymous]

That is correct Farwars. Althought it is highly unusual bc of the higher cost carried by equity (shareholders require a higher amount of return bc of their risk among other things) if a company has 100% equity and the mcq ask for the CAPM or the Dividend Price Model then the company WACC will simply be its cost of equity.

EDIT:
WACC will be = to the result of CAPM or Dividend price model calculations

[FAR_WARS]

@cortes

thanks!

FAR- 80
BEC- 75
AUD- 78
REG- ?

[payaza2000]

Can someone clearly explain the difference between

-Future Hedges
-Forward Hedges
-Call Option
-Call Put.

I really struggled understanding Beckers explanation

FAR 5/6/2015- 84
REG 8/3/2015 - 87
AUD 10/25/2015- 69 1/20/2016 -75
BEC 2/26/2016- 80

Thank you God

[Author]

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