error in mock exam afternoon session afternoon, solution, capital, current, assets

hoangvu90

this is soooooo irritating. Q51: calculate FCFE. Simple eh? EXCEPT for the fact that the solution shows the calculation for changes in working capital as Changes in current assets less changes in current liabilities. BUT for FCF, changes in nwc should expressly exclude changes in cash, short term notes, and the current portion of long term notes. (CFAI Volume 4 p391 last paragraph). so the mock exam solution is wrong, imho.

WarrenB1

@gulf - yes you are quite right, my mistake
@andrew - yes, CA-CL if they dont give you the breakdown, but on the mock they do.

i think i shall have a break.

economicz

go f*** yourself


gulfcfa Wrote:
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> ^ Andrew, stick to helping Level I ers.
>
> Or start bothering to find the question and read
> it. Noone wants answers out of your memory.
>
> The answer given by CFAI is WRONG.
>
> Did not you say you are working on SWAPS, get off
> AF...hola

RMontgomery

The discounted by required return on stock which is cost of equity...

Your understanding of required return on the stock as WACC is very wrrong...

Think of it this way, when you are buying a stock, what are you buying? You are buying equity only.

So your required return on stock is cost of equity.

If you have been working very hard lately take a break. Cause you should not be making such a mistake...

Best of luck..

eoin

I don't have it in front of me, but if I remember correctly, and with similar problems, if they don't give you the breakdown of current assets & current liabs, then you're forced to do just the change in CA- change in CL, no?


seaeffay Wrote:
-------------------------------------------------------
> this is soooooo irritating. Q51: calculate FCFE.
> Simple eh? EXCEPT for the fact that the solution
> shows the calculation for changes in working
> capital as Changes in current assets less changes
> in current liabilities. BUT for FCF, changes in
> nwc should expressly exclude changes in cash,
> short term notes, and the current portion of long
> term notes. (CFAI Volume 4 p391 last paragraph).
> so the mock exam solution is wrong, imho.

OmarAdnan

relax, CFA employes are human and they make mistakes

this has been discussed in 2 threads before....you are right....
for your own sake try the search...

CFA mocks are very poorly written...seems like someone puts it together in a couple of hours...

and the sample exams are even worse...it seems like they said let us have someone spend an hour of their time making up an exam and we see how many people will pay for it...

spreads

hmmm, thanks for that. i am stressed out enough as it is.

Newhuman

and further to that, why, in the very next question, do they insist on discounting FCFE by the "required rate of return on the stock" (which i read as WACC) when in fact, it should be discounted at the cost of equity?