1 ACC00716 Finance Session 1, 2020 Assessment 2: Business Case Studies 1 Due date: 15 April 2020, 11PM General overview This assignment has a 25% weighting in your overall mark for this unit and...

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ACC00716 Finance Session 1, 2020
Assessment 2: Business Case Studies 1
Due date: 15 April 2020, 11PM

General overview
This assignment has a 25% weighting in your overall mark for this unit and focuses on content from
Topics 3, 4 and 5. It will be marked out of 25. Your assignment submission will consist of a word
document that should not exceed 1,500 words (excluding the reference list).
Overall, the assignment consists of:
a. 6 (six) questions on time value of money and bond valuation (part 1);
. 3 (three) tasks as part of a risk and return analysis (parts 2 and 3).
Your case company
At the beginning of Week 4, you will be assigned an ASX listed company as the context for this
assignment. At that time, you can find your case company's ASX code in ‘Grades and Feedback’ on the
unit's MySCU Learning site.
All input data you need to find for calculations in this assignment must be sourced from S&P Capital
IQ. The link to the database can be found in the Web Links section of this unit’s MySCU site.
Attempt each of the following sections in your assignment submission:
1. TVM and bond valuation questions (1 mark each):
a. Your case company wants to purchase an asset. To finance this asset, they approached their
ank. The bank has offered a fixed rate of 6% APR, compounded monthly, with your case
company to make monthly payments of the amount shown in Table 1 (page 4 of this
document) at the end of each month for 5 years. What amount is your case company
o
owing?
. Your case company has annual revenue as shown in Table 1. Assume this revenue will grow
continuously at the annual rate shown in Table 1. Estimate annual revenue in 5 years.
c. Your case company needs to bo
ow funds and has several options available to it, Loans A, B
and C. The interest rates (APR) for these options are given in Table 1. What is the EAR of the
loan option the company should choose?
d. Your case company is buying new property for the amount given in Table 1. To finance this,
the company’s bank has offered an amortised loan at 4.2% APR, semi-annual compounding,
with 20 years of semi-annual payments. What semi-annual payment will the company have
to make on this loan? Assume that the entire property cost is financed and that payments are
made at the end of each period.
e. Your case company has an issue of $1,000 par value annual coupon bonds with 6 years
emaining until maturity. The annual coupon rate is given in Table 1, along with the cu
ent
price of the bonds. What is the yield to maturity on the bonds?
Assessment 2: Business Case Studies I ACC00716 S1 2020
2

f. Your company has an issue of $100 par value bonds that offer a 5% coupon rate paid semi-
annually. The bonds have 4 years remaining until maturity. The market’s required return on
these bonds is given in Table 1. What is the market price of the bonds?
2. Risk and return estimates (4 marks):
a. Use CAPM to estimate the expected return for the shares of: i) your case company; and ii) a
hypothetical company with a beta of 1.60. To do this, use the yield to maturity of a 10-year
Australian Government bond on 1 April 2020 as a proxy for the risk-free rate, assume the
market risk premium is 5.50% and use your case company’s most recent 5-year beta.
. Using the data from part 2a, estimate portfolio expected return and beta, assuming a portfolio
with 70% invested in your case company and the remainder invested in the hypothetical
company.
3. Risk and return analysis (15 marks):
a. Drawing on expectations from theory and incorporating the overall context of your chosen
company, interpret and discuss the risk and return measures from parts 2a and 2b.
Marking Criteria:
The answer to each TVM and bond valuation question in part 1 will be marked as co
ect (1 mark) or
inco
ect (0 marks). List your final answers, with each answer on a separate line. Give all answers to
two decimal places. No workings are required and no part marks will be provided but if you want
feedback on any e
ors, provide
ief workings (e.g. screenshot of completed spreadsheet template
section) as a separate numbered list below the initial list of answers.
Parts 2 and 3 will be marked using the ru
ic that follows.
Assessment 2: Business Case Studies I ACC00716 S1 2020
3


Marking criteria for risk and return estimates
MARKING CRITERIA Excellent Very Good Good Satisfactory Poor
Accurate calculation of
expected returns for
companies and
portfolio and accurate
calculation of portfolio
eta (Tasks 2a and 2b: 4
marks)
Co
ect input data used.
Technique and all final
calculated figures are co
ect
(4 marks)
Mostly co
ect input data.
Co
ect techniques and
calculations. (3.5 marks)
Co
ect input data. Mostly
co
ect techniques and
calculations. (2.5 marks).
Mostly co
ect input data.
Mostly co
ect techniques
and calculations. (2 marks).
Mostly inco
ect data and
techniques. (0 to 1.5 marks)
Marking criteria for written risk and return analysis and its presentation
MARKING CRITERIA Excellent Very Good Good Satisfactory Poor
Insightful and relevant
discussion of risk and
eturn (Task 3a: 10
marks)
Accurately and
comprehensively interprets
all calculated risk and return
measures. Co
ectly
compares appropriate
measures and explains
differences, drawing on
elevant theory. Accurately
weaves relevant context (e.g.
company industry, market
conditions) into explanations.
Uses tables or graphs
effectively to enhance the
discussion. Uses and explains
elevant technical terms. (9
to 10 marks)
Accurately interprets nearly
all calculated risk and return
measures. Co
ectly
compares appropriate
measures and explains
differences, drawing on
elevant theory. Weaves
elevant context into
explanations. Uses tables or
graphs effectively to enhance
the discussion. Uses and
explains most relevant
technical terms. (8 marks)
Accurately interprets most
calculated risk and return
measures. Co
ectly
compares appropriate
measures and explains some
differences, drawing on
elevant theory. Incorporates
some relevant context. Uses
tables or graphs but may not
e effective or explained.
Uses and explains some
technical terms. (7 marks)
Accurately interprets most
calculated risk and return
measures. Co
ectly
compares some appropriate
measures and explains some
differences. Tables or graphs,
if used, may not be effective
or explained. Uses and
explains some technical
terms. Context and theory
are limited or inco
ect (5 to
6 marks)
While an explanation of
technical terms may have
een attempted, there is
little or no accurate
interpretation or comparison
of risk and return measures.
Context, theory and
explanations are limited,
inco
ect or absent. (0 to 4
marks)
Presentation, sources
and written expression
(Task 3a: 5 marks)
Overall presentation is well
organised and looks
professional. All data sources
and other references are
provided where needed in
appropriate format and
detail. Use of language
makes meaning consistently
clear. There are no or very
few grammar, syntax and
spelling e
ors. (5 marks)
Overall presentation is
mostly well-organised and
professional. All necessary
data sources and other
eferences are provided,
mostly in appropriate
positions, format and detail.
Use of language makes
meaning consistently clear.
There are very few grammar,
syntax and spelling e
ors. (4
marks)
Overall presentation is
mostly well-organised and
neat. All necessary data
sources and other references
are provided, mostly in
appropriate positions, format
and detail. Use of language
mostly makes meaning clear.
There may be several
grammar, syntax and spelling
e
ors. (3.5 marks)
Overall presentation is fairly
neat and organised. Not all
necessary data sources are
provided or most are not in
appropriate positions, format
and detail. Use of language
mostly makes meaning clear.
There are several grammar,
syntax and spelling e
ors.
(2.5 marks)
Overall presentation is
generally unprofessional. Not
all necessary data sources
are provided or most are not
in appropriate positions,
format and detail. Use of
language often makes
meaning unclear. There may
e many grammar, syntax
and spelling e
ors. (0 to 2
marks)
Assessment 2: Business Case Studies I ACC00716 S1 2020
4

Table 1: Case company data (hypothetical except where noted)

Breville
(BRG)
Adairs
(ADH)
Harvey
Norman
(HVN)
Nick Scali
(NCK)
Beacon
Lighting
(BLX)
Super
Retail
(SUL)
Payment per
month
$4,359.00 $2,050.00 $15,897.00 $536.00 $891.00 $11,500.00
Annual total
evenue
($millions)1
$760.00 $344.40 $2,234.10 $268.00 $247.70 $2,711.40
Annual growth
in total
evenue2
10.70% 15.50% 8.10% 12.40% 9.90% 5.30%
Loan A (APR,
compounding
frequency)
3.93%,
monthly
3.02%,
semi-
annually
2.48%,
quarterly
4.26%,
semi-
annually
5.45%,
monthly
6.00%,
semi-
annually
Loan B
(APR,
compounding
frequency)
4.00%,
semi-
annually
2.85%,
monthly
2.45%,
daily3
4.25%,
quarterly
5.50%,
semi-
annually
5.95%,
monthly
Loan C (APR,
compounding
frequency)
3.91%,
daily3
2.95%,
quarterly
2.52%,
semi-
annually
4.24%,
daily3
5.40%,
daily3
5.97%,
quarterly
Property cost $1,540,000 $2,910
Apr 08, 2021ACC00716Southern Cross University
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