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the question paper is attached, Please refer to the rubric and follow the instructions. it is very important for me to pass this assignment i have already failed in this once so please do it very carefully.thank you and NO PLAGIRISM please.

1 ACC00716 Finance Session 3, 2019 Assessment 2: Business Case Studies 1 Due date: 22 December 2019, 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); b. 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. To use this database, you will need to apply for a user account. Instructions and the link to the database can be found in the Web Links section of this unit’s MySCU site. Please read those instructions carefully and set your account up early in the session. Attempt each of the following sections in your assignment submission: 1. TVM and bond valuation questions (1 mark each): a. Your case company has just made a large sale on an instalment contract. The contract requires the customer to pay your case company the amount shown in Table 1 (page 4 of this document) at the end of every month for 5 years. Your case company would like the cash now for an investment and so has asked its bank to discount the instalment contract and pay it the discounted value. The bank will discount the contract at 6% APR, compounded monthly. How much cash will your case company receive from the bank? b. Your company has annual operating revenue as shown in Table 1. Assume this revenue will grow continuously at the annual rate shown in Table 1. What is your prediction for annual operating revenue in 7 years? c. Your company needs to borrow 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 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 3.65% APR, quarterly compounding, with 11 years of quarterly payments. What quarterly 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. Assessment 2: Business Case Studies I ACC00716 S3 2019 2 e. Your company has an issue of $100 par value annual coupon bonds with 7 years remaining until maturity. The annual coupon rate is given in Table 1, along with the current price of the bonds. What is the yield to maturity on the bonds? f. Your company has an issue of $1,000 par value bonds that offer a 8% coupon rate paid semi- annually. The bonds have 5 years remaining until maturity. The market’s required return on these bonds is given in Table 1. What is the amount of each coupon payment? 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 negative beta of -0.30 as at 6 December, 2019. To do this, use the yield to maturity on that date of a 10-year Australian Government bond as a proxy for the risk-free rate, assume the market risk premium is 7% and use the company’s most recent 5 year beta. b. Using the data from part 2a, estimate portfolio expected return and beta, assuming a portfolio made up of your case company and the hypothetical company in equal weighting. 3. Risk and return analysis (15 marks): a. Drawing on expectations from theory and incorporating the overall context of your chosen company, discuss and interpret the risk and return measures from parts 2a and 2b. You may include additional measures. If so, clearly source the data and ensure you clearly explain your calculations. Marking Criteria: The answer to each TVM and bond valuation question in part 1 will be marked as correct (1 mark) or incorrect (0 marks). Give your final answer to each of the 6 questions on a separate line in the first section of your assignment submission. 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 errors, provide brief workings (e.g. screenshot of completed spreadsheet template section) for each question under the list of 6 answers. Parts 2 and 3 will be marked using the rubric that follows. Assessment 2: Business Case Studies I ACC00716 S3 2019 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 beta (Tasks 2a and 2b: 4 marks) Correct input data used. Technique and all final calculated figures are correct (4 marks) Mostly correct input data. Correct techniques and calculations. (3.5 marks) Correct input data. Mostly correct techniques and calculations. (2.5 marks). Mostly correct input data. Mostly correct techniques and calculations. (2 marks). Mostly incorrect 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 return (Task 3a: 10 marks) Accurately and comprehensively interprets all calculated risk and return measures. Correctly compares appropriate measures and explains differences, drawing on relevant 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 relevant technical terms. (9 to 10 marks) Accurately interprets nearly all calculated risk and return measures. Correctly compares appropriate measures and explains differences, drawing on relevant theory. Weaves relevant 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. Correctly compares appropriate measures and explains some differences, drawing on relevant theory. Incorporates some relevant context. Uses tables or graphs but may not be effective or explained. Uses and explains some technical terms. (7 marks) Accurately interprets most calculated risk and return measures. Correctly 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 incorrect (5 to 6 marks) While an explanation of technical terms may have been attempted, there is little or no accurate interpretation or comparison of risk and return measures. Context, theory and explanations are limited, incorrect 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 errors. (5 marks) Overall presentation is mostly well-organised and professional. All necessary data sources and other references are provided, mostly in appropriate positions, format and detail. Use of language makes meaning consistently clear. There are very few grammar, syntax and spelling errors. (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 errors. (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 errors. (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 be many grammar, syntax and spelling errors. (0 to 2 marks) Assessment 2: Business Case Studies I ACC00716 S3 2019 4 Table 1: Case company data (hypothetical except where noted) Boral (BLD) Commonwealth Bank (CBA) Woolworths (WOW) JB HiFi (JBH) Qantas (QAN) Instalment per month ($’000s) $30.2 $98.0 $15.7 $32.9 $26.2 Annual total revenue ($millions)1 $5,800.60 $22,856.00 $59,984.00 $7,095.3 $17,966.00 Annual growth in total revenue2 6.99% 1.22% 1.12% 16.14% 3.22% Loan A (APR, compounding frequency) 4.53%, monthly 5.95%, semi- annually 6.84%, quarterly 4.62%, semi- annually 5.54%, monthly Loan B (APR, compounding frequency) 5.15%, semi- annually 6.02%, monthly 6.54%, daily3 4.52%,

1 ACC00716 Finance Session 3, 2019 Assessment 2: Business Case Studies 1 Due date: 22 December 2019, 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); b. 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. To use this database, you will need to apply for a user account. Instructions and the link to the database can be found in the Web Links section of this unit’s MySCU site. Please read those instructions carefully and set your account up early in the session. Attempt each of the following sections in your assignment submission: 1. TVM and bond valuation questions (1 mark each): a. Your case company has just made a large sale on an instalment contract. The contract requires the customer to pay your case company the amount shown in Table 1 (page 4 of this document) at the end of every month for 5 years. Your case company would like the cash now for an investment and so has asked its bank to discount the instalment contract and pay it the discounted value. The bank will discount the contract at 6% APR, compounded monthly. How much cash will your case company receive from the bank? b. Your company has annual operating revenue as shown in Table 1. Assume this revenue will grow continuously at the annual rate shown in Table 1. What is your prediction for annual operating revenue in 7 years? c. Your company needs to borrow 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 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 3.65% APR, quarterly compounding, with 11 years of quarterly payments. What quarterly 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. Assessment 2: Business Case Studies I ACC00716 S3 2019 2 e. Your company has an issue of $100 par value annual coupon bonds with 7 years remaining until maturity. The annual coupon rate is given in Table 1, along with the current price of the bonds. What is the yield to maturity on the bonds? f. Your company has an issue of $1,000 par value bonds that offer a 8% coupon rate paid semi- annually. The bonds have 5 years remaining until maturity. The market’s required return on these bonds is given in Table 1. What is the amount of each coupon payment? 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 negative beta of -0.30 as at 6 December, 2019. To do this, use the yield to maturity on that date of a 10-year Australian Government bond as a proxy for the risk-free rate, assume the market risk premium is 7% and use the company’s most recent 5 year beta. b. Using the data from part 2a, estimate portfolio expected return and beta, assuming a portfolio made up of your case company and the hypothetical company in equal weighting. 3. Risk and return analysis (15 marks): a. Drawing on expectations from theory and incorporating the overall context of your chosen company, discuss and interpret the risk and return measures from parts 2a and 2b. You may include additional measures. If so, clearly source the data and ensure you clearly explain your calculations. Marking Criteria: The answer to each TVM and bond valuation question in part 1 will be marked as correct (1 mark) or incorrect (0 marks). Give your final answer to each of the 6 questions on a separate line in the first section of your assignment submission. 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 errors, provide brief workings (e.g. screenshot of completed spreadsheet template section) for each question under the list of 6 answers. Parts 2 and 3 will be marked using the rubric that follows. Assessment 2: Business Case Studies I ACC00716 S3 2019 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 beta (Tasks 2a and 2b: 4 marks) Correct input data used. Technique and all final calculated figures are correct (4 marks) Mostly correct input data. Correct techniques and calculations. (3.5 marks) Correct input data. Mostly correct techniques and calculations. (2.5 marks). Mostly correct input data. Mostly correct techniques and calculations. (2 marks). Mostly incorrect 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 return (Task 3a: 10 marks) Accurately and comprehensively interprets all calculated risk and return measures. Correctly compares appropriate measures and explains differences, drawing on relevant 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 relevant technical terms. (9 to 10 marks) Accurately interprets nearly all calculated risk and return measures. Correctly compares appropriate measures and explains differences, drawing on relevant theory. Weaves relevant 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. Correctly compares appropriate measures and explains some differences, drawing on relevant theory. Incorporates some relevant context. Uses tables or graphs but may not be effective or explained. Uses and explains some technical terms. (7 marks) Accurately interprets most calculated risk and return measures. Correctly 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 incorrect (5 to 6 marks) While an explanation of technical terms may have been attempted, there is little or no accurate interpretation or comparison of risk and return measures. Context, theory and explanations are limited, incorrect 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 errors. (5 marks) Overall presentation is mostly well-organised and professional. All necessary data sources and other references are provided, mostly in appropriate positions, format and detail. Use of language makes meaning consistently clear. There are very few grammar, syntax and spelling errors. (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 errors. (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 errors. (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 be many grammar, syntax and spelling errors. (0 to 2 marks) Assessment 2: Business Case Studies I ACC00716 S3 2019 4 Table 1: Case company data (hypothetical except where noted) Boral (BLD) Commonwealth Bank (CBA) Woolworths (WOW) JB HiFi (JBH) Qantas (QAN) Instalment per month ($’000s) $30.2 $98.0 $15.7 $32.9 $26.2 Annual total revenue ($millions)1 $5,800.60 $22,856.00 $59,984.00 $7,095.3 $17,966.00 Annual growth in total revenue2 6.99% 1.22% 1.12% 16.14% 3.22% Loan A (APR, compounding frequency) 4.53%, monthly 5.95%, semi- annually 6.84%, quarterly 4.62%, semi- annually 5.54%, monthly Loan B (APR, compounding frequency) 5.15%, semi- annually 6.02%, monthly 6.54%, daily3 4.52%,

1.TVM and bond calculations-

A. Present Value of the cash

Installment amount

30.2

Frequency

12

Years

5

Annual rate

6%

Monthly rate

0.50%

Present value

$1,562.11

As we can see the company will receive the $ 1562.11k cash today for the investment , if it plans to pay a monthly installment of $ 30.2k.

B. Projected revenue

Current Annual Revenue

$ 5,800.60

Annual growth rate

6.99%

R

$ 9,308.40

As we can see if the revenue increases at the CAGR of 6.99%, revenue after the 7 years will be $ 9308.40 million AUD.

C. Effective Annual rate

EAR

Loan A

Loan B

Loan C

Rate

4.53%

5.15%

4.82%

Frequency

12

2

365

EAR

4.63%

5.22%

4.94%

The Effective annual rate depends upon the frequency of compounding. As you can see , the Loan B has the highest rate and Loan A has the lowest Effective Annual rate.

The compounding takes place in these rates and it will lead to the higher rate. The highest rates would be for the continuous compounding .

D. Installment Amount -

APR

3.65%

Number of Periods

44

Amount financed

586,000

Installment Amount

$ 16,230.11

With the company financing the $586,000 amount using the 3.65% APR, the firm will pay the installments for the 44 quarters and for each installment they need to pay $16,230.11 AUD.

E. Yield on the maturity Bonds -

To calculate the yields, we will consider the coupon payments as the installment amounts, the par value as the loan principal and the years to maturity as the loan time period.

Par Value

100

Number of years to maturity

7

Current Bond Price

107.25

Coupon rate

5.07%

Coupon payments

5.07

1/6/2020

1/4/2027

Yield to Maturity

3.87%

For a bond which pays the coupon payments annually and 5.07% of the coupon rate, with a face value of $ 100 will pay somewhere around 5.07. The current price of the bond is 107.25 hence the bond is trading at a premium to the par and hence, the yield to maturity on this bond has to be lower than the coupon rate.

Since the yield to maturity is lower than the coupon rate the discounted coupon payments will be discounted at the lower rates and hence, the bond price tend to be higher than the face value. If the yield to maturity is higher than the coupon rate then the discounting happens at a higher rate taking the bond price above the par value.

F. Bond Price

par Value

1000

Number of years to maturity

5

Coupon rate

8%

Required Return

4.95%

Frequency

2

Coupon Payment

40

Settlement Date

1/6/2020

maturity date

1/4/2025

Bond Price

818.3376864

If the frequency of the coupon payment is semi annually and the required rate of return is 4.95% (Assumed to be semiannually) then the bond will be trading at % 818.37. Hence, the bond is trading at a discount due to the higher effective annual rate than the coupon rate.

If the yield to maturity is higher than the coupon rate then the discounting happens at a higher rate taking the bond price above the par value.

2. Risk and Return calculations -

A. We have used the capital asset pricing model to calculate the required rate of return for the stock. We have used the Thomson reuters for the 5 year beta and risk free rate on the 6th December.

Case Company - Boral

Risk Free Rate

1.13%

Market Risk Premium

7%

Boral Beta

1.08

CAPM

Rf + Beta * ( Rm - Rf)

Cost of Equity

8.69%

Hypothetical Company - ABC

Risk Free Rate

1.13%

Market Risk Premium

7%

Boral Beta

-0.3

CAPM

Rf + Beta * ( Rm - Rf)

Cost of Equity

-0.97%

B. Portfolio using the hypothetical company-

Here, we are calculating the expected portfolio return and the portfolio beta using the weighted sum method. With the 50% weights to each, the portfolio beta and the portfolio expected rate decreases due to having the negative beta stock in the portfolio.

portfolio beta

W1

50%

W2

50%

B1

1.08

B2

-0.3

Portfolio Beta

0.39

Portfolio Return

Expected Return1

8.69%

Expected return 2

-0.97%

Portfolio return

3.86%

3. Risk and return Analysis-

Boral Limited business summary-

Boral Limited is an Australia-based company, which is engaged in the provision of building and construction materials. The Company's products include ash, asphalt, blocks, bricks, cement, cement additives, cement dry mixes, concrete, decorative concrete, lime and...

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