# 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...

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.

Answered Same DayJan 03, 2021Southern Cross University

## Answer To: 1 ACC00716 Finance Session 3, 2019 Assessment 2: Business Case Studies 1 Due date: 22 December 2019,...

Kushal answered on Jan 07 2021
49308.docx
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
evenue After 7 Years
\$ 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%
7%
Boral Beta
1.08
CAPM
Rf + Beta * ( Rm - Rf)
Cost of Equity
8.69%
Hypothetical Company - ABC

Risk Free Rate
1.13%
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-