ACC00716 Finance Session 1, 2018 Assessment 2: Business Case Studies

By April 20, 2018Academic Papers

General overview

ACC00716 Finance Session 1, 2018 Assessment 2: Business Case Studies 1 Due date: 22 April 2018, 11PM

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 total assignment submission will consist of a word document that should not exceed 1,000 words (excluding the reference list), plus a spreadsheet submission.

Overall, the assignment consists of:

  1. 6 (six) questions on time value of money and bond valuation; as well as

  2. 3 (three) tasks as part of a risk and return analysis.

Your case company

You have been assigned an ASX listed company as the context for this assignment. You can find your case company’s ASX code in Grades and Feedbackon the unit’s MySCU Learning site.

Spreadsheet template

A spreadsheet template is available for you to complete and submit. You can find the template ‘Assessment Tasks and Submission’ / ‘Business case studies 1’ on the unit’s MySCU Learning site.

  •   Download the A2 spreadsheet template and save it with your details in the file name. Use the following format: Last name_First name_Student ID_ACC00716A2_Case Company ASX Code

    For example, Jennifer Harrison, who has been allocated JBH, would save the file name as:

    Harrison_Jennifer_12345678_ACC00716A2_JBH

  •   Make sure your submitted spreadsheet file name is in this format. Otherwise, your spreadsheet may not be marked.

    Note: You can only fill in blue cells and orange cells in the named worksheets in the template! All other cells in the named worksheets are locked but you can select and copy them into another worksheet, if you wish to do additional analysis. Only the given, named worksheets will be marked. Any additional risk and return analysis you want to add to your submission must be incorporated into the word document submission.

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Assessment 2: Business Case Studies I ACC00716 S1 2018

Questions completed and submitted on the A2 spreadsheet template through the A2 spreadsheet submission link:

  1. TVM and bond valuation questions (1 mark each):

    1. Your case company has debt maturing in three years (amount shown in Table 1 on page 4 of this document). How much should the company invest now in an account paying 5% APR, compounded monthly, to ensure it has sufficient funds to repay the debt when it matures?

    2. 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 10 years?

    3. Your company has several long-term cash investment options available to it, Investments A, B and C. The interest rates (APR) for these options are given in Table 1. What is the EAR of the investment option the company should choose?

    4. Your company is buying new equipment for the amount given in Table 1. To finance this, the company’s bank has offered an amortised loan at 4.5% APR, monthly compounding, with 20 years of monthly payments. What monthly payment will the company have to make on this loan? Assume that the entire equipment cost is financed and that payments are made at the end of each period.

    5. Your company has an issue of $1,000 par value annual coupon bonds with 10 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?

    6. Your company has an issue of $1,000 par value bonds with an 8% coupon rate and quarterly coupons. The bonds have 7 years remaining until maturity. The current required return on these bonds is given in Table 1. What is the current price of the bonds?

  2. Risk and return estimates (4 marks):

    1. 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 -0.25 as at 30 March 2018. To do this, use the yield to maturity on that date of a 10-year Australian Treasury bond as a proxy for the risk- free rate, assume the market risk premium is 6.5% and use the company’s current beta.

    2. 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.

Tasks to be completed and submitted in a word document through the A2 Turnitin Link:

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.

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).

Parts 2 and 3 will be marked using the rubrics that follow.

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Assessment 2: Business Case Studies I ACC00716 S1 2018

Marking criteria for risk and return estimates

MARKING CRITERIA

Excellent

Very Good

Good

Poor

Very poor

Accurate calculation of expected returns for companies and portfolio and accurate calculation of portfolio beta (Tasks 2a and 2b: 4 marks)

You have sourced and used all the correct input data to calculate expected return of the companies and portfolio, and portfolio beta. All final calculated figures are correct (4 marks)

You have sourced and used all the correct input data and mostly used correct techniques to calculate

expected
portfolio beta. (3 to 3.5marks)

returns and

You have sourced and used mostly correct input data and mostly used correct techniques to calculate expected returns and portfolio beta. (2 to 2.5 marks).

You have not sourced and used correct input data or you have not used the correct techniques to calculate company expected returns and portfolio beta (1 to 1.5 marks).

Little or no correct data and techniques have been used to calculate expected returns and portfolio beta. (0 to 0.5 marks)

Marking criteria for written risk and return analysis and presentation

MARKING CRITERIA

Excellent

Very Good

Good

Poor

Very poor

Insightful and relevant discussion of risk and return demonstrated in the quantitative analysis (Task 3a: 10 marks)

You have interpreted each calculated risk and return measure accurately and comprehensively. You have

compared
measures
differences,
relevant theory. You have accurately woven relevant context (e.g. company industry, market conditions) into your explanations. You have used and explained important technical terms. (9 to 10 marks)

appropriate and explained drawing on

You have accurately interpreted nearly all calculated risk and return

measures.
compared
measures
differences,
relevant theory. You have woven relevant context into your explanations. You have used and explained most important technical terms. (7.5 to 8.5 marks)

You have appropriate and explained drawing on

You have interpreted most calculated risk and return

measures.
compared
measures
some differences, drawing on relevant theory. You have included some relevant context in your discussion. You have used and explained some technical terms. (5 to 7 marks)

You have appropriate and explained

You have interpreted some calculated risk and return measures. You have compared appropriate measures and summarised some differences. You have used and explained some technical terms. (2.5 to 4.5 marks)

While an explanation of technical terms may have been attempted, there is little or no interpretation or comparison of risk and return measures. (0 to 2 marks)

Presentation and written expression (Task 3a: 5 marks)

Overall presentation is well designed and professional. Data sources are provided in appropriate format and detail, as are other references as needed. Use of language makes meaning consistently clear. There are no or very few grammar, syntax and spelling errors. (5 marks)

Overall presentation is professional. Data sources and other references are provided, mostly in appropriate format and detail. Use of language makes meaning consistently clear. There are very few grammar, syntax and spelling errors. (4 to 4.5 marks)

Overall presentation is generally professional. Data sources are provided and other references are provided. Use of language mostly makes meaning clear. There may be several grammar, syntax and spelling errors. (2.5 to 3.5 marks)

Overall presentation is generally unprofessional. Data sources are not provided in appropriate format and detail. Use of language often makes meaning unclear. There are several grammar, syntax and spelling errors. (1 to 2 marks)

Overall presentation is unprofessional. Data sources are not provided. Use of language mostly makes meaning unclear. There are many grammar, syntax and spelling errors. (0 to 0.5 marks)

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Assessment 2: Business Case Studies I ACC00716 S1 2018

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

 

Boral (BLD)

CSL (CSL)3

Cochlear (COH)

JB HiFi (JBH)

MYOB (MYO)

Bega Cheese (BGA)

Debt maturing in 3 years ($millions)

$196.7

$98.0

$103.2

$369.5

$433.3

$103.8

Annual operating revenue ($millions)1

$4,257.80

$8,600.88

$1,253.84

$5,628.00

$414.28

$1,226.66

Annual growth in operating revenue2

-2.02%

14.17%

9.99%

12.47%

12.30%

5.77%

Investment A (APR, compounding frequency)

7.00%, semi- annually

5.45%, monthly

4.26%, semi- annually

6.48%, quarterly

6.02%, semi- annually

4.93%, monthly

Investment B (APR, compounding frequency)

6.95%, monthly

5.50%, semi- annually

4.25%, quarterly

6.45%, daily4

5.85%, monthly

5.00%, semi- annually

Investment C (APR, compounding frequency)

6.97%, quarterly

5.40%, daily4

4.24%, daily4

6.52%, semi- annually

5.95%, quarterly

4.91%, daily4

New equipment cost

$740,000

$420,000

$619,000

$829,000

$211,000

$574,000

10 year bond annual coupon rate

7.13%

2.70%

5.95%

6.80%

4.35%

5.20%

10 year bond current price

$1,240.00

$956.00

$1,005.00

$989.00

$920.00

$1,170.00

7 year bond required rate of return

4.5%

3.5%

3.3%

4.8%

5.1%

3.9%

1 Data from Morningstar DatAnalysis Premium for the company’s most recent financial year.
2 5 year historical CAGR from Morningstar DatAnalysis Premium, except MYO with a 1 year rate. 3 Currency shown is USD for this company.
4 Assume a 365-day year

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