ACC00716 Finance Session 2019 Assessment 2 Business Case Studies 1
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 Help Submission will consist of a word document that should not exceed 1,500 words (excluding the reference list).
Overall, the assignment consists of:
- 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. 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.
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Attempt each of the following sections in your assignment submission:
- TVM and bond valuation questions (1 mark each):
- Your case company has just made a large sale on an instalment 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 4 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 7% APR, compounded monthly. How much cash will your case company receive from the bank?
- 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 5 years?
- Your company needs to borrow funds and has several options available to it, Loans A, B and
- The interest rates (APR) for these options are given in Table 1. What is the EAR of the loan option the company should choose?
- 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 3.8% APR, quarterly compounding, with 10 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
- Your company has an issue of $100 par value annual coupon bonds with 8 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?
- Your company has an issue of $1,000 par value bonds that offer a 7% coupon rate paid semi- annually. The bonds have 6 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?
- Risk and return estimates (4 marks):
- 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 -0.20 as at 5 April, 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 6% and use the company’s most recent 5 year beta.
- 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
- Risk and return analysis (15 marks):
- 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 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.
| 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) |
Table 1: Case company data (hypothetical except where noted)
| Boral (BLD) | CSL (CSL)3 | Cochlear (COH) | JB HiFi (JBH) | MYOB (MYO) | Bega Cheese
(BGA) |
|
| Instalment per
month ($’000s) |
$29.1 | $89.0 | $15.7 | $32.9 | $26.2 | $10.0 |
| Annual total revenue
($millions)1 |
$5,731.10 | $7,915.30 | $1,363.70 | $6,854.3 | $445.2 | $1,438.28 |
| Annual growth
in total revenue2 |
6.6% | 9.8% | 12.6% | 15.3% | 10.1% | 7.4% |
| Loan A (APR, compounding
frequency) |
4.93%,
monthly |
6.02%,
semi- annually |
6.48%,
quarterly |
4.26%,
semi- annually |
5.45%,
monthly |
7.00%,
semi- annually |
| Loan B (APR,
compounding frequency) |
5.00%,
semi- annually |
5.85%,
monthly |
6.45%,
daily4 |
4.25%,
quarterly |
5.50%,
semi- annually |
6.95%,
monthly |
| Loan C (APR, compounding
frequency) |
4.91%,
daily4 |
5.95%,
quarterly |
6.52%,
semi- annually |
4.24%,
daily4 |
5.40%,
daily4 |
6.97%,
quarterly |
| Property cost | $574,000 | $211,000 | $829,000 | $619,000 | $420,000 | $811,000 |
| 8 year bond annual coupon
rate |
7.05% | 3.35% | 6.15% | 5.90% | 4.10% | 5.60% |
| 8 year bond
current price |
$109.50 | $95.60 | $100.50 | $98.95 | $92.00 | $117.00 |
| 6 year bond required rate of
return |
5.10% | 3.20% | 3.40% | 4.90% | 4.80% | 4.10% |