Corporate Financial Management

Corporate Financial Management

Table of Contents
Part A...............................................................................................................................................3
Stock Market Index......................................................................................................................3
Australian Securities Index..........................................................................................................3
Logarithmic Return......................................................................................................................4
Portfolio and Beta........................................................................................................................5
Beta..............................................................................................................................................6
The hypothesis of weak form market efficiency.........................................................................9
T-test of Weak Form Market Efficiency...................................................................................10
The findings...................................................................................................................................11
PART B.........................................................................................................................................11
Introduction................................................................................................................................11
Weighted average cost of capital (WACC)...............................................................................13
Gordon’s Growth Model (GGM)...........................................................................................13
Capital Asset Pricing Model (CAPM)...................................................................................14
Debt to Equity Ratio (D/E)........................................................................................................15
Correlation coefficient of WACC and D/E...............................................................................16
Theoretical Analysis with results...............................................................................................17
References......................................................................................................................................19

Part A
Stock Market Index
Stock Market Indices provide details of a particular stock or set of stocks in an industry. A
currency exchange file is a fact that shows changes in the stock exchange. To make a list, a
couple of comparable stocks are browsed through the previously registered protections on the
trade and collected (Hautcoeur, 2011).
The stock selection levels can be the type of activity, the display case, or the group size.
Stock quote estimates are recorded using hidden stock estimates. Any change in base inventory
costs shifts the overall estimate of the file. If the prices of most of the underlying securities rise,
then the index will rise and vice-versa (Ake and Ognaligui, 2010).
Australian Securities Index
The choose index was Australian Securities Indices (ASI) that was constituted by the most
superior 50 constituent securities in the Australian Securities Exchange (ASX). Its top 50 listed
enterprises were determined by their listed time (more than 24 months), their market value of
shares, and their volume of transactions. Moreover, both volume and market value required to
rank before the 90% of all stocks in the ASX (Australian Securities Indices, 2020). There was the
classification of 50 listed enterprises showing in the Table 1:

Table 1: 50 Listed Enterprises of ASX
Source: (Australian securities exchange, 2020)
Logarithmic Return
The logarithmic return referred that the changes of the capital value in the two period, and it
could make the stability of the financial data because it eliminated the instability of data set
(Sta ̆rica & Granger, 2005).The formula of log return was that:
rt =ln ( Pt
Pt −1 )
Based on the ASI historical data set from January 2014 to December 2018, rt as the logarithmic
return result symbolized the changes of the prices, while the Pt and Pt −1represent respectively
the current price and previous price. The result showed in the Table 2 as the follows: