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
A stock market index, also known as a stock chart, is a measure of fact that reflects
changes in the market. It is done by accumulating a couple of comparable stocks between the
protections registered on the trade and the rules of choice could be group size, market
capitalization or type of asset. Changes to the basic defense costs will affect the overall estimate
of the list. If costs arise, the file will increase, and perhaps not, so will the list (Ake and
Ognaligui, 2010).
Stock indices need to know the mood and sentiment in the market. As a financial expert,
you can differentiate the market example by taking a chart in the charts and using it to select
which stock could be a successful salary.
In addition to helping investor targeting stock to invest, indices also act as the barometer
for peer comparison. If a stock has given higher returns than the index, it’s said to have
outperformed it. Furthermore, if it delivered a lower renewal, it is said that it did not meet
expectations (Hautcoeur, 2011).
Additional stock indices allow investor to identify patterns in a particular industry and
create profitable options alike. They also help you to make an unalterable profit, that is, to put
the assets in an arrangement of defenses that closely resembles the record. With a detached
business, you can eliminate the cost of the inspection method and value verification.
Australian Securities Index
Australian Securities Exchange is Australia's primary securities exchange. It is operated by
Australian Securities Exchange Ltd, or ASX Limited, Australian Open Group (ASX). Prior to
December 2006 it was designated the Australian Stock Exchange, established on April 1, 1987,
ratified under the Australian Parliament as a merger of the six state security exchanges. It merged
with the Sydney Futures Exchange in 2006. ASX Compliance is an ASX subsidiary that is
responsible for overseeing and maintaining the consistency of ASX listed companies with ASX
operating standards.
Products and administrations accessible for trading on ASX include offers, rates, exchange
traded options, guarantees, reputational contracts, commercial exchange funds, unlisted

investment funds (mFunds), commercial exchange subsidy (ETMF). ), land return credit,
registered business agencies and loan tax protection. The Australian Securities and Investments
Commission (ASIC) is responsible for regulating the ongoing exchange rates of Australia's local
authorized currency markets and monitoring the direction by the members (counting the
obligation between the members and their clients) on these segments sector. ASIC also governs
the stability of the ASX itself as an open entity with the rules of the ASX list. (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
Log Return is one of the three ways to determine the return, and results are expected to be
exacerbated over time. It is verified by taking the common table of the closing estimate separated
from the original value. Just like pi it represents the proportion of margin to distance between
each object being considered, and can be used to evaluate all exacerbated procedures such as
bloating, loan costs, population development and so on (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:
Table 2: The Logarithmic Return of ASI
Source: (Yahoo finance, 2020)
Portfolio and Beta
Portfolio

The term "portfolio" refers to any combination of financial assets, such as stocks, bonds and
money. Portfolios may only be held by speculators or supervised by money experts, multilateral
investments, banks and other balance sheet institutions. It is a well known rule that a package is
designed with the speculator's risk, time, and business objectives. The cash estimate associated
with each benefit could affect the portfolio's risk / return ratio. When deciding on resource
allocation, the point is to extend overall production and limit risk (Abreu & Mendes, 2010).
Although the configuration chosen by the scientist depended on the beta, the beta specialist
collected and organized each campaign via Yahoo Finance and selected the 5 organizations with
the most popular beta as a package and marked with green in Table 3:
Table 3: Beta of 50 listed companies