Financial Management - Sample Assignment
Added on 2021-05-31
18 Pages3566 Words59 Views
|
|
|
KOITrimester 1, 2018FIN700–Financial ManagementASSIGNMENT– GROUPDue date: Submit to your Tutor bythe start of your Tutorial in Week 9:Monday, 14 May, or on Tuesday, 15 May, or on Saturday, 19 May, 2018. Keep a soft copy in case of misadventure.Penalties for late lodgment, as per the Subject Outline, will be strictly applied.This Assignment consists of 4 problems, each involvingcalculations, and in some cases recommendations.You are required to complete this Assignment in Groups of 2 or 3 or 4 people.**Groups of 1 or more than 4 persons will incur a penalty of 5 marks out of 30%.**All members of the Group should come from the same Tutorial class. You may consult and discuss the Assignment topic with others, but you must write up youranswers yourselves. Penalties for copying and plagiarism are severe.You should follow the following typing conventions:Answers to be typed, in the space provided after each questionIf additional pages are required, use the blank pages at the end.Times New Roman font (at minimum, 12 pitch), 1.5 line spacing; andLeft and right margins to be at least 2.5 cm from the edge of thepage.Research,Referencing and SubmissionYou should quote any references used at the end of each question.Use Harvard referencing! Seehttp://en.wikipedia.org/wiki/Harvard_referencingAs this is a calculations problem, there is no need to submit via TURNITIN.Do not submit this page. Submit page 2 onwards, along with KOI Group Assignment Cover Page&Mark’g Rubric.Marking GuideThe Assignment will be scored out of 70%,with 20 marks also awarded for quality of Recommendations and 10 for Presentation, in line with the rubric in the Subject Outline.This mark will be converted to a score out of 30%.1
Dr Mervyn Fiedler, Subject Co-ordinator, FIN 700. 14 April, 2018.______________________________________________________________________***NOTE:When submitting Assignment, please submit from this page onwards,with a KOI Group Assignment cover page in front, and a FIN700 Marking Rubric at the back.***Trimester T118FIN700GROUP ASSIGNMENTStudents:Please complete the following before submitting for marking.Group membersStudent No.Student NamePercentage Contribution to AssignmentSignature1.............................................................................................................2.............................................................................................................3.............................................................................................................4.............................................................................................................Tutor:Please circle one name: MsRuhina Karim;MrNishithPanthi; Mr Paul Power;MsFarzanehOrtacand; Mr Ethan ZhengTutorial Day .........................................................and Time ............................This Assignment consists of four questions. All questions must be answered. Please answer all questions in the spaces provided after each question.Two extra pages are included at the end of the Assignment. If more pages are required, please copy (or extend) page 14.2
QUESTION `1.[6 + 4 + 6 = 16 Marks.]a)This is a two period certainty model problem. Assume that Daisy Brownhas a sole income from FantasyLtdin which she owns 15% of the ordinary share capital. Currently, she has no savings.In February, 2018, Fantasy Ltd reported net profits after tax of $600,000, and announced it expectsnet profits after tax for the currentcalendar year, 2018, to be30% higher than last year’s figure. The company operates with a dividend payoutratio of 75%, which it plans to continue, and will pay the annual dividend for 2017in late-May, 2018, and the dividend for 2018 in late-May, 2019.In late-May, 2019, Daisy wishes to spend $100,000, which will include the cost ofan overseas trip.How much can she consume in late-May, 2018 if the capital market offers an interest rate of 10% per year?Dividend = Dividend Payout * Net IncomeDividends 2016-17 = 600,000 *75%*15%= 67,500Dividends 2017-18 = 600,000 *1.3*75%*15%= 87,750100,000 = 87,750 + X*(1+10%)X= 11,136.36Therefore the most she can consume is $56,363.64 (67,500-11,136.36)b)This is an annual equivalent costs problem.Y Ltd has received two offers for a new computer system. System P will cost $200,000 now, has a three year life and costs $10,000 a year to operate. SystemQ costs $240,000 now, has a four year life and costs $12,000 a year to operate. The relevant discount rate is 6 per cent per annum. Ignoring depreciation and taxes, calculate the AEC for each. Which do you prefer, and why?System PNPV= 200,000+10,000/(1+6%) + 10,000/(1+6%)^2 +10,000/(1+6%)^3=$226,730.12226,730.12= AEC *{(1-(1+6%)-3)/6%}AEC= $84,821.96System QNPV= 240,000+12,000/(1+6%) + 12,000/(1+6%)^2 +12,000/(1+6%)^3 +12,000/(1+6%)^4=$281,581.27 281,581.27= AEC *{(1-(1+6%)-4)/6%}AEC= $81,261.96System Q should be selected because it has a lower AEC than system P3
c)This question relates to the valuation of interest-bearing securities.Wildcat BankLtd has experienced large losses on its commercial loan portfolio and is unable to meet its next two annual interest payments on its recent issue ofunsecured notes. The notes are of $1,000 face value each, mature in May, 2023 and bear a yearly interest coupon payment of 14% per annum.The Bank paid the interest due this month (May, 2018), and following a meeting of creditors, arranged to defer payment of the next two interest coupons due in May, 2019 and May, 2020 respectively. Under the arrangement with creditors, the Bank will pay the remaining interest coupons (due in May, 2021, May, 2022 and May, 2023) on their due dates, and pay the two deferred coupons (without interest) along with the normal final interest payment and face value of the notes on the maturity date.Wildcat Bank Ltd’s notes are now seen as risky, and require an 18% per annum return. REQUIRED: Calculate the current value of each Wildcat Bank unsecured note.Annual coupon= 14%*1000=140CashflowsT-0=140T-1=0T-2=0T-3=140T-4=140T-5=140T-5=140+140+1000Present Value = 140+140*(1−(1+18%¿¿¿−3)18) /(1+18%)^3+1280/(1+18%)^5=$884.774
End of preview
Want to access all the pages? Upload your documents or become a member.
Related Documents