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Desklib is an online library for study material with solved assignments, essays, dissertations, etc. It offers a vast collection of study material for various subjects and courses. The content includes answers to questions related to accounting and finance, investment opportunities, corporate tax rate reduction, and monthly returns of NAB, BHP, and AORD. The summary also mentions the formulas used for calculations and the advantages of tax reduction for the Australian economy.

Running head: ACCOUNTING AND FINANCE
Accounting and finance
Name of the University
Author Note

1
ACCOUNTING AND FINANCE
Table of Contents
Answer to Question 1:................................................................................................................2
Part a:.....................................................................................................................................2
Part b:.....................................................................................................................................3
Part c:.....................................................................................................................................4
Answer to Question 2:................................................................................................................5
Part i:......................................................................................................................................5
Part ii:.....................................................................................................................................5
Answer to question 3:.................................................................................................................6
Answer to Question 4:................................................................................................................8
Part i:......................................................................................................................................8
Part ii:.....................................................................................................................................8
Part iii:....................................................................................................................................9
Part iv:..................................................................................................................................10
Part v:...................................................................................................................................10
Part vi:..................................................................................................................................10
Part vii:.................................................................................................................................11
Part viii:................................................................................................................................11
Part ix:..................................................................................................................................11
References list:.........................................................................................................................13

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ACCOUNTING AND FINANCE
Answer to Question 1:
Part a:
The cash flow which Sandy will be receiving in a four years period is shown by
calculations in the table given below. The calculation of present value of the investment
opportunity will be requiring calculation of the discounted cash flow of the investments.
The formula which is used for the above calculation is shown below:
DCF= CFn
(1+r )n
Where, CFn = Cash flow of n period
r= Interest Rate
n = Period
The calculation of the present value is done by using the shown formula given below:
ΣDCF = CF1
(1+r )1 + CF2
(1+r )2 + CF3
(1+r )3 + CF4
(1+r )4 + CF5
(1+r )5
= 400
(1+9 % )1 + 800
(1+9 %)2 + 500
(1+9 % )3 + 400
(1+9 % )4 + 300
(1+9 % )5

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ACCOUNTING AND FINANCE
= 400
1.09 + 800
1.188 + 500
1.295 + 400
1.412 + 300
1.539
= 366.97+673.34 +386.09+283.37+194.98
= 1904.76
As per the above calculations, it can be confirmed that Sandy has to pay $1,904.76 for
the investment opportunity to earn the desired cash flow.
Part b:
As per the question, Lee has taken a loan of $ 100,000 for which he now has to
quarterly installments to pay off the loan amount. The installment which Lee has to pay are
equal installments which is also known as annuity. The formula of annuity is given below:
P = r (PV )
1−(1+r)−n
Where,PV = Present Value of Loan = $100,000
r= Interest Rate per period = (10%/4) = 2.5%
n = Nos. of Quarterly Installments = 20
Therefore, P = r (PV )
1−(1+ r)−n
= (2.5 % x $ 100,000)
1−(1+2.5 %)−20
= 2500
0.3897
= 6414.71

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ACCOUNTING AND FINANCE
As per the calculations which is shown above, the quarterly payment of Lee will
amount to $ 6,414.71. The table which shows the calculation is given below:
Part c:
Dianne would receive the monthly payments after two years of investment. The
investment value for the next two year needs to be calculated. The future value of the
investment can be computed by using the following formula:
FV = PV x (1+r )n
Where, PV = Present value of investment = $200,000
r= Interest Rate per compounding periods = (10%/12 months) = 0.83%
n = Nos. of Compounding Periods = (2 yrs. X12 months) = 24
Hence, FV = 200,000 x (1+ 0.83 %)24
= 200,000 x 1.220391
= 2,44,078.19
The amount Dianne would be receiving through 150 equal monthly installments is
$2,44,078.19. The formula used for calculating the monthly payments is as follows:

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ACCOUNTING AND FINANCE
P = r (PV )
1−(1+r)−n
Where,PV = Investment Value after 2 years = $2,44,078.19
r= Interest Rate per period = (10%/12 months) = 0.83%
n = Nos. of Monthly Installments = 150
Therefore, P = r (PV )
1−(1+ r)−n
= (0.83 % x $ 2,44,078.19)
1−(1+0.83 %)−150
= 2,033.98
0.712007
= 2,856.69
Dianne would be receiving $2,856.69 as monthly payments after 2 years.
Answer to Question 2:
Part i:
% 8% 6% 7%
Year 0 1 2 3 4 5 6 7 8 9 10
CFI $0 $0 $6500 $1500 $0 $0 -$2500 $0 $0 $10000 $0
Part ii:
The formula, used for calculating the value of cash flows, is as follows:

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ACCOUNTING AND FINANCE
DCF= CFn
(1+r )n
Where, CFn = Cash flow of n period
r= Interest Rate
n = Period
Value of Cash Flow on Time1 :
ΣDCF1 = CF1
(1+r )1
= 0
(1+8 % )1 = $0
Value of Cash Flow on Time5 :
ΣDCF5 = = CF1
(1+r )1 + CF2
(1+r )2 + CF3
(1+r )3 + CF4
(1+r )4 + CF5
(1+r )5
= 0
(1+8 % )1 + 6500
(1+8 % )2 + 1500
(1+6 % )3 + 0
(1+6 % )4 + 0
(1+6 % )5
= 0
1.08 + 6500
1.166 + 1500
1.191 + 0
1.262 + 0
1.338
= $ 0+$ 5,573+$ 1,259+ $ 0+$ 0
= $6,832
ΣDCF5 = = CF1
(1+r )1 + CF2
(1+r )2 + CF3
(1+r )3 + CF4
(1+r )4 + CF5
(1+r )5 + CF6
(1+r )6 + CF7
(1+r )7 + CF8
(1+r )8 + CF9
(1+r )9
+ CF10
(1+r )10

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ACCOUNTING AND FINANCE
= 0
(1+8 % )1 + 6500
(1+8 % )2 + 1500
(1+6 % )3 + 0
(1+6 % )4 + 0
(1+6 % )5 + −2500
(1+6 % )6 + 0
(1+6 % )7 +
0
(1+6 %)8 + 10000
(1+7 %)9 + 0
(1+7 %)10
= 0
1.08 + 6500
1.166 + 1500
1.191 + 0
1.262 + 0
1.338+ −2500
1.419 + 0
1.504 + 0
1.594 + 10000
1.838 + 0
1.967
= $ 0+ $ 5,573+$ 1,259+$ 0+$ 0−$ 1,762+$ 0+ $ 0+ $ 5,439+$ 0
= $10,509
Answer to question 3:
The Australian Government plans to reduce the tax which is charged on companies by
reducing the corporate tax rate from 30% to 25% as per the policy of the government. The
cuts in taxes are expected to attract investments from foreign sources and thereby increase the
overall investments in the nation (Vegh & Vuletin, 2015). The reduction in tax rate will mean
that the business will more amount of funds from the revenue in their hands and moreover
such companies can expect some massive inflow of cash from the foreign investments in the
shares of the company (Gale, Samwick & Center, 2014). The expectation of the government
is that the increase in the investment of the company will also result in higher incomes for the
residents of the country (Alfaro & Charlton, 2013). The reduction of the corporate tax rate
will affect the total revenues which the government earns of which corporate taxes is a major
source. In order to mitigate the reduction in revenues of the government it is quite likely that
the government will be imposing new taxes on certain items which were earlier exempted or
not taxable or increase the tax rates which is charged on personal income of the individuals
(Evers, Miller & Spengel, 2015). The increase in personal income will be favorable as the
domestic shareholders will have the advantage of lowering the franking credits that can be
used for setting off the liabilities from personal income taxation.

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ACCOUNTING AND FINANCE
The system of Australia allows the residents with a unique system of Dividend
imputation which helps in effectively reducing the tax rate as it provides the domestic
companies with an opportunity of franking credits which means if the company is paying
higher taxes then the investors do not have pay such high taxes (Siau, Sault & Warren, 2015).
Dividend imputation is basically a method which can help the residents in acquiring some tax
payer’s credits for tax that is deemed to have been paid on behalf of company. Dividends are
attached to the franking credits are the actual mechanisms for making delivery of tax credits
to residents (Vo et al., 2013). Therefore, the impact of tax reduction on the economy of
Australia is quite different in comparison with other countries (Dixon & Nassios, 2016).
However, the main advantages lie with the foreign investors as the tax reduction will attract
new investors in the Australian market. The lower tax rates will also facilitate higher returns
on the investments made by foreign investors which will keep them engaged in further
investments in the country (Bergmann, 2016). Moreover, there is also an advantage of
lowering the tax rate from the view point of global markets as it is said that higher tax rates
discourage potential investors of global markets.
Another significant advantage associated with the lowering of tax rate is that the as
the tax expenses of a company which is regraded as a normal cost reduces, the overall cost of
production will also decrease and therefore the companies will be able to provide the
products manufactured at a lower cost to the residents. The residents will have access to
products at a lower which will reduce their consumption expenditure and thereby allowing
them to make savings. In other words, it will be providing the residents of the country with
better standard of living and also lead to overall development of the country as a whole.

9
ACCOUNTING AND FINANCE
Answer to Question 4:
Part i:
2/1/2016
3/1/2016
4/1/2016
5/1/2016
6/1/2016
7/1/2016
8/1/2016
9/1/2016
10/1/2016
11/1/2016
12/1/2016
8.47%
3.62%
-0.15%
-6.34%
4.36% 3.01% 1.94% 0.47%
3.32% 2.66% 2.12%
8.29%
22.66%
-7.74%
-2.25%
4.66% 4.66%
9.54%
3.08%
5.81%
2.66%
6.30%
4.12% 3.19% 2.48%
-2.52%
6.28%
-2.03%
-0.08%
-2.22%
1.85%
3.94%
-0.77%
Monthly Returns
NAB BHP AORD
Part ii:
Date Closing Price Return Closing Price Return Closing Price Return
31-01-2016 24.19 15.57 4947.90
29-02-2016 26.24 8.47% 16.86 8.29% 5151.80 4.12%
31-03-2016 27.19 3.62% 20.68 22.66% 5316.00 3.19%
30-04-2016 27.15 -0.15% 19.08 -7.74% 5447.80 2.48%
31-05-2016 25.43 -6.34% 18.65 -2.25% 5310.40 -2.52%
30-06-2016 26.54 4.36% 19.52 4.66% 5644.00 6.28%
31-07-2016 27.34 3.01% 20.43 4.66% 5529.40 -2.03%
31-08-2016 27.87 1.94% 22.38 9.54% 5525.20 -0.08%
30-09-2016 28.00 0.47% 23.07 3.08% 5402.40 -2.22%
31-10-2016 28.93 3.32% 24.41 5.81% 5502.40 1.85%
30-11-2016 29.70 2.66% 25.06 2.66% 5719.10 3.94%
31-12-2016 30.33 2.12% 26.64 6.30% 5675.00 -0.77%
Average Monthly Return
NAB BHP AORD
2.14% 1.29%5.24%

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ACCOUNTING AND FINANCE
Part iii:
Date Closing Price Return Closing Price Return Closing Price Return
31-01-2016 24.19 15.57 4947.90
29-02-2016 26.24 8.47% 16.86 8.29% 5151.80 4.12%
31-03-2016 27.19 3.62% 20.68 22.66% 5316.00 3.19%
30-04-2016 27.15 -0.15% 19.08 -7.74% 5447.80 2.48%
31-05-2016 25.43 -6.34% 18.65 -2.25% 5310.40 -2.52%
30-06-2016 26.54 4.36% 19.52 4.66% 5644.00 6.28%
31-07-2016 27.34 3.01% 20.43 4.66% 5529.40 -2.03%
31-08-2016 27.87 1.94% 22.38 9.54% 5525.20 -0.08%
30-09-2016 28.00 0.47% 23.07 3.08% 5402.40 -2.22%
31-10-2016 28.93 3.32% 24.41 5.81% 5502.40 1.85%
30-11-2016 29.70 2.66% 25.06 2.66% 5719.10 3.94%
31-12-2016 30.33 2.12% 26.64 6.30% 5675.00 -0.77%
Annual Holding Period Return
NAB BHP AORD
1.90% 1.15%4.58%
Part iv:
Date Closing Price Return Closing Price Return Closing Price Return
31-01-2016 24.19 15.57 4947.90
29-02-2016 26.24 8.47% 16.86 8.29% 5151.80 4.12%
31-03-2016 27.19 3.62% 20.68 22.66% 5316.00 3.19%
30-04-2016 27.15 -0.15% 19.08 -7.74% 5447.80 2.48%
31-05-2016 25.43 -6.34% 18.65 -2.25% 5310.40 -2.52%
30-06-2016 26.54 4.36% 19.52 4.66% 5644.00 6.28%
31-07-2016 27.34 3.01% 20.43 4.66% 5529.40 -2.03%
31-08-2016 27.87 1.94% 22.38 9.54% 5525.20 -0.08%
30-09-2016 28.00 0.47% 23.07 3.08% 5402.40 -2.22%
31-10-2016 28.93 3.32% 24.41 5.81% 5502.40 1.85%
30-11-2016 29.70 2.66% 25.06 2.66% 5719.10 3.94%
31-12-2016 30.33 2.12% 26.64 6.30% 5675.00 -0.77%
Standard Deviation
NAB BHP AORD
3.60% 2.99%7.54%
Part v:

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ACCOUNTING AND FINANCE
Part vi:
Beta
Risk Free Rate
Market Return
Expected Return
NAB BHP
1.23
2.95%
6.50%
7.32%
0.9
2.95%
6.50%
6.15%
Part vii:
0 0.2 0.4 0.6 0.8 1 1.2 1.4
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Security Market Line
Series2 NAB BHP

12
ACCOUNTING AND FINANCE
Part viii:
Average Monthly Return
Beta
Portfolio Weightage
Portfolio Return
Portfolio Beta
NAB BHP
4.312%
1.00
2.14%
1.23
70%30%
5.24%
0.9
Part ix:
The analysis will be based on the CAPM and SML of the portfolio of assets in which
the investor would be making investments (Brown & Walter, 2013). The portfolio consists of
shares of BHP Billiton and NAB. The decision to be taken is as to which shares the company
must engage in for investment purposes. From the computation which is shown in the above
tables it is clear that the return which is generated by the portfolio is 4.312% with value of
portfolio beta is 1. However, the average return generated by shares of BHP Billiton is much
more than that of NAB. Therefore, the returns which are generated by the securities has their
own risks and returns (Chandra, 2017). The shareholders should invest in BHP Billiton’s
share as the average return from its shares are more and the shareholders focuses on rewards
keeping the risks at minimum.

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ACCOUNTING AND FINANCE
References list:
Alfaro, L., & Charlton, A. (2013). Growth and the Quality of Foreign Direct Investment.
In The Industrial Policy Revolution I(pp. 162-204). Palgrave Macmillan, London.
Bergmann, M. (2016). The rise in dividend payments. RBA Bulletin, March, 47-56.
Brown, P., & Walter, T. (2013). The CAPM: theoretical validity, empirical intractability and
practical applications. Abacus, 49(S1), 44-50.
Chandra, P. (2017). Investment analysis and portfolio management. McGraw-Hill Education.
Dixon, J. M., & Nassios, J. (2016). Modelling the impacts of a cut to company tax in
Australia. Centre for Policy Studies, Victoria University.
Evers, L., Miller, H., & Spengel, C. (2015). Intellectual property box regimes: effective tax
rates and tax policy considerations. International Tax and Public Finance, 22(3), 502-530.

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ACCOUNTING AND FINANCE
Gale, W. G., Samwick, A. A., & Center, U. B. T. P. (2014). Effects of income tax changes on
economic growth. Economic Studies, https://www. brookings.
edu/wpcontent/uploads/2016/06/09_Effects_Income_Tax_Changes_Economic_Growth_G
ale_Sa mwick. pdf.
Siau, K. W. S., Sault, S. J., & Warren, G. J. (2015). Are imputation credits capitalised into
stock prices?. Accounting & Finance, 55(1), 241-277.
Vegh, C. A., & Vuletin, G. (2015). How is tax policy conducted over the business
cycle?. American Economic Journal: Economic Policy, 7(3), 327-70.
Vo, D., Gellard, B., Mero, S., & Authority, E. R. (2013, April). Estimating the market value
of franking credits: Empirical evidence from Australia. In Conference Paper, Australian
Conference of Economists.