FINM4000 Project Report: Finance Assignment
Added on 2020-05-28
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RUNNING HEAD: Corporate finance 1Project Report: Finance
Corporate finance 2ContentsPart 2...........................................................................................................................................3Financial Literacy:........................................................................................................................3Que 1:..........................................................................................................................................3Calculation of monthly repayments:...........................................................................................3Calculation of Total interest cover:.............................................................................................4Que 2:......................................................................................................................................4Why the differences has occurred in the interest expenses:...................................................4Part 3...........................................................................................................................................5Company Perspective..................................................................................................................5Que 1:......................................................................................................................................5Background:............................................................................................................................5Que 2:......................................................................................................................................6Cash conversion cycle:.............................................................................................................6Que 3:......................................................................................................................................7Short term and long term debt financing:...............................................................................7Que 4:......................................................................................................................................7Bond valuation:.......................................................................................................................7Interest coverage ratio:...........................................................................................................8Que 5:......................................................................................................................................8Share valuation:.......................................................................................................................8Task 4:.......................................................................................................................................10Capital Budgeting:.....................................................................................................................10Que 1:....................................................................................................................................10
Corporate finance 3Calculation of free cash flows of both the projects...............................................................10Que 2:....................................................................................................................................11Discounted Payback period:..................................................................................................11Que 3:....................................................................................................................................11Net present value and internal rate of return.......................................................................11Que 3:....................................................................................................................................12Recommendation:.................................................................................................................12References.................................................................................................................................13Appendix...................................................................................................................................14
Corporate finance 4Part 2Financial Literacy:Que 1:According to the given case, Jane and Carla are two people who are willing to buy a house. Both the citizen has bought the house of same worth but there are huge difference among the total interest and payment period. In this case, it has been analyzed that which factors have affected the similarity of both the cases:Calculation of monthly repayments:Question 2JaneInterest rate per annum6.50%Interest rate monthly0.54%ALoan amount$6,35,000 BTenure (years)20CMonths240DMonthly rate0.54%DEMI amount$ 4,734.39Question 2CarlaInterest rate per annum4.50%Interest rate monthly0.38%ALoan amount$5,50,000 BTenure (years)15CMonths180DMonthly rate0.38%DEMI amount$ 4,207.46(Moles, Parrino and Kidwekk, 2011)
Corporate finance 5Through the above calculations, it has been analyzed that the EMI amount of Jane is $4734.39 and the EMI amount of Carla is $4,207.46. It depicts that the Carla has to pay less amount as EMI. Calculation of Total interest cover:The calculations have been shown in the appendix. Through the calculation of total inters cover of both the people, It has been found that the $5,01,253 would be paid by the Jane as interest amount whereas the total amount paid by the Carla as an interest would be $2,07,343 (Bromwich and Bhimani, 2005). This difference has taken place due to differencesin the down payment, total payment period and the rate of interest. Que 2:Why the differences has occurred in the interest expenses:According to the case, Jane and Carla are two people who are willing to buy a house. Both the citizen has bought the house of same worth but there is huge difference among the total interest. In this case, it has been analyzed that the main factors which have affected over the position and the performance of the company are initially the down payment due to whichthe loan amount of both the parties have been different (Borio, 2014). Further, Carla has chosen to pay the entire amount of Loan in fewer periods than Jane and thus the interest % of both the parties have been differed and due to which the interest amount of Jane has been higher.Further, it has been analyzed that the total payment period, interest payment, net loan amount and the EMI amount has impacted over the interest expenses of both the parties. And through this analysis, it has also been found that the decision of Carla was far better than the decision of Jane as has saved a lot amount of interest.
Corporate finance 6Part 3:Company Perspective:Que 1:Background:Woodside petroleum is an Australian production and exploration company. This company is one of the largest companies of oil and gas industry of Australia. Headquarter of the comapny is in Perth, Australia and the company has registered its stock in Australian stock exchange. Mainly, this company is operating its business in exploration of oil and delivering the gas and oil in international market. In the market of Australia itself, this company is developing a number of the oil and gas industry of Australia briefs that Woodsidepetroleum is one of the natural gas projects. Further, it has been found that manufacturing companies and this company consists around 13.50% of share of the industry which is highest than any other company (Nobes and Parkar, 2008). Further, it has been found that the performance of the company is continuously raising and depict about a better position of the company. Further, it has been analyzed that the position and the performance of the company is far better according to the economy position and market condition. Through the study over the operations of the company, it has been found that the mainstrength of this company is its huge share in the market and its innovational operating system.This system has helped the company t grab more market share and currently, this company has the great number of projects in hand (Damodaran, 2011). Further, it has also been found that the number of offshore projects have only been grabbed by the company due to its innovational technology. Further, the weakness of the company has also been analyzed and it is the bad relations of the company with its suppliers and the stakeholders. And at the same time, company is not concentrating on lower level buyers. Through the various articles, it has been found that this company has failed to manage good relationship with stakeholders and due to which the operations and the performance of the company has been affected.
Corporate finance 7Que 2:Cash conversion cycle:Cash conversion cycle is a process which depicts about the working capital management and cash turnover of the company (Phillips and Stawarski, 2016). This expresses that how much time would it take to the company to get back the cash while operating he business. Following are the calculations of working capital management of the company:Calculation of cash conversion cycle of 2016Sales £ 4,075 COGS £ 2,234 Inventories £ 5 AR £ 172 AP £ 546 Days/year365Cash conversioncycle (CCC)=Inventoryconversion period+Receivablescollectionperiod-Payablesdeferral period=Inventory/Sales perday+AR/Sales perday-AP/COGS perday= £ 0.45 + £15.41 - £48.91 =-£ 33.05 The above calculations brief that the cash conversion cycle of the company is -33.05 days in 2016 whereas the cash conversion cycle of the company in 2015 was -50.87 days which depicts about the average receivable day has been enhanced by the company. Through the calculations of cash conversion cycle of the company and evaluation over competitors’ cash conversion cycle, it has been found that BHP Billiton’s cash conversion cycle is the best(Davies and Crawford, 2011). Company need not to invest much amount for its current
Corporate finance 8liabilities. The liquidity position of the company is far better as the payment done by the company is after so many days whereas the collection of amount is done by the company quickly. Further, it has also been found that the cash conversion cycle of Woodside petroleumlimited is also far better but the level has been lower in 2016 in comparison of 2015 (Bierman, 2010). Que 3:Short term and long term debt financing:Further short term and long term debt financing of the company has been evaluated and it has been found that the total short term debt financing of the company is Us $ 963 million in 2016, US $ 1304 million in 2015 whereas the long term debt financing of the company is US $ 8128 in 2016 and US $ 7510 in 2015. Thus, through the evaluation over short term and long term debt financing of the company, it has been evaluated that the main short term debt financing factor of the company is payables which has been lower in 2016 and the main long term debt financing factor of the company is interest bearing liabilities which are debentures and the borrowings of the company (Brealey, Myers and Marcus, 2007). The discussed value briefs that company uses the short term as well as long term debts to manage the position and a good capital structure position of the company. But the level of short term debts have been reduced by the company to manage the cost whereas the level of long term has been enhanced by the company to manage optimal capitals structure and risk and return level. Que 4:Bond valuation:Further, the bond valuation of the company has been evaluated and it has been found that the bind price of the company is quite higher than the Par value of the company. The par value of the company is $ 913.61 per bond whereas the face value of the company is $1000. Price of bondBond-1Face value 1,000 Coupon (half yearly)1.83%Maturity 10
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