Financial Accounting and Analysis: Semester 1, 2024

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Accounting and Finance

Table of Contents
Q: 1..................................................................................................................................................3
(A)................................................................................................................................................3
(B)................................................................................................................................................3
c)...................................................................................................................................................5
Q: 2..................................................................................................................................................6
(A)................................................................................................................................................6
(B)................................................................................................................................................7
Q: 3..................................................................................................................................................8
(A)................................................................................................................................................8
(B)................................................................................................................................................8
(C)................................................................................................................................................8
(D)..............................................................................................................................................10
References.....................................................................................................................................15

Q: 1
(A)
The daughter wants to join university after complete his school studies. The purpose of save
amount at present time due to save for further study when she became eligible to join university
and then she can study easily because of saving previous investment amount (Cole, and
Nightingale, 2016). The calculation for save amount for future in present time as follow:
Amount which is need in future $60,000
Applicable of rate of Interest 4%
Period 5 years
Formula for calculating future amount is:-
= A= P(1+r/n)^n*t
Where,
A Total Amount
P
Principal or amount of money
deposited
r Annual Interest Rate
n number of times compounded per year
t time in years
60000 = P(1+ 0.04/12)^12*5
60000 = P(1+ 0.0033)^60
60000 = P(1.0033^60)
60000 = P*60.198
P = 60000/60.198
P = 996.710
So she can start to invest an amount of $ 996.710 on per month basis. By doing this she is able to
save of $ 60,000 which is used for further study. The approximately value of per month amount
is $ 997.
(B)
(i)
Investment required $22,000,000

Project period 5 years
Rate of Return (RoR) 10%
Years Amount ($)
Closing
Balance CF PV PV Balance
0 22,000,000 22,000,000 22,000,000 22,000,000
1 1,800,000 20,200,000 1,636,364 20,363,636
2 3,000,000 17,200,000 2,479,339 15,480,090
3 6,500,000 10,700,000 4,883,546 9,742,777
4 8,400,000 2,300,000 5,737,313 17,380,109
5 12,300,000 -10,000,000 -7,637,332
Payback Period (PBP) 4.2 years
Discounted Payback Period 4.7 years
In other words, PBP is 4 years, 2 months and 12 days
Discounted PBP is 4 years, 8 months and 12 days
The rate of return from the project investment is 10 percent with an initial investment of
$22,000,000. To cover the initial investment PBP method is used and from this method found
that the investment is cover in 7.7 years applying discounted payback period while as per normal
payback period it can cover in 4.2 years. Hence it can be said this investment is feasible to the
company as it shows to retrieve the amount in short period (Cole, and Nightingale, 2016).
(ii)
Initial Investment $22,000,000
Term of Project 5 years
Rate of Return 15%
Years
Investment
($)
Closing
Balance CF PV PV Balance
0 22,000,000 22,000,000 22,000,000 22,000,000
1 1,800,000 20,200,000 1,565,217 20,434,783
2 3,000,000 17,200,000 2,268,431 16,160,927
3 6,500,000 10,700,000 4,273,856 11,358,200
4 8,400,000 2,300,000 4,802,727 17,473,474
5 12,300,000 -10,000,000 -6,115,274

Payback Period 4.2
Discounted Payback
Period 5.4
If the ROR is hike up to 15% then company will able to retrieve investment amount in 5.4 years.
It means, this project is required 7 months extra for cover the initial outlay of investment and it
also decease the profits of the business.
c)
(i) The amount which he gets at the time of retirement is $ 5,189.16
(ii) Monthly pension is $ 0.99

Q: 2
(A)
1.
For this question, the interest rate which is offered to James is not a real rate of interest. It means
the interest is nominal rate of interest is offered to James. This is so because of the existing
current rate of return in the bank of Australia is come between 2.99% - 3.75%, and while James
is take interest of 4% which present that it include inflation or being adjusted in the following
interest. Bank provides such a rate after it keep in hand a certain amount or percent of margin
(Fry, et. al., 2016).
2.
Difference between the Real rate of interest and Notional Rate of Interest:
Real Rate of Interest:
A real rate of interest is a rate of interest at which the borrowers get a loan amount or loan
amount sanction. This rate is almost same with nominal or notional rate of interest but the
difference between these two interest rates is inflation. It means nominal rate of interest consider
inflation rate. Both real and nominal interest rate is same in such a situation when the inflations
rate is tends to become zero. There is a direct relation between the interest rate and inflation rate
if any of them increase then other will also rises and vice-versa (Brunnermeier, and Koby, 2016).
Notional Rate of Interest:
This is pre decided rate applied on bond and loan and considered as a simple interest rate. The
meaning of this interest is that the amount which is paid by the borrower for the purpose of
taking lender capital and use for their own purposes (Brunnermeier, and Koby, 2016). The basic
difference between real and this interest rate is it included capital cost and inflation cost.
3.
Loan Amount
$250,00
0
Rate of Interest 4%
Real Rate of Interest 2.99%
Notional Rate of Return 4%
Inflation Rate 1.01%

The nominal rate of interest is 4% (included inflation rate which is 1%). On the other hand real
rate of interest is 2.99% at which the loan amount sanctions to him.
4.
The answer of this question is yes. It means there is a chance or a situation when both interest
rates is identical or same. This is because notional rate of interest contain the inflation rate along
with it. For find real rate of interest, it is need to exclude inflation rate from the notional rate
(minus). If there is no inflation is included or it is zero then in such case both are equal and same.
(B)
Cash rate is such a rate which is used by the banks in order to keep a definite amount in cash as
holding with them. This made an impact on the capital which is circulated in the economy. The
banks considered cash as a benchmark rate at which the bank provide loan facility because cash
is treated as lowest interest rate at which the bank provide loan to the borrower. If any alteration
made in cash rate then it effect entire economy but the main effect of this is on the housing loan
and market sector because of for these loans are provided the current cash rate (Jensen, and
Spange, 2015).
Inflation rate attract the banks each rate. The bank now decide to set a target that inflation rate
should be between 2 to 3% on an average and this will lead to maintain an economy of Australia.
Cash rate is used to influence the inflation to achieve targets.
When the Reserve Bank of Australia decide to decrease one fourth part of 1% in cash rate then in
such case it make an impact on other banks interest rates. Public of Australia start to invest more
capital in any business, bank deposit and other, this will lead a good flow of capital in economy.
This is only happen when the interest rate become less. When the public take loan from any
financial institutions then in this case cash rate is known as market rate of interest (Jensen, and
Spange, 2015).

Q: 3
(A)
(i) Bradley needs to pay tax 32.5 % and 2 % towards Medicare. If the inflation rate is 2.5% the
income of his earned is taxed as per the rate as follow:
For example his income over the period is $ 1,000. Hence, he liable to pay 32.5% of 1000 which
is $ 325. The bank provide guarantee against the amount by 1% so the total amount he is able to
save 3% of 1000 which is $ 30.
(ii) Bradley gets benefit from the risk because he now only 32.5% as total tax including
Medicare levy. It means the able to save the cost of Medicare levy which is to pay but now as he
is not liable to pay to an amount for this (Baker, et. al., 2016).
(B)
Australian Dividend Imputation System:
It is a corporate tax system in which the company paid total tax is shared to the stakeholders of
the company by providing a tax credit facility to them. This will provide an advantage to the
company as now is only liable to pay less income tax which is more in earlier time. By doing so,
shareholders need to pay the difference amount compared between the corporate and marginal
rate. The main motto of use this is to avoid double tax system on the profits earned during the
year. Before 1987, company need to make a payment of tax at 49% which is apply at same rate
even company earned more or less income irrespective of this. After 1988, the tax rate reduce
and stop at 39% and in 1993 it became 33% and now in 2001 it is 30% till now.
Tax imposed on the shareholders by a system imputation. This is the base on which imputation
system follow where company pay dividend to shareholders then it have to be franked and after
that they are eligible to franking tax offset for a specific firm for one year. Franking credit aid in
promoting long term equity and this will increase dividend payout to business. If companies pay
full tax on the income earning then franking proportion is 100% (Cúrdia, et. al., 2015).
Calculation of Franking Credit:
Franking Credit = (Dividend Amount/ (1- Company Tax Rate)) – Dividend Amount
(C)
(i)
Monthly Holding Return Period

Date Opening Value Ending Value
17-Jul 3.79 4.14
17-Aug 4.15 5.04
17-Sep 5.1 5.86
17-Oct 5.92 7.62
17-Nov 7.34 7.59
17-Dec 7.6 7.37
18-Jan 7.4 8.29
18-Feb 8.32 12.23
18-Mar 12.21 11.46
18-Apr 10.96 11.31
18-May 11.36 9.93
18-Jun 9.7 10.52
Date Initial Value Closing Value
Income
Generated
Holding
Period
Return (%)
17-Jul 3.79 4.14 7.93 11.15
17-Aug 4.15 5.04 9.19 13.41
17-Sep 5.1 5.86 10.96 15.95
17-Oct 5.92 7.62 13.54 20.4
17-Nov 7.34 7.59 14.93 21.55
17-Dec 7.6 7.37 14.97 21.31
18-Jan 7.4 8.29 15.69 23.09
18-Feb 8.32 12.23 20.55 32.10
18-Mar 12.21 11.46 23.67 34.06
18-Apr 10.96 11.31 22.27 32.61
18-May 11.36 9.93 21.29 30.08
18-Jun 9.7 10.52 20.22 29.82

(ii)
Date Open High Low Close
Adj
Close Returns
7/1/2017 3.79 4.26 3.6 4.14 4.14
-
17.857%
8/1/2017 4.15 5.37 4.11 5.04 5.04
-
13.993%
9/1/2017 5.1 6.4 5.03 5.86 5.86
-
23.097%
10/1/2017 5.92 7.91 5.91 7.62 7.62 0.395%
11/1/2017 7.34 8.05 6.33 7.59 7.59 2.985%
12/1/2017 7.6 7.63 6.82 7.37 7.37
-
11.098%
1/1/2018 7.37 8.56 6.97 8.29 8.29
-
32.216%
2/1/2018 8.32 13.78 7.7 12.23 12.23 6.719%
3/1/2018 12.21 13.21 11.26 11.46 11.46 1.326%
4/1/2018 11.46 12.58 10.83 11.31 11.31 13.897%
5/1/2018 11.36 12.385 9.19 9.93 9.93 -5.608%
6/1/2018 9.7 11.41 9.4 10.52 10.52
Average Returns is 7.141%
(iii) Annual holding period return
In % = {income + (period value at the end – starting value)/starting value} * 100
= {9.7 + (10.52 – 4.14)/4.14} *100
= {9.7 + 1.54} * 100
= 11.24%
In $ = capital gain + income
= (10.52 – 3.79) + 9.7
= 16.43
(D)
(i)

Date Initial Value Closing Value Income Generated
Holding Period
Return (%)
17-Jul 5764 5773.9 11537.9 17310.80
17-Aug 5773.9 5776.3 11550.2 17325.50
17-Sep 5776.3 5744.9 11521.2 17265.09
17-Oct 5744.9 5976.4 11721.3 17696.7
17-Nov 5976.4 6057.2 12033.6 18089.81
17-Dec 6057.2 6167.3 12224.5 18390.82
18-Jan 6167.3 6146.5 12313.8 18459.30
18-Feb 6146.5 6117.3 12263.8 18380.10
18-Mar 6117.3 5868.9 11986.2 17854.06
18-Apr 5868.9 6071.6 11940.5 18011.13
18-May 6071.6 6123.5 12195.1 18317.61
18-Jun 6123.5 6289.7 12413.2 18701.93
(ii)
Date Open High Low Close Adj Close Returns
7/1/2017 5764 5846.2 5705.6 5773.9 5773.9 0%
8/1/2017 5773.9 5852.7 5711.7 5776.3 5776.3 1%
9/1/2017 5776.3 5835.7 5702.2 5744.9 5744.9 -4%
10/1/2017 5744.9 6003.2 5717.7 5976.4 5976.4 -1%
11/1/2017 5976.4 6124.7 5976.4 6057.2 6057.2 -2%
12/1/2017 6057.2 6193 6023.5 6167.3 6167.3 0%
1/1/2018 6167.3 6256.5 6103.9 6146.5 6146.5 0%
2/1/2018 6146.5 6229.8 5887.3 6117.3 6117.3 4%
3/1/2018 6117.3 6130.7 5861.9 5868.9 5868.9 -3%
4/1/2018 5868.9 6079.3 5834 6071.6 6071.6 -1%
5/1/2018 6071.6 6245.9 6067.9 6123.5 6123.5 -3%
6/1/2018 6123.5 6347.8 6086.8 6289.7 6289.7
Average Returns is 1%
(iii)
Date Open High Low Close
Adj
Close
Daily
Returns
Annual
Returns
6/26/2017 null null null null null
7/3/2017 5764 5828
5717.
3
5743.
9 5743.9 -1.11557 -8.73823

7/10/2017
5743.
9
5820.
8
5710.
1
5808.
7 5808.7 0.649778 -7.62266
7/17/2017
5808.
7
5818.
5
5729.
9
5771.
2 5771.2 0.278009 -8.27244
7/24/2017
5771.
2
5846.
2
5705.
6
5755.
2 5755.2 -0.31351 -8.55045
7/31/2017
5755.
2
5827.
6
5755.
2
5773.
3 5773.3 0.518844 -8.23694
8/7/2017
5773.
3
5843.
4
5725.
8
5743.
5 5743.5 -0.94852 -8.75579
8/14/2017
5743.
5
5852.
7
5743.
5
5798.
5 5798.5 -0.08443 -7.80727
8/21/2017
5798.
5
5834.
3
5754.
5
5803.
4 5803.4 0.298989 -7.72283
8/28/2017
5803.
4
5806.
1
5711.
7
5786.
1 5786.1 0.813677 -8.02182
9/4/2017
5786.
1
5786.
1
5726.
7
5739.
4 5739.4 -0.28493 -8.8355
9/11/2017
5739.
6
5835.
7 5737
5755.
8 5755.8 0.264776 -8.55057
9/18/2017
5755.
8 5800
5702.
2
5740.
6 5740.6 -0.07485 -8.81535
9/25/2017
5740.
6
5767.
1
5709.
7
5744.
9 5744.9 -0.56254 -8.7405
10/2/2017
5744.
9
5811.
5
5717.
7
5777.
4 5777.4 -1.82338 -8.17797
10/9/2017
5777.
6
5894.
3
5777.
6
5884.
7 5884.7 -1.40569 -6.35459
10/16/201
7
5884.
7
5985.
7
5884.
7
5968.
6 5968.6 -0.01172 -4.9489
10/23/201
7
5968.
6
6003.
2
5928.
2
5969.
3 5969.3 -1.01156 -4.93718
10/30/201
7
5969.
7
6037.
9
5969.
7
6030.
3 6030.3 -1.21226 -3.92562
11/6/2017
6030.
3
6124.
7
6020.
7
6104.
3 6104.3 1.093023 -2.71336
11/13/201
7
6104.
3 6105
5994.
4
6038.
3 6038.3 -0.40904 -3.80638
11/20/201
7
6038.
3
6078.
1
6006.
3
6063.
1 6063.1 -0.2041 -3.39735
11/27/201
7
6063.
1
6113.
7
6039.
2
6075.
5 6075.5 -0.03126 -3.19325
12/4/2017
6075.
5
6092.
3
6023.
5
6077.
4 6077.4 -0.15936 -3.16199
12/11/201
7
6077.
4
6125.
3
6074.
6
6087.
1 6087.1 -1.3004 -3.00263