Corporate Finance: Analysis of Portfolio and Project Returns

This report provides a detailed analysis of corporate finance topics. It begins by calculating the payback period of an investment project, determining it to be 1.98 years. The report then analyzes a portfolio's expected return, calculated at 11.7%, and its beta, which is 0.970, indicating a similar level of systematic risk to the market. Finally, the report compares the portfolio's performance with the S&P/ASX using the Treynor ratio, revealing that the portfolio outperforms the market. The report includes a reference to a journal article on calculating the Treynor ratio using log-returns.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Q1. Analysing the payback period of the project:......................................................................2
Q2(A). Analysing the portfolio return and beta:........................................................................2
Q2(B). Comparing the performance of the portfolio with the market:......................................2
Reference:..................................................................................................................................4

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Q1. Analysing the payback period of the project:
Year
Cash flow
($) Retirement values ($) Total value
Year 0 -10,000.0 - -10,000.0
Year 1 2,200.0 2,200.0
Year 2 3,000.0 5,000.0 8,000.0
Year 3 3,500.0
Year 4 2,500.0
Year 5 2,000.0
Payback
period 1.98 Year
The calculations have indicated that the overall project has a payback period of 1.98
years after adding the retirement values.
Q2(A). Analysing the portfolio return and beta:
Security Amount E(r) Beta R B
Share 1 3,000.0 8.0% 0.800 2.4% 0.240
Share 2 4,000.0 12.0% 1.000 4.8% 0.400
Share 3 3,000.0 15.0% 1.100 4.5% 0.330
10,000.0
Portfolio return 11.7%
Portfolio beta 0.970
The expected return of the portfolio is mainly at the levels of 11.7%, while the overall
beta is at 0.970. However, the analysis has mainly indicated that the portfolio has more or
less systematic risk than an average asset.
Q2(B). Comparing the performance of the portfolio with the market:
Particulars Treynor ratio Risk Return
S&P/ASX 4.0% 1.00
0
9.0%
Portfolio 5.0% 1.20
0
11.0%

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Government
bond
5.0%
From the overall analysis, it has been detected that the portfolio has outperformed
S&P/ASX, as seen in the above table, where the Treynor ratio for the portfolio is at 5%,
while the S&P/ASX is at 4% only1.
1 Bednarek, Ziemowit, Oleksandr Firsov and Pratish Patel, "A Strong Case To Calculate The
Treynor Ratio Using Log-Returns" (2017) 18(4) Journal of Asset Management

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Reference:
Bednarek, Ziemowit, Oleksandr Firsov and Pratish Patel, "A Strong Case To Calculate The
Treynor Ratio Using Log-Returns" (2017) 18(4) Journal of Asset Management