FIN201 Assignment: Portfolio Weights, CAPM & Dividend Policy of Firms

This assignment provides a comprehensive analysis of portfolio weights and the Capital Asset Pricing Model (CAPM) using data from risky assets A, B, the market portfolio M, and the risk-free asset F. It calculates portfolio weights required to achieve an expected return of 12% through various investment options and assesses whether assets A and B are priced according to the CAPM. Furthermore, the report delves into the dividend policies of BHP Billiton and ANZ Bank, comparing their dividend payout ratios and evaluating the impact of policy changes on their share prices. The analysis includes a review of the companies' financial performance and market valuation in relation to their dividend strategies.

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

CORPORATE FINANCE ASSIGNMENT
1
Table of Contents
1 Creating weights for different portfolio and determining if assets A and B are priced in
accordance with CAPM model:.................................................................................................2
2.A Listing out details for each company:.................................................................................4
2.B Describing dividend policy of both the companies:............................................................5
2.C Comparing dividend pay-out ratio of both the companies:.................................................5
2.D Agreeing with the decision of the company to change its dividend policy:.......................6
2.E Examining the dividend policy of each company and analysing its share price movement:
....................................................................................................................................................7
Reference and Bibliography:......................................................................................................9

CORPORATE FINANCE ASSIGNMENT
2
1 Creating weights for different portfolio and determining if assets A and B are priced
in accordance with CAPM model:
Particulars Value
Expected return 12.00%
Weight A 69.86%
Weight B 30.14%
Variance 213.33
Stdev 14.61
Particulars Value
Expected return 12.00%
Weight A 57.69%
Weight M 42.31%
Variance 147.50
Stdev 12.14
Particulars Value
Expected return 12.00%
Weight B 55.65%
Weight F 44.35%
Variance 83.31
Stdev 9.13

CORPORATE FINANCE ASSIGNMENT
3
Particulars Value
Expected return 12.00%
Weight M 68.09%
Weight F 31.91%
Variance 37.08
Stdev 6.09
Particulars Value
Beta A 0.7
Beta B 1.2
Risk free rate 5.60%
Market return 15%
Market premium 9.400%
CAPM A 12.18%
CAPM B 16.88%
The overall CAPM expected returns an actual return of asset A and B is relatively not
same, which indicates the changes in perception of investors in the company progress. The
overall asset value of A and Bis relatively higher in CAPM, while the actual value in much
lower, which could allow investor to generate returns from investment. In this context, Liu,
Kolari and Pynnonen (2018) stated that companies with the help of CPM value can detect the
minimum returns, which could be provided from an investment.

CORPORATE FINANCE ASSIGNMENT
4
2.A Listing out details for each company:
BHP Billiton 2006 2007 2008 200
9
2010 2011 2012 2013 2014 201
5
2016 201
7
Net profit
after tax
10,
534.
00
13,
496.
00
15,
962.
00
6,
338.
00
13,
009.
00
23,
946.
00
15,
532.
00
11,
075.
00
15,
224.
00
2,
878.
00
(6,
207.
00)
6,
222
.00
Earnings per
share 173.
20
229.
50
275.
30
105.
60
228.
60
429.
10
289.
60
204.
40
256.
50
65.5
0
(
120.
00)
110
.70
Dividend per
share 32.0
0
38.5
0
56.0
0
82.0
0
83.0
0
91.0
0
110.
00
114.
00
118.
00
124.
00
78.0
0
54.
00
Dividend pay-
out ratio
18.4
8%
16.7
8%
20.3
4%
77.6
5%
36.3
1%
21.2
1%
37.9
8%
55.7
7%
46.0
0%
189.
31
%
-
65.0
0%
48.
78
%
ANZ Bank 2006 2007 2008 200
9
2010 2011 2012 2013 2014 201
5
201
6
201
7
Net profit
after tax
3,
692.
00
4,
187.
00
3,
327.
00
2,
945.
00
4,
501.
00
5,
355.
00
5,
667.
00
6,
282.
00
7,
283.
00
7,
507.
00
5,
720.
00
6,
421.
00
Earnings per
share 200.
00
224.
10
170.
40
131.
00
178.
90
208.
20
213.
40
231.
30
267.
10
271.
50
197.
40
220.
10
Dividend per
share 125. 136. 136. 102. 126. 140. 145. 164. 178. 181. 160. 160.

CORPORATE FINANCE ASSIGNMENT
5
00 00 00 00 00 00 00 00 00 00 00 00
Dividend pay-
out ratio
62.5
0%
60.6
9%
79.8
1%
77.8
6%
70.4
3%
67.2
4%
67.9
5%
70.9
0%
66.6
4%
66.6
7%
81.0
5%
72.6
9%
2.B Describing dividend policy of both the companies:
The dividend policy of BHP Billiton is to provide dividends to the investors as and
when the overall net income of the company grows. However, during difficult times the
company has provided higher dividend pay-out ratio to reduce the negative impact on its
share price. The company recently in 2016 paid dividends, while making a loss from
operations, which mainly rolled the dividend pay-out ratio negative (Bhp.com 2018).
However, from the evaluation of the dividend pay-out ratio of ANZ the company has
been maintaining dividend pay-out ratio from 60 to 80, which has helped the company to
improve its market share. Nevertheless, in 2016 despite the overall reduction in net profit the
company’s dividend pay-out ratio was higher than 80 (Shareholder.anz.com 2018).
2.C Comparing dividend pay-out ratio of both the companies:
From the overall comparison the divided pay-out ratio of ANZ is relatively higher
than BHP, which is due to the impact of industry and work culture. The main reason behind
the changes in dividend policy is the risk and returns attributes of the both companies. The
BHP company relevantly falls under mining and petroleum, which needs high level if cash to
continue its operations. On the other hand, the ANZ bank is related to financial institutions,
which needs to maintain the level of dividend policy for acquiring the required capital from
the market to conduct its operations.

CORPORATE FINANCE ASSIGNMENT
6
2.D Agreeing with the decision of the company to change its dividend policy:
BHP Billiton 2015 2016 2017
Net profit after tax 2878 -6207 6222
Earnings per share 65.5 -120 110.7
Dividend per share 124 78 54
Dividend pay-out ratio 189% -65% 49%
ANZ Bank 2015 2016 2017
Net profit after tax 7507 5720 6421
Earnings per share 271.5 197.4 220.1
Dividend per share 181 160 160
Dividend pay-out ratio 67% 81% 73%
The change in dividend policy of BHP and ANZ was witnessed in 2016, where both
the companies despite performing poor was able to provide higher dividends to their
shareholders. The overall performance of the company can be evaluated in the above table,
where reduction in net profit after tax increased the dividend pay-out ratio. Kajola, Adewumi
and Oworu (2015) stated that the overall evaluation of dividend pay-out ratios allow investor
to understand the current dividend policy adopted by the company. The decision regarding
changes in dividend policy is a viable move, as overall financial position of the company has
deteriorated in the financial year, which might negatively affect its share price valuation.

CORPORATE FINANCE ASSIGNMENT
7
2.E Examining the dividend policy of each company and analysing its share price
movement:
7/29/2016 8/3/2016 8/8/2016 8/13/2016 8/18/2016 8/23/2016 8/28/2016 9/2/2016
17.5
18
18.5
19
19.5
20
20.5
21
21.5
22
20.25
BHP
The overall share price movement of BHP Billiton mainly indicates a positive
movement after the declaration of dividend and annual report. This relevantly portrayed the
overall dividend policy of the company and the losses, which incurred during the period.,
However, due to the change in dividend policy the overall negative impact on share price of
the company substantially reduced. The share price movement after the change in dividend
policy was mainly positive and increased market valuation of the company.
10/12/2016 10/17/2016 10/22/2016 10/27/2016 11/1/2016 11/6/2016 11/11/2016 11/16/2016
25
25.5
26
26.5
27
27.5
28
28.5
29
27.35
ANZ
However, the increment in dividend policy ratio of the company for 2016 drastically
reduced the overall share price, while after the announcement the spike in shares could be
seen. This is due to the adoption of changed dividend policy, where the company provided

CORPORATE FINANCE ASSIGNMENT
8
higher dividends even after obtaining low net profit after tax. The positive increment in share
value of ANZ is also seen after the disclosure of dividend policy, which allowed the company
to increase their share price even with low financial results.

CORPORATE FINANCE ASSIGNMENT
9
Reference and Bibliography:
Bhp.com. (2018). [online] Available at:
https://www.bhp.com/-/media/documents/investors/annual-reports/2017/
bhpannualreport2017.pdf [Accessed 18 Apr. 2018].
Kajola, S.O., Adewumi, A.A. and Oworu, O.O., 2015. Dividend pay-out policy and firm
financial performance: Evidence from Nigerian listed non-financial firms. International
Journal of Economics, Commerce and Management, 3(4), pp.1-12.
Liu, W., Kolari, J.W. and Pynnonen, S., 2018. CAPM Beta Lives for Expected
Returns. Department of Finance.
Market Index. (2018). S&P/ASX 50 - Shares Prices & Charts. [online] Available at:
https://www.marketindex.com.au/asx50 [Accessed 18 Apr. 2018].
Renneboog, L. and Szilagyi, P.G., 2015. How relevant is dividend policy under low
shareholder protection?. Journal of International Financial Markets, Institutions and Money.
Shareholder.anz.com. (2018). Annual Report Archive | ANZ Shareholder Centre. [online]
Available at: http://shareholder.anz.com/pages/annual-report-archive [Accessed 18 Apr.
2018].