Charles Sturt University ACC515 Finance Assignment Solution Analysis

This document presents a comprehensive solution to a finance assignment, addressing multiple key areas of financial analysis. It begins with calculations related to loan payments and net present value (NPV) analysis, including NPV calculations at different rates of return to assess investment viability. The assignment then delves into financial asset valuation, specifically focusing on the value of managed funds and superannuation. Furthermore, it explores the impact of short-term profitability strategies and the dividend imputation system. The solution continues with the calculation of payments for various investment options, portfolio diversification, and beta calculation. The assignment also includes detailed analysis of monthly holding period returns for Qantas, average monthly return, and annual HPR. Finally, the assignment concludes with beta analysis, CAPM calculations, and portfolio return calculations, all supported by relevant references.

Running head: REPORT 0
FINANCE
DECEMBER 18, 2019
STUDENT DETAILS:

REPORT 1
Answer 1:
(a) Total required amount = PMT(1.5%, 24,,-90000)
= 3143.17 $
(B) Net present value-
Years 0 1 2 3 4 5
free cash flow -30 6 8.5 9.5 12 15
PV @ 12% 1
0.89285
7
0.79719
4 0.71178
0.63551
8
0.56742
7
PV of cash flow -30
5.35714
3
6.77614
8
6.76191
2
7.62621
7
8.51140
3
Net present value 5.03
Decision: net present value of investment is positive 5.03. The company should purchase the
investment.
NPV when rate of return
14%
Year 0 1 2 3 4 5
free cash flow -30 6 8.5 9.5 12 15
PV @ 14% 1 0.877193 0.769468 0.674972 0.59208 0.519369
PV of cash flow -30 5.263158 6.540474 6.412229 7.104963 7.79053
NPV 3.11
Decision: when rate of return is 14%, net present value of investment is still positive i.e. 3.11.
The company should purchase the investment.
C (I) Value of the financial asset at the age of 67 will be-

REPORT 2
Particulars working amount
Value of balanced management fund FV(6%,30,,-80000) 459479.29
Value of superannuation fund FV(7%, 30,1500,-85000) 788732.86
Total value 1248212.15
(ii)
Particulars working amount
Monthly payment amount received by Jayne
at the age of 85
PMT(0.56%, 216,1248212.15,-
200000) 10454.53

REPORT 3
Answer 2:
(a) The CEO of Sun Energy Store Ltd, Eric puts focus on the reduction of cost in the short-term
profitability. All small business owners wants the organisations to be profitable. However, they need to
search the manner to strike the balance between long-term profitability objective as well as short-term
objectives. The short-term profitability renders owner the cash flow as well as confidence to be capable
to create the acquisition. It can say that the selection of short-term profitability strategy is superior
because less risk factor.
(b) The dividend imputation system is the corporate tax system where certain tax paid by the
organisation can be credited or ascribed, to stakeholders by a manner of the tax credit to decreases
income tax payable on the allocation. While compared to classical system, dividend imputation
system ends or decreases taxation disadvantages of allocating the dividend to stakeholders by just
demanding them to make payment of differences between marginal rate as well as corporate rate (Rossi,
2015).
Moreover, the main aim of dividend imputation system is to end the double taxation of the profit
of organisation, once at the level of corporation as well as on allocation as the dividends to shareholder.
In classical system, an entity along with stakeholders had the incentives for taxed earning of
organisation to be kept by an entity.

REPORT 4
Answer 3:
a. (i) Calculation of payment of each option-
Three Options : Working amount
Global Banking Corp (GBC) PMT(1.02%,40,-100) 3.06
International Financing Group (IFG) PMT(4%,10, -100) 12.33
Worldwide Wholesale Banking Services PMT(4.05%, 5, -100) 22.49
a .(ii) From the following options, the global banking corporation (GBC) is best option because the less
payment is to be made in this option.
b. (i) Concept of diversification - The diversified investment is considered as the portfolio of different
assets, which earns the high return for slightest risks. The typical diversified portfolio has the
combination of the stock, fixed incomes, as well as commodity. It can say that the diversification is a
procedure of the distributing capital in the manner, which decreases the exposure to the specific assets
or risks (Chadha & Sharma, 2019).
b. (ii) Calculation of portfolio beta
Beta = (0.80*30%) + (1.05*40%) + (1.30 * 30%)
= 1.05
Decision- the market beta is 1. From the above calculation, it is found that portfolio bets is 1.05.
It is slightly risky in comparison of market.
Further, it can see that the higher risk is related to great probability of high return as well as
low risk with the great probability of smaller return.

REPORT 5
Answer 4:
(i) Monthly holding period return ($) = Income + (closing value at end- opening value)
Monthly HPR (%) = Income + (closing value at end- opening value) / opening value
Date Open close
Monthly holding period
return ($)
Monthly holding period
return
Jul-18 6.17 6.72 0.55 8.9%
Aug-18 6.72 6.43 -0.29 -4.3%
Sep-18 6.45 5.9 -0.55 -8.5%
Oct-18 5.81 5.47 -0.34 -5.9%
Nov-18 5.44 5.96 0.52 9.6%
Dec-18 6.06 5.79 -0.27 -4.5%
Jan-19 5.84 5.44 -0.4 -6.8%
Feb-19 5.44 5.73 0.29 5.3%
Mar-19 5.77 5.66 -0.11 -1.9%
Apr-19 5.66 5.61 -0.05 -0.9%
May-
19 5.57 5.55 -0.02 -0.4%
Jun-19 5.47 5.4 -0.07 -1.3%
(ii) Calculation of average monthly return for Qantas = monthly HPR (%) / 12
= -1%
(iii) Calculation of annual HPR for Qantas = (5.4-6.17) /6.17
= 440%
(iv)

REPORT 6
(v) Risk measured by standard deviation =
= 35%
(vi) When standard deviation is 10.67%, then project will be less risky in comparison of the previous
situation (Al-Mutairi, Naser & Saeid, 2018).

REPORT 7
Answer 5:
(a) Beta - The beta of the investment security is the extent of the unpredictability of the return
related to the marketplace. This is utilised as the measure of risks. This is the main part of
Capital Asset Pricing Model. It can say that an entity with higher beta has great risk as well as
also great expected return.
(b) As per data at investing.com, the beta of Qantas is 0.59. This indicates the reasonable risks as
well as mean the stock marketplace is provided beta of 0.59 by comparison, the portfolio that
has beta of 0.59 would tend to take participation in the broader market moves, however just
0.59 times as much as the marketplace generally (Gan & Valdez, 2017).
(c) The market beta is 1 and beta of Qantas is 0.59. It means that this tends to be less volatile in
comparison of the market.
(d) Expected returns utilising the CAPM
= Rf + Beta (Rm – Rf)
= 2.75% + (0.59*9.25%)
= 8%
e (i)

REPORT 8
e (ii) Calculation of expected return and portfolio beta-
particulars Qantas Market
return 8% 9.45%
beta 0.59 1
weight 45% 55%
portfolio beta (0.59*45%) 26.55% (1 * 55 %) 55.00%
portfolio
return (8% * 45%) 0.04 (9.45% * 55%) 0.05

REPORT 9
References
Al-Mutairi, A., Naser, K., & Saeid, M. (2018). Capital budgeting practices by non-financial
companies listed on Kuwait Stock Exchange (KSE). Cogent Economics & Finance, 6(1),
1468232.
Chadha, S., & Sharma, S. K. (2019). Capital budgeting practices: a survey in the selected Indian
manufacturing firms. International Journal of Indian Culture and Business Management, 18(4),
381-390.
Gan, G., & Valdez, E. A. (2017). Valuation of large variable annuity portfolios: Monte Carlo
simulation and synthetic datasets. Dependence Modeling, 5(1), 354-374.
Rossi, M. (2015). The use of capital budgeting techniques: an outlook from Italy. International
Journal of Management Practice, 8(1), 43-56.