Accounting & Finance: Investment, Tax, and Portfolio Analysis

This assignment solution covers several key areas of accounting and finance. It begins with investment appraisal, calculating the present value of future cash flows to determine the fair price for an investment opportunity. It also involves calculating loan payments and annuity payments from lottery winnings. The assignment then discusses the potential impact of corporate tax cuts on the Australian economy, weighing the pros and cons of such a policy. Finally, the solution delves into portfolio management, calculating monthly and annual holding period returns, standard deviation, and expected returns for individual stocks (NAB and BHP) and a portfolio constructed from them. It also includes CAPM calculations, Security Market Line analysis, and a discussion of the risk-return trade-offs between investing in individual stocks versus a diversified portfolio. Desklib provides a platform for students to access this and many other solved assignments.

Running head: ACCOUNTING & FINANCE
Accounting & Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Question 1:.................................................................................................................................2
a) Identifying the amount Sandy willing to pay for the investment opportunity:......................2
b) Identifying the quarterly payments that will be paid by Lee on the loan:.............................2
c) Finding the monthly payments that Dianne will receive from the lottery:............................2
Question 2: (Cash Flows in different time line).........................................................................3
Question 3: Decision regarding the corporate tax cut and its significance to the Australian
economy:....................................................................................................................................3
Question 4:.................................................................................................................................7
i) Calculating monthly holding period:......................................................................................7
ii) Calculating average monthly holding period return:.............................................................8
iii) Calculating annual holding period return:............................................................................8
iv) Calculating standard deviation of companies and market:...................................................8
v) Plotting risk and return in graph:...........................................................................................9
vi) Finding expected return of NAB and BHP:..........................................................................9
vii) Constructing a graph of SML with NAB and BHP:..........................................................10
viii) Calculating portfolio with BHP-70% and NAB-30%:.....................................................10
ix) Providing explanation on relevant choice for Stock or Portfolio:......................................10
Reference and Bibliography:....................................................................................................12

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Question 1:
a) Identifying the amount Sandy willing to pay for the investment opportunity:
Interest 9%
End of year Cash flow ($) Discounting rate Discounted cash flow
1 $ 400.00 0.92 $ 366.97
2 $ 800.00 0.84 $ 673.34
3 $ 500.00 0.77 $ 386.09
4 $ 400.00 0.71 $ 283.37
5 $ 300.00 0.65 $ 194.98
Initial investment $ 1,904.76
b) Identifying the quarterly payments that will be paid by Lee on the loan:
Particulars Value
Loan Amount $ 100,000
Interest rate 3%
No of payments 20
Quarterly payment $ 6,415
c) Finding the monthly payments that Dianne will receive from the lottery:
Particulars Value
Initial Value $ 200,000
Interest rate 0.833%
No of payments 150

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Value at the end of 2 years $ 244,078
Monthly payment $ 2,857
Question 2: (Cash Flows in different time line)
% 8% 6% 7%
Ye
ar
0 1 2 3 4 5 6 7 8 9 10
CFi $6,018.
52
$6,500.
00
$1,500.
00
$9,427.
00
$(2,500.0
0)
$10,000.
00
$25,039.
26
Question 3: Decision regarding the corporate tax cut and its significance to the
Australian economy:
The relevant significance can be anticipated of the decline in Australian corporate tax
rate from 30% to 25%. There are both pros and cons for the decision that is intended by the
Australian government regarding corporate tax cut. Many citizens and individuals are
detecting that corporate tax cut would not only reduce the benefits that the government can
provide to the citizens, but also reduce tax collection amount. However, the government
relatively indicated that with the corporate tax cut adequate boost in the economy is
anticipated, as corporations would retain more income from there operations, which will be
used to invest in more businesses. On the other hand, some of the analyst in Australia
indicated that the current multinational and national Companies listed in the exchange have
projected higher net profit from previous fiscal years. This indicates that the companies are
doing well enough to survive in the competitive market (Dailysignal.com, 2018).
However, the arguments made by individuals regarding the disadvantage of tax cuts
are immense, as they point out the flaws in the decision of the government. maximum of the

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company Multinational Companies listed in Australia has its headquarters outside the
country, which indicates that maximum of the revenues and within Australia will be
transferred to overseas. This would not help the actual citizens of Australia and hamper
government's ability to support the citizens with initial coverage. Multinational company has
been making adequate income and net profit from the operations, while due to lawsuits the
losses of the company piled up. Therefore, it could be estimated that the company's current
financial position is adequate, while the lawsuits are actually hampering profits of the
company. In this context, Theaustralian.com.au (2018) mentioned that with the low tax rate
government will not be able to generate adequate tax revenue for supporting the capital
expenditure and suppose that is provided to citizens of Australia. The arguments also stated
that banks in the previous fiscal year had profits searching trillion of dollars, which indicates
that there is no requirement of corporate tax cut.
On the other hand, the current scenario of the Australian economy is a relatively
different from what it is being perceived. the economy is relatively under stress as medium
and small-scale industries are be bankrupt due to high tax rate and low provisions for them to
survive in the competitive market. This continuous problem that is faced by organizations all
over Australia is hampering the overall growth prospectus of the country. The unemployment
sheet is estimated to increase our time due to the lack of investment that is conducted by the
company. Other countries are relatively having low tax rate, which boost the investments
conducted by corporate around the world. This limits Australia to acquire foreign direct
investment for improving the position of the citizens, while reducing the living standard. The
corporate tax rate is relatively a major issue Australia, as it is not allowing the country to
boost its economic condition and increase high investment from multinational. Due to the
high tax rate the multinational companies investing more on other countries by taking out the
money from Australia. This is an adverse condition for the Australian government, if

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multinational companies and corporations choose other countries rather than Australia.
Therefore, the tax cut is an unavoidable measure that needs to be conducted by the Australian
government to boost its current economic condition. As stated by the president of US, Donald
Trump, reducing corporate tax rate would eventually allow organization to increase their risk-
taking capability, which might help in reducing unemployment within the country (Suarez &
Zidar, 2016).
There are some benefits that could be identified with the implementation of Corporate
tax cut, which are depicted as follows.
Decrease in unemployment:
With the implementation of low corporate tax rate, the overall production possibility
and investment capability of the companies really generally increase. This would eventually
attract more companies to invest in Australia. This could eventually Trigger massive
employment conducted within the country, while reducing the actual unemployment rate. In
addition, the decline in unemployment rate would eventually help in reducing the care
provisions that are provided by the government to the unemployed persons. This would
eventually help in reducing the expenditure of the government while improving the living
standard of individuals.
Increase in wage rate:
Decline in corporate tax rate would also help in increasing the number of employees
that is being acquired by companies. This would eventually increase competitiveness in the
market and lead to increase in wage rate. In addition, it could directly help in boosting the
living standard of citizens in Australia, a higher wage rate will eventually increase the overall
accumulation of tax by the government. Zellner & Ngoie (2015) mentioned that high income

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indicates a higher tax income for the government, which could boost their current capital
expenditure condition.
Increase Foreign direct investments:
Low corporate tax rate would eventually attract more companies around the world to
invest in Australia, which would eventually increase foreign direct Investments in the
country. This rising investment in the country would eventually help in raising amount of
taxes that will be acquired by the Australian government. This would eventually help in
improving the capability to conduct capital expenditure and maintaining the flow of support
to their citizens. Moreover, the low corporate tax rate would eventually motivate the existing
multinational companies to invest more in Australia, which could reap higher benefits for
their organizations (Dailysignal.com, 2018).
Investment in new ventures and business:
The low corporate tax rate would also allow new and small companies to flourish due
to the reduced tax burden. This would eventually increase the investment in new ventures and
businesses that is conducted by companies and investors. moreover, the decision of the
corporate tax cut would also help in supporting small scale and medium scale businesses by
reducing the cash outflow from the business. The decision would eventually support small
companies and allow them to survive in the competitive market.

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Question 4:
i) Calculating monthly holding period:
1/1/2016
2/1/2016
3/1/2016
4/1/2016
5/1/2016
6/1/2016
7/1/2016
8/1/2016
9/1/2016
10/1/2016
11/1/2016
12/1/2016
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
National Australia Bank Return
1/1/2016
2/1/2016
3/1/2016
4/1/2016
5/1/2016
6/1/2016
7/1/2016
8/1/2016
9/1/2016
10/1/2016
11/1/2016
12/1/2016
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
BHP Billiton Return

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1/1/2016
2/1/2016
3/1/2016
4/1/2016
5/1/2016
6/1/2016
7/1/2016
8/1/2016
9/1/2016
10/1/2016
11/1/2016
12/1/2016
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
AORD Return
ii) Calculating average monthly holding period return:
Particulars National Australia Bank AORD BHP Billiton
AV monthly holding period return 1.11% 0.62% 4.66%
iii) Calculating annual holding period return:
Particulars National Australia Bank AORD BHP Billiton
Annual holding period return 12.59% 71.87% 7.01%
iv) Calculating standard deviation of companies and market:
Particulars National Australia Bank AORD BHP Billiton
Standard deviation 0.0495 0.0752 0.0352

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v) Plotting risk and return in graph:
0.0450 0.0500 0.0550 0.0600 0.0650 0.0700 0.0750 0.0800
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
Risk and return of NAB and BHP
National Australia Bank BHP Billiton
vi) Finding expected return of NAB and BHP:
Particulars BHP Billiton National Australia Bank
Market return 6.500% 6.500%
Risk free rate 2.950% 2.950%
Beta 0.90 1.23
CAPM (Expected return) 6.145% 7.317%

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vii) Constructing a graph of SML with NAB and BHP:
0 0.2 0.4 0.6 0.8 1 1.2 1.4
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
(SML (Security Market Line)
viii) Calculating portfolio with BHP-70% and NAB-30%:
Particulars BHP Billiton National Australia Bank
Market return 6.500% 6.500%
Risk free rate 2.950% 2.950%
Beta 0.90 1.23
CAPM 6.145% 7.317%
Weight 70.000% 30.000%
Portfolio beta 1.00
Portfolio return 6.496%
ix) Providing explanation on relevant choice for Stock or Portfolio:
The above calculation mainly depicts the overall returns and risk attributes of stock
and portfolio, which could help in selecting the best possible option for investment. In
addition, from the overall evaluation investment in portfolio is the best possible provision, as

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it allows the investor to generate adequate return with a risk of only 1 beta. Therefore,
investment in portfolio could help in generating high level of returns from investment.

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Reference and Bibliography:
Au.finance.yahoo.com. (2018). Au.finance.yahoo.com. Retrieved 6 April 2018, from
https://au.finance.yahoo.com/world-indices
Dailysignal.com. (2018). The Daily Signal. Retrieved 6 April 2018, from
https://www.dailysignal.com/2018/02/09/corporate-tax-cuts-benefit-consumers-little-
guy/
Suarez Serrato, J. C., & Zidar, O. (2016). Who benefits from state corporate tax cuts? A local
labor markets approach with heterogeneous firms. American Economic
Review, 106(9), 2582-2624.
Theaustralian.com.au. (2018). Theaustralian.com.au. Retrieved 6 April 2018, from
https://www.theaustralian.com.au/national-affairs/treasury/oecd-finds-company-tax-
cuts-benefit-people-at-all-income-levels/news-story/
497e3ae7c4ae6da633a7b2643078f475
Zellner, A., & Ngoie, J. K. (2015). Evaluation of the effects of reduced personal and
corporate tax rates on the growth rates of the US Economy. Econometric
Reviews, 34(1-2), 56-81.