Financial Management Assignment: Retirement Planning and Investment

This financial management assignment addresses key concepts in finance, providing detailed solutions to several questions. The first question focuses on retirement planning, calculating present and future values, and determining annuity payments for Broadbent Group's retirement plan, considering different discount rates. The second question involves bond valuation, including calculating the value of bonds A and B, determining coupon rates, and analyzing stock valuation using dividend discount models. The third question examines net present value (NPV) analysis for a project, evaluating its feasibility under different discount rates. Finally, the assignment concludes with an analysis of the capital allocation line (CAL) and portfolio computation. The assignment covers important areas of financial decision-making, providing practical examples and calculations for each concept.

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Author’s Note:

1FINANCIAL MANAGEMENT
Table of Contents
Question 1..................................................................................................................................2
Question 2..................................................................................................................................3
Question 3..................................................................................................................................5
Question 4..................................................................................................................................5
References..................................................................................................................................7

2FINANCIAL MANAGEMENT
Question 1
a) Accounting for all the expenses that will be made by the Broadbent Group will be
significantly dependent on the amount of interest that will be earned by the Group Company
and the amount given to Mr. T Sprod on an annual basis. The yearend payment of $42,000
for a sum of 20 years will be given by the company and in these time frame the company will
be earning a sum of 12% in the distribution period (Muda & Hasibuan, 2018). The annual
amount will be discounted at the end of 12 year where the company will be actually able to
figure out the total amount to be paid at the retirement phase. However, during the funding
phase of the retirement plan the company expects to earns a sum of 9%. The annual deposit
that will be made by the company will be significantly dependent in the value derived at the
end of 12 year which is around $0.314 million (Chan & Rate, 2018). The same amount will
be taken as the future value and a 9% discount rate along with the 12-years of time frame will
be taken for determining the annuity amount or the PMT that will be paid by the company.
The annuity amount that was derived for the company in the funding phase would be around
$15,576.24.
1 2 3 4 5 6 7 8 9 1011121314151617181920212223242526272829303132
($20,000.00)
($10,000.00)
$0.00
$10,000.00
$20,000.00
$30,000.00
$40,000.00
$50,000.00
Trend Line of the Cash Flows

3FINANCIAL MANAGEMENT
b) In order to make the payment on an annuity basis for a sum of 20-years Broadbent must
invite $313,716 which was determined by taking a time period of 20-years a discount rate of
12% and the annuity or PMT amount as $42,000 (Ries, Glock & Schwindl, 2016).
c) In order to successfully make out the payment Broadbent must contribute around
$15,576.24 on an annual basis for a sum of 12-years that was determined by taking the
discount rate of 9% and the time frame of investment to be 12 years and the future value as
$313,716.
d) If the discount rate changes from 9% to 10% then the same implies that the Broadbent
must be earning a rate which is higher than 9% implying that the annual deposit made by the
company will be reduced from $15,576.24 to $14,670.43. It is determined by taking the
discount rate of 10% and the time frame of investment to be 12 years and the future value as
$313,716.
e) Since the amount payable by Broadbent Group will be on a perpetuity basis the annual
investment would be increased summing up to $16,376.16.
Question 2
a) The valuation for the bond A will be done in two-phase when the same pays around $2,000
and $2,500 respectively the bond will be first discounted at the end of year 14 and year 6
respectively for making out the payments. The value of the Bond A was calculated to be
around $9,893.47. On the other hand the value of bond B was calculated to be around $3,889
by taking the face value of the bond to be around $40,000 (Hamza & Jedidia, 2017).
b) The coupon rate for the bond was calculated with the help of the annual coupon amount
that will be paid by the bond on an annual basis and the subsequent payment arising from the
bond will used for the determination of the coupon rate. The coupon rate determined is as
follows:

4FINANCIAL MANAGEMENT
Question 2 (B)
Present Value -768
Face Value 1000
Annual Rate of Return 10%
Number of Years 5
Annual Coupon (PMT) $19.95
Coupon Rate 3.99%
c) i)The expected dividend for the firm would be calculated with the help of the current
dividend paid by the company and the expected growth rate for the dividend for the three-
year time frame as follows:
Dividend (Do) 2
G (Growth) 6%
(D1) 2.12
(D2) 2.25
D3 2.38
ii) The current stock price of the company is expected to be that of the intrinsic value of the
stock which is to be around 2/0.16 = $20. The same has been calculated by taking the current
dividend rate divided by the growth rate of 16% (Cardin & Hu, 2016).
iii) The expected value of the firm in one year of time frame will be calculated by taking the
current dividend rate divided by the discount rate of 16% and growth rate of 6% by applying
dividend discount model for valuing the share price which was as D1/(Re-g) = $21.2.
iv) The expected dividend yield, capital gains yield and total return during the first year will
be as follows:

5FINANCIAL MANAGEMENT
Dividend Yield
Dividend 2
Current Share Price 20
Dividend/Share Price
10.00
%
Capital Gain Yield
Original Price 20
Current Price 21.2
Change 1.2
Capital Gain Yield (%) 6.00%
Question 3
a) The net present value of the project investment that will be done was calculated by taking
all the cash inflows and cash outflows for the firm. The NPV was calculated to be as -$5.31
million for the company by taking the discount rate of 23% and the project will be rejected as
the same will not be giving the required rate of return to the investment holders of the
company (Hayward et al., 2017).
b) The NPV for the project by taking the discount rate of 18% was calculated to be around -
$2.83 million and the project will be rejected as the same will not be giving the required rate
of return to the investment holders of the company.
c) The NPV for the project by taking the discount rate of 10% was calculated to be around
positive $5.08 million and the project will be accepted as the same will be giving the required
rate of return to the investment holders of the company.
Question 4
a) Capital Allocation Line

6FINANCIAL MANAGEMENT
18% 19% 20% 21% 22% 23%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
Capital Allocation Line
Risk
Return
R(F)
b) Portfolio Computation

7FINANCIAL MANAGEMENT
References
Cardin, M. A., & Hu, J. (2016). Analyzing the tradeoffs between economies of scale, time-
value of money, and flexibility in design under uncertainty: Study of centralized
versus decentralized waste-to-energy systems. Journal of Mechanical Design, 138(1),
011401.
Chan, K., & Rate, E. A. I. (2018). & 6 The Time Value of Money. Financial Management.
Hamza, H., & Jedidia, K. B. (2017). Money Time Value and Time Preference in Islamic
Perspective. Turkish Journal of Islamic Economics, 4(2), 19-35.
Hayward, M., Caldwell, A., Steen, J., Gow, D., & Liesch, P. (2017). Entrepreneurs’ capital
budgeting orientations and innovation outputs: Evidence from Australian
biotechnology firms. Long Range Planning, 50(2), 121-133.
Muda, I., & Hasibuan, A. N. (2018). Public Discovery of the Concept of Time Value of
Money with Economic Value of Time. In Proceedings of MICoMS 2017 (pp. 251-
257). Emerald Publishing Limited.
Ries, J. M., Glock, C. H., & Schwindl, K. (2016). Economic ordering and payment policies
under progressive payment schemes and time-value of money. International Journal
of Operations and Quantitative Management, 22(3), 231-251.