BUACC5936: Financial Management Assignment Solution - 2019 S1

This document presents a detailed solution to a Financial Management assignment, addressing key concepts such as the time value of money, cash flow analysis, and investment valuation. The solution begins by analyzing the cash flows for the Broadbent Group, calculating necessary deposits and payments over a 12-year accumulation period and a subsequent 20-year distribution period. It further delves into bond valuation, determining the current prices and coupon rates for bonds. The assignment continues with stock valuation, calculating expected dividends, current stock prices, dividend yields, and capital gain yields. Additionally, the solution evaluates a project's net present value (NPV) under different discount rates and explores the concept of a capital allocation line derived from a risky asset portfolio, determining the optimal investment fraction. The assignment covers a wide range of financial topics, providing insights into investment strategies and financial planning.

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........................................................................................................................................4
Question 4........................................................................................................................................5
References........................................................................................................................................6

2FINANCIAL MANAGEMENT
Question 1
a) The cash flows for the Broadbent Group was prepared by taking all the cash inflows and
outflows that will be taking place in the 12-years of time frame. The cash inflows that
will be occurring for the company will be around $42,000 on an annual basis for a sum of
twenty years after the twelve-years of period for the company (Chan & Rate 2018). The
trend line for the cash flows is shown as below:
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
b) It is necessary that a sum of $313,716 needs to be deposited by the Broadbent Group Ltd
in the end of year 12 by the company (Farrell, 2016).
c) Broadbent must deposit a sum of $15,576.24 for a period of 12 years whereby the
company will be earning in 9% for the total cash flows that will be incurred by the
company.
d) If the interest rate or the discount rate will be 10% instead of the 9% then the total annual
payment that the company needs to repay will be around $14,670.43.

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e) If the payment that would be paid by the Broadbent Group would be on a perpetuity basis
then the total payment to be paid by the company would be around $16,3673.16.
Question 2
A) The current price of the Bond A was around $9893.73 and the price of the Bond B was
around $3888.89.
B) The coupon rate for the Bond was calculated to be around $19.95.
Question 2 (B)
Present Value -768
Face Value 1000
Annual Rate of Return 10%
Number of Years 5
Annual Coupon Rate (PMT)
$19.9
5
C) Stock Valuation
a) The expected stream of dividend for the company would be around:
Dividend (Do) 2
Growth Rate 6%
Dividend (D1) 2.12
Dividend (D2) 2.25
Dividend (D3) 2.38
b) The current price of the firm stock is around $21.2 and the same has been calculated
with the help of the dividend discount model.
Particulars Amount ($)
Dividend (D1) 2.12
Discount Rate 16%
Firm Current Stock Price 21.2
c) The expected value of the firm in the first year would be around $13.25

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Firms Expected Value
Value D1/Discount Factor
Value 13.25
d) i) The dividend yield will be calculated by taking the dividend for the company for
the current year compared to the current share price of the company.
Dividend Yield
Dividend 2
Current Share Price 21.2
Dividend/Share Price
9.43
%
ii) Capital Gain Yield
Capital Gain Yield
Original Price 20
Current Price 21.2
Change 1.2
Capital Gain Yield (%)
6.00
%
iii) The total return for the company would be calculated by talking the capital yield
for the company and the dividend growth rate for the company. The capital gain yield
for the company would be around 6% and the dividend return is also around 6%
which is the growth rate of dividend. Thus, a total of 12% will be the total return for
the company.
Question 3
a) The net present value for the project was calculated to be around -$5,311,397.39 by
taking the 23% discount rate. The NPV for the project was calculated using the discount
rate of 18% was around -$2,837,203. The NPV for the he project was calculated using the

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discount rate of 10% was around $5,085,439. Yes if the discount rate would be taken as
10% then the decision of accepting the company could undertake the project.
Question 4
a) Capital Allocation Line derived from the risky asset portfolio would be as follows:
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) The fraction of amount that would be invested in the portfolio would be around 63%
which will make the standard deviation for the portfolio to be around 12%.

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References
Chan, K., & Rate, E. A. I. (2018). & 6 The Time Value of Money. Financial Management.
Farrell, B. (2016). Depreciation and the Time Value of Money. arXiv preprint
arXiv:1605.00080.