1. List and briefly describe the three general areas of responsibility for a chief financial officer (CFO) of a selected non-financial company which is listed on Australian Stock Exchange (ASX). How those responsibilities can affect ultimate objective of the company. The name of company you chose should start with the first letter of your name, surname or middle name.
2. What is importance of ethics in business? Provide examples with theoretical answers.
3. Dan Fox, owner of New Castle Coal Mine, is evaluating a new coal mine in Uluru. Bob Cohen, the company's geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for nine years, after which the coal would be completely mined. Bob has taken an estimate of the coal deposits to Jim the company's financial officer. Jim has been asked by Ross to perform analysis of the new mine and present his recommendation on whether the company should open the new mine. Jim has used the estimates provided by Bob to determine the revenues that could be expected from the mine. He has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost $525 million today, and it will have a cash outflow of $325 million ten years from today in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown below. New Castel Coal Mine has a 9 per cent required return on all of its coal mines.
0------- -1--------2--------3----------4---------5----------6------------7---------8-------9-------10
(525m) 95m 115m155m 205m 235m 165m 145m 125m95m (325m)
a. Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal rate, net present value and profitability index of the proposed mine.
b. Based on your analysis, should the company open the mine? Discuss.
4. 10 years ago Australian Government issued a series of 18 years bond with face of $3000. Government pays coupon rate of 9 per cent per annum on these bonds.
a. What is the current price of these bonds if required rate is 12 per cent per annum?
b. What price are you ready to pay for these bonds if required rate drop to 7.5 per cent per year? What relationship exists between interest rate and price of bond?
c. How the market price of these bonds will change if both coupon rate and required rates are 9 per cent per annum.
d. If the annual coupon payment on these bonds is $210 and the yield to maturity (YTM) is 12 per cent per year, what price would you put on these bonds 5 years before maturity?
e. If suddenly interest rate in the market increase or drop by 5 per cent, what impact fluctuation in interest rate has on the price of these bonds at maturity?
f. Currently in the market six years government bondsare tradedat 90 per cent of their face value of $3000. Coupon rate on these bonds is 8 per cent per year. What is YTM on these bonds?
g. What is bond rating? According to Standard and Poor, which government bonds have better rating, Australian or Spanish government bonds? As an investor of government bonds what yield do you expect on these bonds? Explain.