Business Finance Group Assignment
Assignment task description
This assignment has two parts. The first part is designed to provide you an opportunity to work with a range of real world like (simulated) financial data and information and analyse them and interpret the outcomes using the concept and principles of finance you have learnt in this unit. It is important that you (i) show or define all variables (ii) specify and display formula (where appropriate) and show all workings. Workings are not necessary when used EXCEL but still need to define variables and show formulas. While you may use EXCEL for some calculation, you must complete your assignment in word document. There is no words limitation for this part. Just use many words as you require to answer the question.
In the second part, you will write a report comparing financial performance indicators of two companies you have calculated in the first part and suggest potential investor which company they should consider investing and why. The report should meet the basic academic standards such as introduction, body or discussion, conclusion and references. This report should not have more than 1000 words.
Part 1: Assignment questions
Perform the following assignment tasks
1. Calculate the annualised monthly returns for market and two companies.
2. Calculate the standard deviations of the returns of the Market and 2 companies.
3. Calculate the annualised standard deviations of market and two companies.
4. Calculate the beta for both companies.
5. Calculate required rate of return for both companies using the Capital Asset Pricing Model (CAPM). Assume that Risk free rate is 3.5%.
6. Calculate the after tax weighted average cost of capital (WACC) for both companies assuming that Black Ltd has 40% equity and 60% debt whereas White Ltd has 50% debt and 50% equity. Assume that Black Ltd's cost of debt is 7% whereas While Ltd's cost of debt is 9%. Also assume that both companies are subject to 30% corporate tax.
7. Calculate the Market value of the share of both companies using the Dividend Discount Model. Assume that Black Ltd and White Ltd are growing at 5% and 3% respectively. Also assume that both Black Ltd and White Ltd recently paid $1.10 and $0.95 per share dividend respectively.
Part 2: Analytical report
Write an analytical report not exceeding 1000 words using the financial performance indicators you have calculated in Part 1. You need to explain each of the performance measure and use them to critically evaluate both companies' future prospect so that potential shareholders make informed judgement as to which company they should consider investing. You also need to use literature support to support your discussion and argument with appropriate citation and references.
Appendix: Monthly ASX index and adjusted share price for Beauty and Ugly Ltd
|
Month
|
Black Ltd Share price ($)
|
White Ltd Share price ($)
|
Market ASX index
|
|
Jan 16
|
13.05
|
20.55
|
4650
|
|
Feb 16
|
13.40
|
21.15
|
4770
|
|
Mar 16
|
13.87
|
20.95
|
4840
|
|
Apr 16
|
13.12
|
18.75
|
4940
|
|
May 16
|
13.37
|
17.10
|
4815
|
|
Jun 16
|
13.00
|
19.35
|
4788
|
|
Jul 16
|
13.50
|
20.10
|
5055
|
|
Aug 16
|
13.90
|
21.05
|
5125
|
|
Sep 16
|
14.12
|
22.15
|
5035
|
|
Oct 16
|
14.87
|
23.85
|
5115
|
|
Nov 16
|
15.25
|
22.90
|
5200
|
|
Dec 16
|
16.05
|
21.85
|
5255
|
|
Jan 17
|
16.40
|
23.80
|
5305
|