Assignment Task:
This assessment task will assess the following learning outcome/s:
A) Be able to evaluate and explain the congruence of accounting, finance and treasury functions.
B) Be able to explain and critique the objectives of financial management in contemporary organisations.
C) Be able to critically evaluate mainstream financial theory and concepts.
D) Be able to discuss and evaluate ethical considerations in financial dealings.
E) Be able to demonstrate appropriate communication skills in the context of corporate finance.
F) Be able to demonstrate specific technical competencies and skills in utilizing quantitative techniques in financial analysis.
Description: The assignment is designed to develop your financial analysis and problem solving skills and develop your written communication skills. The questions require you to apply the knowledge and tools covered in the subject topics in order to demonstrate your understanding of the subject content. This assignment has a heavy focus on fundamental financial mathematics which is a critical building block to develop your capacity to understand and resolve complex finance problems.
Question 1: Eric has just been made CEO (Chief Financial Officer) of Sun Energy Storage Ltd, a company that produces batteries for solar panels used in residential properties. His focus is to reduce costs as much as possible in the short term and improve profitability. This, he feels, is important to shareholders.
a. Is Eric's focus on short-term profitability the best strategy for Sun Energy? Why or why not? Justify your position, outlining why your choice of strategy is superior.
b. Prior to the introduction of the dividend imputation system, dividends were taxed under the classical tax system. Explain the differences between the two different tax systems. Use examples to illustrate your explanation.
Question 2: Below is the FY 2019 monthly share price data for Qantas FY
|
Date
|
Open
|
Close
|
|
Jul-18
|
6.17
|
6.72
|
|
Aug-18
|
6.72
|
6.43
|
|
Sep-18
|
6.45
|
5.9
|
|
Oct-18
|
5.81
|
5.47
|
|
Nov-18
|
5.44
|
5.96
|
|
Dec-18
|
6.06
|
5.79
|
|
Jan-19
|
5.84
|
5.44
|
|
Feb-19
|
5.44
|
5.73
|
|
Mar-19
|
5.77
|
5.66
|
|
Apr-19
|
5.66
|
5.61
|
|
May-19
|
5.57
|
5.55
|
|
Jun-19
|
5.47
|
5.4
|
i. Calculate the 2018-2019 monthly holding period returns (in both $ and %) for Qantas (ASX code QAS).
ii. Calculate the average monthly return (%) for Qantas.
iii. Calculate the annual holding period return (HPR) for Qantas.
iv. Using Excel, prepare a line graph of the HPR for Qantas.
v. Calculate the risk measured by the standard deviation for Qantas.
vi. If the standard deviation for the market is 10.67%, how does this compare with Qantas's standard deviation calculated in (v)? Explain your conclusions.
Question 3:
a. In terms of share investment define that beta (β) represents.
b. According to Investing.com, Qantas has a beta of 0.59. What does this mean?
c. In terms of riskiness how would you compare Qantas's beta to the market?
d. Calculate the expected returns for Qantas using the Capital Asset Pricing Model (CAPM) and the following yields:
- the risk free rate (Rf) as measured by the yield on Australian 10 year treasury bonds is 2.75%
- the average return on the market for the past 10 years has been 9.25%
- use the Qantas beta of 0.59.
e.
i. Using the CAPM data from (d), create an Excel scatter lot graph to plot the Security Market Line (SML) using the Rf, return on the market and Qantas.
ii. Based on your CAPM findings, construct a portfolio made up of 45% Qantas and 55% market. Calculate the estimated return and beta for this portfolio.
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