Assignment Problem: Research on Financial market and Capital Budgeting Analysis
Tasks:
This assignment task is a written report that includes 3 parts: Part 1 is a research on financial markets Part 2 is a fact finding of financial market of Australia and Part 3 is a risk analysis and project evaluation. To complete the assignment, groups are recommended to obtain data and information from relevant web sites, especially websites of Australia Stock Exchange: Australian Securities and Investment Commission: the Australian Prudential Regulation Authority (APRA) for their research. Using secondary data (researches done by other) for fact finding in Part 2 is not recommended and will be penalized.
Requirements: The assignment should cover the contents described bellows.
Assignment Structure:
Briefly introduction of you work: the purpose of assignment, your key findings and structure of your assignment (not more than 300 words)
Part 1: Research on financial market
A) Comparison of three key financial products common stocks, bonds and preferred stocks from the perspective of an investor
Criteria for comparison include: (1) ownership status; (2) nature of funding; (iii) risks; (iv) income; (v) voting right, (vi) maturity and (vii) priority in liquidation. Your research should be supported by real life examples of common stocks, bonds and preferred stocks issued by any company with relevant data of first issuance, trading market, trading volume, market capitalization and market price.
B) Analysis of five basis principles of finance
Define the five basic principles finance and justify your analysis by illustrating examples: Choose one or more events described by media (CNN Business, Financial Times, Dow Jones financial news etc.) about companies and financial market. Analyze that event (s) applying the five basis principles of finance. Note: Each principle is to be illustrated by at least one event.
Part 2: Fact Finding of Australian financial markets
A) Fact finding of the Australian Bond market
Do a fact finding and present an analysis of Australian bond market. The following questions should be addressed:
(i) Where the bonds are traded secondarily in Australia? What are the types of bonds are traded in that market place?
(ii) Who provide bond rating service and what are ratings used for bonds in Australia?
(iii) Identify the key differences between Australian Government Bonds and Australian Corporate Bonds, using information and data from ASIC's Money Smart (ASIC website)
(iv) Explain the nature of yield to maturity (YTM), identify the relationship between coupon rate and YTM, using an example of bond evaluation with coupon rate which is higher and then lower than YTM for illustration.
(v) What is the interest rate risk and how does it affect bond price?
B) Fact Finding of Australian Share market:
Conduct a research and present an analysis of Australian share market. The following questions should be addressed:
(i) What is the name of listed stock market in Australia, how is it operated, how many shares are traded in the market place at the present?
(ii) Using information and data from ASX website, identify what is market capitalization of a listed company, how is it computed?
(iii) What is the oldest share index in Australia, what does it measures, how many listed stocks are there in the index at the present and how the index is calculated?
(iv) Go to ASX website and obtain 3-year historical movement graph of that index.
(v) Comment on the trend, do a research and identify the factors that may explain the trend (secondary data can be used for this question only).
Part 3: Risk analysis and project evaluation
A) Perform a sensitivity analysis with data provided
Assume that your selected company is considering a potential project with a new product that is expected to sell for an average price of $22 per unit and the company expects it can sell 400 000 units per year at this price for a period of 4 years. Launching this project will require purchase of a $2 450 000 equipment that has residual value in four years of $250 000 and adding $ 500 000 in working capital which is expected to be fully retrieved at the end of the project. Other information is available below:
Depreciation method: straight line Variable cost per unit: $12
Cash fixed costs per year $250000 Discount rate: 10%
Tax Rate: 30%
Do an analysis with cash flows of the project to determine the sensitivity of the project NPV with the following changes in the value drivers and provide your results in (a) relevant tables:
Unit sales decrease by 10% Price per unit decreases by 10%
Variable cost per unit increases 10%
Cash fixed cost per year increases by 10%
B) Perform an NPV break even analysis for the case where price per unit decreases by 10 % to identify the number of unit sales that is needed for the project to get break-even
Trial and error method is to be used with excel spread sheet.
Conclusion
Summarize the outcomes of your works (not more than 300 words)
Presentation: you group is required to present your assignment outcomes in a presentation report. All members need to participate in the presentation using a PowerPoint slides. Due to time availability, your lecturer can assign you to do an in-class presentation or a video presentation which you will submit the link to Blackboard. The presentation is in no more than 10 minutes.
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Attachment:- Financial market and Capital Budgeting Analysis.rar