Reference no: EM133040394 , Length: word count:1500

ACCT6004 Finance - Southern Cross University

Assessment: Business Case Studies

Company - Bega cheese company

Instructions:

You have been assigned an ASX listed company as the context for this assignment. The company you will use is Bega Cheese, ASX code (BGA). You will also download a spreadsheet to assist you in completing part 1 of the assessment. This spreadsheet can be located in the Assessment 2 folder under the Assessment Tasks and Submission tab on the unit blackboard site.

All input data you need to find for calculations in part 2a of this assignment must be sourced from S&P Capital IQ. This database will also provide you with useful information for general background research on the company,

To use this database, you will need to apply for a user account. Instructions and the link to the database can be found in the Web Links section of this unit's MySCU site. Please read those instructions carefully and set your account up early in the session.

Attempt each of the following sections in your assignment submission:

Question 1. TVM and bond valuation questions
a. Bega Cheese (BGA) has decided to purchase a new asset necessary for a proposed expansion to its business. The company has decided to speak with their bank. The bank is offering a fixed rate of 2.55% APR, compounded quarterly. BGA is required to make payments quarterly as shown in the spreadsheet every quarter for 10 years. What amount will BGA be required to borrow?
b. Refer to the spreadsheet for the annual operating revenue of BGA. Assume this revenue will grow continuously at the annual rate shown in the spreadsheet. What is your prediction for annual operating revenue for BGA in 5 years?
c. BGA wishes to invest funds and has several options available to it. The investment options are X, Y and Z. All three of these options have equal risk. The interest rates (EAR) for these options are given in the spreadsheet. What is the EAR of the investment option BGA should choose?
d. BGA is buying new property for the amount provided in the spreadsheet. To finance this, the BGA's bank has offered an amortised loan at 2.55% APR, quarterly compounding, with 30 years of quarterly payments. What quarterly payment will BGA have to make on this loan? Assume that the entire property cost is financed and that payments are made at the end of each period.
e. BGA has an issue of $1000 par value annual coupon bonds with 11 years remaining until maturity. The annual coupon rate is given in the spreadsheet, along with the current price of the bonds. What is the yield to maturity on the bonds?
f. BGA has an issue of $100 par value bonds that offers an annual coupon rate (located in the spreadsheet) paid semi-annually. The bonds have 8 years remaining until maturity. The market's required return on these bonds is provided in the spreadsheet. What is the amount of each coupon payment?

Question 2. Risk and return estimates:
a. Use CAPM to estimate the expected return for the shares of: i) Bega Cheese Ltd; and ii) a hypothetical company called Flyaway with a beta of 1.20. To do this, use the yield to maturity of a 10-year Australian Government bond on 26 November 2021 as a proxy for the risk-free rate, assume the market risk premium is 3.50% and use the BGA's most recent 5-year beta.
b. Using the data from part 2a, estimate portfolio expected return and beta, assuming a portfolio made up of Bega Cheese and Flyaway with 40% invested in Bega Cheese Ltd and 60% invested in Flyaway.

Question 3. Risk and return analysis:
a. Interpret and discuss your risk and return measures from parts 2a and 2b.

Attachment:- Case study.rar