Reference no: EM132507601
HC2091 Business Finance Assignment - Holmes Institute, Australia
Assessment Task - Tutorial Questions
Purpose: This assignment is designed to assess your level of knowledge in the key topics covered in by unit.
Unit Learning Outcomes Assessed:
1. Research and explain the structure of Australian and International financial systems. Critically analyse the role of finance in business. Explain financial markets and different types of securities and the processes related to their investment. Interpret the impact of future developments in the financial markets on business structure and performance.
2. Understand the concept of the time value of money and apply it in investment and portfolio evaluation and management.
3. Identify the important factors in capital investment decisions, portfolio evaluation and business financing activities.
4. Critically analyse finance alternatives to manage short and long term debts. Critically understand and practice valuation of financial instruments, including ordinary shares, preferred shares and bonds.
5. Describe the effects of interest rates on business finance. Evaluate the firm capital structure policy and payout policy. Evaluate alternative funding policies and instruments available to businesses including the banking sector and nonbanking sector.
Description: Your task is to answer a selection of tutorial questions and submit these answers in a single document. The questions to be answered are:
Question 1 -
a. (i) What does it mean when we say the Australian Securities Exchange (ASX) is an auction market? Explain your answer (30-40 words).
(ii) Explain how auction markets differ from dealer markets? (30-40 words)
b. Identify three (3) forms of business organisations and list a minimum of two (2) advantages and disadvantages of each form of business.
Question 2 -
a. Assume you are currently aged twenty (20) and your parents inform you that they are planning to give you $100,000 on your 30th birthday (10 years from now). If the relevant discount rate is 5%, how much is your gift worth today? Provide complete calculations in your answer.
b. Assume you have $20,000 in your bank account. After five (5) years, you are intending to have $35,000 in your account. What annual rate of return must you earn on your investment to achieve your target? Provide complete calculations in your answer.
Question 3 -
a. Kristi is considering an investment that will pay $7,500 a year for eight years, starting one year from today. How much should she pay for this investment if she wishes to earn a 6% rate of return? Provide complete calculations in your answer.
b. Kristi was offered three (3) different assets, as listed below:
Asset 1 pays annual interest rate of 9% compounding annually.
Asset 2 pays annual interest rate of 8.9% compounding semi-annually.
Asset 3 pays interest rate 8.95 compounding monthly.
Based on effective annual interest rate calculations, which of the above assets is the best choice for Kristi. Show your calculations for all three (3) assets.
Question 4 -
Delta Limited has two possible investment alternatives and seeks your help to select the best option for them to choose. The table below gives you the initial investment and the expected future cash-flows over a 4 year period. The required rate of return is 12%.
|
Year
|
Project A
|
Project B
|
|
0
|
-95,200
|
-162,000
|
|
1
|
47,800
|
68,000
|
|
2
|
37,200
|
65,600
|
|
3
|
41,400
|
61,000
|
|
4
|
29,200
|
54,600
|
a. Calculate the profitability index for each project.
b. Calculate the Net Present Value (NPV) for each project.
c. Which project should be selected based on your calculations? Explain your answer. (30 - 40 words).
Question 5 -
a. Explain what the relevant incremental cash flows are for a project evaluation. Provide three (3) examples in your response. (80 -100 words).
b. Kite Limited has provided the following forecast for the upcoming year for their business. Based on the given information, calculate the operating cash-flow.
The company projected sales volume is $143,200. Cost of goods sold is 60% of the sales revenue and administration and other expenses is $10,500. The depreciation expenses will be $8,000 and the corporate tax rate is 30%. Show all your calculations.