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FIN201 – Assignment for Non-Award Students

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FIN201 – Assignment for Non-Award Students

Introduction

 

Capital assets pricing model assumes the return rate to make a decision of utilizing the available assets fully by diversifying or allocating it in the proper portfolio. According to Pavelková & Dehning (2017), it defines as per the interconnection and difference between the risk in invested assets and expected rate of return particularly in the case of stocks. As per capital assets pricing model, the theory focuses on the expected rate of return on specific portfolio assets equalizing the rate of risk-free stock adding to the risk premium.

1. Analyzing the Weight portfolio and Portfolio Standard Deviation and CAPM

 

Weight portfolio is a calculation of a percentage comprising a specific holding of assets in a portfolio. Weight portfolio can be calculated differently as per the case arise, the most common using calculating method is acquired by dividing value of the investment holding by the company by the total value of the portfolio multiplying the aggregate result of each outcome by 100 to calculate the weight of each stock.

The expected rate of return and portfolio deviation according to is used to determine the future value of the assets holdings (DeMiguel, Martın-Utrera, & Uppal, 2016). The expected rate of return is the guaranteed rate of return; it also provides a hint of measuring actual deviation by measuring the risk of assets.

There is an undiversified risk or residual risk, arises by the company, where uncertain investment is done in purchasing of assets or portfolio. The risk of uncertain it can only be minimized by diversifying.

In a weighted portfolio, then the investment on ‘F' is a risky asset. As the expected return on the portfolio is 12% which is minimum in each case it can be observed that the rate of expected return is far impossible to be reached.

Calculation of CAPM of investment on A & B= 264/225 * 12%=0.1408

 Investment on A & M= 264/42*12%=0.754

 Investment on B & F= 255/42*12%=0.728

Investment on M & F=42/-190*12%= 0.0265

A corporate financial manager is the company's equity cost of capital, whereas estimation of a cost of capital is great stress. In accordance to the result of it subjective where it is questionable to reliable benchmark (Aliu, Pavelková & Dehning, 2017). The capital asset pricing model (CAPM) is an idealized portrayal of how financial markets price securities and thereby determine expected returns on capital investments. The model provides a methodology for quantifying risk and translating that risk into estimates of expected return on equity.

The advantage of CAPM is achieving the objective of the assumed cost of the share which has the capacity of how much the equity can yield (Brière, Oosterlinck & Szafarz, 2015).

2. A) Description of Companies dividend policy

The company always decides the probability to increase its payout of dividend payout to attract investor in further shares investment by issuing attractive returns on dividend per share purchased. The company's per-share ratio is determined by the cash per earning of the company, to be paid to share investor on dividend per ratio by the company.

The dividend payout Ratio of Ramsay Healthcare in today's report is 2.29%. The last 12 Years highest trending yearly Dividend yielding of Ramsay ltd was 4.98% and the lowest Dividend Per ratio was 1.56%, whereas the median was 3.07%. The last Dividend per share calculated in December of 2017 was 0.62% reuters.com, (2016). The growth rate in Dividend Per share was 13.00% per Year and in last four years was 18.30% per year. It increased to 17.80% in the last 5 Years from 16.505 in last 3 years. The Dividend policy shows the setting up of a guideline by the company, which would be used to pay per ratio on holdings to the shareholders.

B) Comparison of Dividend Payout Ratio of both the companies

 

In the last 12 year comparison of Dividend Payout Ratio of Westpac Banking Corp, the higher trending yields in yearly dividend were 13.5% where the lowest Dividend payout ratio was 5.6% and its median becomes 8.23%. Westpac Banking Corp's, dividend per share ratio in 2017 was 188 and in 116 in 2006. The growth rate of average dividend in last three year is 1.20% per year, later increased to 2.06% per year. In last 4 years, the dividend payout ratio of Ramsay healthcare Ltd increased by 2.60% per year, whereas the Average Dividend per Ratio in the past 10 years was 5.20%. The growth rate was calculated by using the method of least squares regression.

To ascertain the growth in the investment of the company determining plow back is important. It screens the plow backs of the company, when the companies do not want to expand their Dividend Payout Ratio then it has to plough back their large part of profits. Westpac has a high Dividend of $188 in the year 2017 where Ramsay had %134.5 in 2017 which is less than Westpac by $50 (approx) (westpac.com, 2014). So, the Westpac has a poor growth record and future prospects of increasing are slow. If the company keep sharing it is earning to the shareholder in bulk in the form of dividends, then there will be less plough back for financing the future generating finance crisis. An overview of the cases of the 12-year financial report of both the companies, the higher dividend growth of a company has a poor dividend report. As they use their relative less portion of the earnings to pay out to the shareholder.

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