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TFIN102 The Principles Of Finance

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TFIN102 The Principles Of Finance

TFIN102 The Principles Of Finance

Individual Assignment (Total Weight – 25 %)

Submission Date: 30April 2019, 11:59 pm (Sydney time)

Turnitin Submission

Where necessary, students should state any assumptions, they have made. When answering questions, students should show all workings, otherwise penalties will be applied for failing to do so.

Students will be assessed on:

-          choice of method for solving the problem (20%);

-          application of techniques and the accuracy of the answer (30%);

-          research techniques (20%);

-          critical thinking and analysis (30%).

Total Marks for this assignment – 100 Marks

5 Compulsory questions.

General Rules and Requirements: 

The report should be prepared individually. Reports must be confined to 3,000 words. A title page, table of contents (based on your report headings), introduction, body of the report, conclusion and a list of references actually cited should be included in your assignment paper. Font type - Times New Roman (size 12), paragraph spacing - 1,5. Assignments should be submitted electronically via Turnitin on www.moodle.com.au.

Format Requirements:

Title page

This must include:

Name of the Institute (Top Education Institute)

The assignment title

The name and code of the unit

Full details of the students who prepared the report (official names and student numbers)

The due date of the report

Full name of the unit coordinator  

Table of Contents

Final report should include the list of the headings and appendices. It is vital to double-check that the correct page numbers are shown opposite each section of the report.  

Introduction

In the introduction section, you should provide enough details about the purpose of the report, key tasks and generally what the report will cover.  

Body

Answers to questions should be organised under appropriate headings and sub-headings. It is vital to include analysis of the sources you are using to answer the questions and report on your research findings.  

Conclusion

In the final section of the report, you are expected to summarise all the main points of the report. You will need to list all the findings that are directly linked to the objectives of the report.  

Reference List

Includes a full list of references you have used to complete your report. Please follow a Harvard style system of referencing.  

Appendices

Each appendix normally includes tables, figures, annual financial statements, which are too detailed for them to be included in the body of the report. Appendices are placed at the very end of the report. Each appendix should have a separate number. 

Failure to adhere to these format requirements will attract a deduction of 2 points from the total mark. 

Q1. We have suggested that well-functioning financial markets allow different investors to agree on the objective of maximizing value. This idea is essential that we need to pause and examine it more carefully. (20 Marks).

A.      Why maximising shareholder value is an important goal for financial managers? (3 Marks).

B.      How can financial managers increase the value of the firm? (3 Marks)?

      C.What are the 2 principal financial decisions that corporations face? (2 Marks).

D Briefly explain the term agency costs as related to a corporation. (3 Marks).

      E. Briefly discuss principal–agent problems as related to a corporation. (3 Marks).

      F. Briefly explain the advantages of a corporation as a form of business organization. (3  

Marks).

G.  Briefly explain the sequence of cash flows between financial markets and the firm. (3

Marks). 

Q2.Venture capital organisations aim to help growing firms over that awkward adolescent

period before they are large enough to go public. (20 Marks).

A)  Briefly explain the basic procedure for a new issue. (3 Marks).

B).Briefly explain the term initial public offering(IPO), please provide a case study to

       support your findings..(3 Marks).

C). Discuss the advantages of shelf registration. (3 Marks).

D). Briefly explain the term private placement. (3 Marks).

E). Briefly discuss SEC rule 144A. (3 Marks).

F). Explain the need for a firewall between underwriters and analysts. (3 Marks).

G). Explain the term winner's curse. (2 Marks). 

Q3 If a bond's yield to maturity does not change, the return on the bond each year will be equal to the yield to maturity. Confirm this for both a premium and a discount bond using a 4-year 4.4 percent coupon bond with annual coupon payments and a face value of $1,000. (20 Marks). Round all answers to 2 decimal places. 

3a). Assume the yield to maturity is 3.4 percent. (10 Marks).

A).What is the current value of the bond? (4 Marks).

B). What will the bond value be in one year? (3 Marks).

C). What is the rate of return for the first year? (3 Marks). 

3b. Assume the yield to maturity is 5.4 percent. (10 Marks).

 A).What is the current value of the bond? (4 Marks).

 B).What will the bond value be in one year? (3 Marks).

 C).What is the rate of return for the first year? (3 Marks). 

Q4 Consider the following projects: Round all answers to 2 decimal places. (20 Marks). 

Cash Flows ($)

Project

C0

C1

C2

C3

C4

C5

A

−1,900

1,900

0

0

0

0

B

−3,800

1,900

1,900

4,900

1,900

1,900

C

−4,750

1,900

1,000

0

1,900

1,900


 a. If the opportunity cost of capital is 11%, which project(s) have a positive NPV? (3 Marks). 

b. Calculate the payback period for each project: (3 Marks). 

c. Which project(s) would a firm using the payback rule accept if the cut off period were three years? (2 Marks). 

d. Calculate the discounted payback for each project. (If a project never pays back, enter "0".) (9 Marks). 

e. Which project(s) would a firm using the discounted payback rule accept if the cut off period were three years? (3 Marks).

Q5. Otobai Company in Osaka, Japan is considering the introduction of an electrically powered motor scooter for city use. The scooter project requires an initial investment of ¥16 billion. The cost of capital is 13%. The initial investment can be depreciated on a straight-line basis over the 10-year life of the project. Profits are taxed at a rate of 50%. (20 Marks). 

Consider the following project estimates: 

 

 

Market size

1.9 million

 

Market share

 

.1

 

Unit price

¥

420,000

 

Unit variable cost

¥

345,000

 

Fixed cost

¥

3.9 billion

 


Otobai is considering still another production method for its electric scooter. It would require an additional investment of ¥16 billion but would reduce variable costs by ¥49,000 per unit. 

a. What is the NPV of this alternative scheme? (Enter your answer in billions rounded to 3 decimal places.) (7 Marks). 

b. What is the break-even quantity? (6 Marks). (Round your answer to the nearest whole number.) 

c. Now go back to the original  project shown in the problem table prior to the additional   investment. Suppose Otobai's management would like to know the figure for variable cost per unit at which the original electric scooter project would break even. Calculate the level of variable costs at which the project would earn zero profit and at which it would have zero NPV. (5 Marks).(Enter your answers in dollars per unit rounded to the nearest whole number.) 

d. Calculate DOL based on the alternative scheme used in part a. (2 Marks).(Round your  

    answer to 2 decimal places.)



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