Dollars and Sense [BUS1AFB]

Assessment Weight: 20%

Individual 1,000-word Assignment

Length: Up to 1,000 words

Submission Date: LMS, Sunday, Week 10 (19 May, 2019), 11:55 pm.

Submission Method: LMS, Week 10.

Note: Show workings for each set of calculations.

Case Study 1

FACT SET

• Go to yahoofinance.com.au and obtain:

o the closing adjusted price for Domino Pizza Enterprises Limited on the 30 June for each year from 2013 to 2018.

o the dividends paid by Domino Pizza Enterprises Limited between 30 June 2013 and 30 June 2018.

o the closing adjusted price for Retail Food Group Limited on the 30 June for each year from 2013 to 2018.

o the dividends paid by Retail Food Group Limited between 30 June 2013 and 30 June 2018. • Go to the Domino Pizza Enterprise Ltd website and obtain the annual report (i.e. the Income Statement and Balance Sheet) for the company for the 2017/18 financial year.

• Go to Retail Food Group Limited website and obtain the annual report (i.e. the Income Statement and Balance Sheet) for the company for the 2017/18 financial year.

TASKS

1. Calculate the Holding Period Return for each company for each year from 30 June 2013 to 30 June 2018.

2. Estimate the Expected Return of each company based on your five-year historical sample of returns.

3. Calculate the Total Return to Shareholders of each company over the five-year period from 30 June 2013 to 30 June 2018, using the following formula:

(1

[P5 + D1-5 5)

] - 1

P0

4. Compare and contrast the performance of each company over the past five years, based on the change in share prices.

5. Based on the information contained in the following tables and the 2018 Annual Reports, calculate for each company the annual growth in Earnings per Share; Net Profit Margin; Asset Turnover Ratio; Leverage Ratio; Return on Equity; Quick Ratio and Net Debt to Equity Ratio for the 2017/18 financial year.

Dollars and Sense [BUS1AFB]

Dominos Pizza Enterprise Ltd (DMP.AX)

2013 2014 2015 2016 2017 2018

Income

Statement Revenue ($'000) 452,811 539,138 705,702 790,861

Profit for the period from continuing operations ($'000) 45,296 68,421 86,592 105,804

Diluted earnings per share (cents per share) 38.7 49.8 72.8 92.2 114.7

Balance

Sheet Cash 42,283 43,174 60,334 50,454

Inventories 11,707 12,282 16,675 21098

Total Current Assets 103,144 116,547 184,235 187,825

Total Assets 189,751 559,008 630,600 1,128,033 1,132,793

Total Current Liabilities 112,597 131,131 266,250 230,146

Short-term Borrowings 1,281 1,920 36,285 17,910

Long-term Borrowings 118,629 122,912 285,507 311,330

Total Equity 102,582 259,389 305,056 394,546 415,064

Retail Food Group Limited (RFG.AX)

2013 2014 2015 2016 2017 2018

Income

Statement Revenue ($'000) 56,247 120,768 164,840 245,873

Profit for the period from continuing operations ($'000) 36,861 34,219 52,963 61,927

Diluted earnings per share (cents per share) 25.9 26.5 22.1 32.3 35.7

Balance

Sheet Cash 11,559 17,149 17,406 10,269

Inventories 10,092 20,453 15,655 28451

Total Current Assets 50,659 92,028 86,306 134,808

Total Assets 371,410 398,104 744,058 753,405 929,628

Total Current Liabilities 19,034 95,525 44,967 91,253

Short-term Borrowings 0 50,475 165 722

Long-term Borrowings 68,949 156,169 205,735 249,248

Total Equity 240,459 310,043 353,999 376,122 465,172

Dollars and Sense [BUS1AFB]

6. Compare and contrast the performance of the two companies over the past five years by examining the following ratios.

a. Profitability (Growth in EPS and Net Profit Margin)

b. Efficiency (Asset Turnover Ratio)

c. Liquidity (Quick Ratio)

d. Solvency (Leverage Ratio and Net Debt to Equity Ratio)

TOTAL MARKS: 10 marks

Dollars and Sense [BUS1AFB]

Case Study 2

FACT SET

· Janet Fleming is considering investing in a new cupcakes franchise business. Janet has provided you with the following data on which to estimate the financial viability of the business using an NPV analysis.

· Janet decides to price the cakes at $3.00. She estimates she will be able to sell 70,000 cakes in the first year, 80,000 in the second year and 90,000 in the third year.

· Under the franchise agreement, she will have to pay a royalty payment equal to 8% of sales.

· She will also have to contribute 5% of sales towards the marketing costs of the franchisor.

· Cost of ingredients per cupcake is $0.38.

· Weekly rental $350. Annual outgoings are $3,500.

· Wages: Shop assistant $16 per hour; baker $17 per hour.

· Superannuation: 9.5% of wages.

· Assume that one shop assistant and one baker each work for 8 hours per day, for 252 days of the year.

· Assume no inflation in prices or wages.

· Assume a 30% tax rate.

· The initial investment in fittings and equipment is $200,000.

· You estimate the cost of capital to be 16%.

TASKS

1. What is the contribution margin?

2. How many cupcakes must Jane sell in a year in order to break even?

3. If Janet can sell all the cakes the baker can produce in an eight-hour shift (that is, 144 cupcakes) each day for 252 days of the year, what will be the annual profit before tax?

4. Calculate the Net Profit per year, assuming that Janet is able to sell 70,000 cakes in the first year, 80,000 in the second year and 90,000 in the third year.

5. Calculate the Net Present Value of the business, assuming the business is sold at the end of the third year for $150,000. In this Case Study, assume that Net Profit is equivalent to Free Cash Flow.

6. Calculate the Profitability Index, assuming the business is sold at the end of the third year for $150,000.

7. Based on the NPV you have calculated for the investment, would you recommend to Janet that the investment is financially viable? Justify your recommendation.

8. Consider the risks of establishing a cupcake business as described in

http://www.forbes.com/sites/allbusiness/2013/09/30/7-business-lessons-from-gourmet-cupcakes/. What advice might you offer Janet to modify her business plan to reduce its exposure to such risks?

TOTAL MARKS: 10 marks

ACADEMIC INTEGRITY

Academic integrity means being honest in academic work and taking responsibility for learning the conventions of scholarship. La Trobe University views this seriously as evidenced by the following extract: Academic honesty is a fundamental principle in teaching, learning, research and scholarship. The University requires its academic staff and students to observe the highest ethical standards in all aspects of academic work and it demonstrates its commitment to these values by awarding due credit for honestly conducted scholarly work, and by penalising academic misconduct and all forms of cheating. Academic Integrity Procedures (2010, p. 1 of 6)

Academic misconduct includes poor referencing, plagiarism, copying and cheating. You should familiarise yourself with your responsibilities in relation to Academic Integrity and if you have any questions, direct them to your Course Coordinator. Information can be found on the website at: http://www.latrobe.edu.au/learning/integrity.html.

Assessment Weight: 20%

Individual 1,000-word Assignment

Length: Up to 1,000 words

Submission Date: LMS, Sunday, Week 10 (19 May, 2019), 11:55 pm.

Submission Method: LMS, Week 10.

Note: Show workings for each set of calculations.

Case Study 1

FACT SET

• Go to yahoofinance.com.au and obtain:

o the closing adjusted price for Domino Pizza Enterprises Limited on the 30 June for each year from 2013 to 2018.

o the dividends paid by Domino Pizza Enterprises Limited between 30 June 2013 and 30 June 2018.

o the closing adjusted price for Retail Food Group Limited on the 30 June for each year from 2013 to 2018.

o the dividends paid by Retail Food Group Limited between 30 June 2013 and 30 June 2018. • Go to the Domino Pizza Enterprise Ltd website and obtain the annual report (i.e. the Income Statement and Balance Sheet) for the company for the 2017/18 financial year.

• Go to Retail Food Group Limited website and obtain the annual report (i.e. the Income Statement and Balance Sheet) for the company for the 2017/18 financial year.

TASKS

1. Calculate the Holding Period Return for each company for each year from 30 June 2013 to 30 June 2018.

2. Estimate the Expected Return of each company based on your five-year historical sample of returns.

3. Calculate the Total Return to Shareholders of each company over the five-year period from 30 June 2013 to 30 June 2018, using the following formula:

(1

[P5 + D1-5 5)

] - 1

P0

4. Compare and contrast the performance of each company over the past five years, based on the change in share prices.

5. Based on the information contained in the following tables and the 2018 Annual Reports, calculate for each company the annual growth in Earnings per Share; Net Profit Margin; Asset Turnover Ratio; Leverage Ratio; Return on Equity; Quick Ratio and Net Debt to Equity Ratio for the 2017/18 financial year.

Dollars and Sense [BUS1AFB]

Dominos Pizza Enterprise Ltd (DMP.AX)

2013 2014 2015 2016 2017 2018

Income

Statement Revenue ($'000) 452,811 539,138 705,702 790,861

Profit for the period from continuing operations ($'000) 45,296 68,421 86,592 105,804

Diluted earnings per share (cents per share) 38.7 49.8 72.8 92.2 114.7

Balance

Sheet Cash 42,283 43,174 60,334 50,454

Inventories 11,707 12,282 16,675 21098

Total Current Assets 103,144 116,547 184,235 187,825

Total Assets 189,751 559,008 630,600 1,128,033 1,132,793

Total Current Liabilities 112,597 131,131 266,250 230,146

Short-term Borrowings 1,281 1,920 36,285 17,910

Long-term Borrowings 118,629 122,912 285,507 311,330

Total Equity 102,582 259,389 305,056 394,546 415,064

Retail Food Group Limited (RFG.AX)

2013 2014 2015 2016 2017 2018

Income

Statement Revenue ($'000) 56,247 120,768 164,840 245,873

Profit for the period from continuing operations ($'000) 36,861 34,219 52,963 61,927

Diluted earnings per share (cents per share) 25.9 26.5 22.1 32.3 35.7

Balance

Sheet Cash 11,559 17,149 17,406 10,269

Inventories 10,092 20,453 15,655 28451

Total Current Assets 50,659 92,028 86,306 134,808

Total Assets 371,410 398,104 744,058 753,405 929,628

Total Current Liabilities 19,034 95,525 44,967 91,253

Short-term Borrowings 0 50,475 165 722

Long-term Borrowings 68,949 156,169 205,735 249,248

Total Equity 240,459 310,043 353,999 376,122 465,172

Dollars and Sense [BUS1AFB]

6. Compare and contrast the performance of the two companies over the past five years by examining the following ratios.

a. Profitability (Growth in EPS and Net Profit Margin)

b. Efficiency (Asset Turnover Ratio)

c. Liquidity (Quick Ratio)

d. Solvency (Leverage Ratio and Net Debt to Equity Ratio)

TOTAL MARKS: 10 marks

Dollars and Sense [BUS1AFB]

Case Study 2

FACT SET

· Janet Fleming is considering investing in a new cupcakes franchise business. Janet has provided you with the following data on which to estimate the financial viability of the business using an NPV analysis.

· Janet decides to price the cakes at $3.00. She estimates she will be able to sell 70,000 cakes in the first year, 80,000 in the second year and 90,000 in the third year.

· Under the franchise agreement, she will have to pay a royalty payment equal to 8% of sales.

· She will also have to contribute 5% of sales towards the marketing costs of the franchisor.

· Cost of ingredients per cupcake is $0.38.

· Weekly rental $350. Annual outgoings are $3,500.

· Wages: Shop assistant $16 per hour; baker $17 per hour.

· Superannuation: 9.5% of wages.

· Assume that one shop assistant and one baker each work for 8 hours per day, for 252 days of the year.

· Assume no inflation in prices or wages.

· Assume a 30% tax rate.

· The initial investment in fittings and equipment is $200,000.

· You estimate the cost of capital to be 16%.

TASKS

1. What is the contribution margin?

2. How many cupcakes must Jane sell in a year in order to break even?

3. If Janet can sell all the cakes the baker can produce in an eight-hour shift (that is, 144 cupcakes) each day for 252 days of the year, what will be the annual profit before tax?

4. Calculate the Net Profit per year, assuming that Janet is able to sell 70,000 cakes in the first year, 80,000 in the second year and 90,000 in the third year.

5. Calculate the Net Present Value of the business, assuming the business is sold at the end of the third year for $150,000. In this Case Study, assume that Net Profit is equivalent to Free Cash Flow.

6. Calculate the Profitability Index, assuming the business is sold at the end of the third year for $150,000.

7. Based on the NPV you have calculated for the investment, would you recommend to Janet that the investment is financially viable? Justify your recommendation.

8. Consider the risks of establishing a cupcake business as described in

http://www.forbes.com/sites/allbusiness/2013/09/30/7-business-lessons-from-gourmet-cupcakes/. What advice might you offer Janet to modify her business plan to reduce its exposure to such risks?

TOTAL MARKS: 10 marks

ACADEMIC INTEGRITY

Academic integrity means being honest in academic work and taking responsibility for learning the conventions of scholarship. La Trobe University views this seriously as evidenced by the following extract: Academic honesty is a fundamental principle in teaching, learning, research and scholarship. The University requires its academic staff and students to observe the highest ethical standards in all aspects of academic work and it demonstrates its commitment to these values by awarding due credit for honestly conducted scholarly work, and by penalising academic misconduct and all forms of cheating. Academic Integrity Procedures (2010, p. 1 of 6)

Academic misconduct includes poor referencing, plagiarism, copying and cheating. You should familiarise yourself with your responsibilities in relation to Academic Integrity and if you have any questions, direct them to your Course Coordinator. Information can be found on the website at: http://www.latrobe.edu.au/learning/integrity.html.

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