ACCT6004 Finance Session 3, 2021
Assessment 2: Business Case Studies 1
Due date: 17 December 2021, 11PM (AEDT)
This assignment has a 25% weighting in your overall mark for this unit and focuses on content from Topics 3, 4 and 5. It will be marked out of 25. Your assignment submission will consist of a word document that should not exceed 1,500 words (excluding the reference list).
Overall, the assignment consists of:
a. 6 (six) questions on time value of money and bond valuation (part 1);
b. 3 (three) tasks as part of a risk and return analysis (parts 2 and 3).
Do NOT include a coversheet on your assessment document. Your details are known to us because you submit electronically through your login.
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:
1. TVM and bond valuation questions (1 mark each, give answers to 2 decimal places):
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?
Assessment 2: Business Case Studies I ACCT6004 S3 2021 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?
2. Risk and return estimates (4 marks):
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.
3. Risk and return analysis (15 marks):
a. Interpret and discuss your risk and return measures from parts 2a and 2b.
The answer to each TVM and bond valuation question in part 1 will be marked as correct (1 mark) or incorrect (0 marks).
Give your final answer to each of the 6 questions on a separate line in the first section of your assignment submission. Give all answers to the nearest two decimal places. No part marks are provided so it is important that you round your decimals correctly.
Parts 2 and 3 will be marked using the rubric that follows.
Assessment 2: Business Case Studies I ACCT6004 S3 2021
Marking criteria for risk and return estimates (Part 2)
MARKING CRITERIA Excellent Very Good Good Satisfactory Poor
Accurate calculation of expected returns for companies and portfolio and accurate calculation of portfolio beta (Tasks 2a and 2b: 4 marks) Correct input data used. Technique and all final calculated figures are correct
(4 marks) Mostly correct input data. Correct techniques and calculations. (3.5 marks) Correct input data. Mostly correct techniques and calculations. (2.5 marks). Mostly correct input data. Mostly correct techniques and calculations. (2 marks). Mostly incorrect data and techniques. (0 to 1.5 marks)
Marking criteria for written risk and return analysis and its presentation (Part 3)
MARKING CRITERIA Excellent Very Good Good Satisfactory Poor
Insightful and relevant discussion of risk and return ( 10 marks) Accurately and comprehensively interprets all calculated risk and return
measures. Correctly compares appropriate measures and explains differences, drawing on relevant theory. Accurately weaves relevant context (e.g. company industry, market conditions) into explanations. Uses tables or graphs effectively to enhance the discussion. Uses and explains relevant technical terms. (9 to 10 marks) Accurately interprets nearly all calculated risk and return
measures. Correctly compares appropriate measures and explains differences, drawing on relevant theory. Weaves relevant context into explanations. Uses tables or graphs effectively to enhance the discussion. Uses and explains most relevant technical terms. (8 marks) Accurately interprets most calculated risk and return measures. Correctly compares appropriate measures and explains some differences, drawing on relevant theory. Incorporates some relevant context. Uses tables or graphs but may not be effective or explained. Uses and explains some technical terms. (7 marks) Accurately interprets most calculated risk and return measures. Correctly compares some appropriate measures and explains some differences. Tables or graphs, if used, may not be effective or explained. Uses and explains some technical terms. Context and theory are limited or incorrect (5 to
6 marks) While an explanation of technical terms may have been attempted, there is little or no accurate interpretation or comparison of risk and return measures. Context, theory and explanations are limited, incorrect or absent. (0 to 4 marks)
Presentation, sources and written expression
(5 marks) Overall presentation is well organised and looks professional. All data sources and other references are provided where needed in appropriate format and detail. Use of language makes meaning consistently clear. There are no or very
few grammar, syntax and
spelling errors. (5 marks) Overall presentation is mostly well-organised and professional. All necessary data sources and other references are provided, mostly in appropriate positions, format and detail. Use of language makes meaning consistently clear. There are very few grammar, syntax and spelling errors. (4 marks) Overall presentation is mostly well-organised and neat. All necessary data sources and other references are provided, mostly in appropriate positions, format and detail. Use of language mostly makes meaning clear. There may be several grammar, syntax and spelling errors. (3.5 marks) Overall presentation is fairly neat and organised. Not all necessary data sources are provided or most are not in appropriate positions, format and detail. Use of language mostly makes meaning clear. There are several grammar, syntax and spelling errors. (2.5 marks) Overall presentation is generally unprofessional. Not all necessary data sources are provided or most are not in appropriate positions, format and detail. Use of language often makes meaning unclear. There may be many grammar, syntax and spelling errors. (0 to 2 marks)