OPEN UNIVERSITY of MAURITIUS
INSTRUCTIONS TO STUDENTS for assignments:
Read properly the mode of submission
Please note that any assignment submitted after the deadline, marks will be deducted as per assignment submission procedure document.
Format: Please follow the guidelines in the document “Guide to writing assignments” available on Moodle.
You are required to conform to Harvard referencing style.
Please include a bibliography at the end of your document.
Plagiarism/collusion will be heavily penalised and may result in non-award of marks.
POINTS TO REMEMBER WHEN SUBMITTING YOUR ASSIGNMENT:
MODE OF SUBMISSION: Please submit a soft copy only by emailing your lecturer firstname.lastname@example.org and copy the assignment to email@example.com by or before due date.
The current penalty is 2% per day (weekends and public holidays included) for any assignment received after the due date which the tutor will deduct from the final mark.
The Open University of Mauritius will not hold itself responsible or liable for the non-award of marks if you fail to submit the assignment as per the required mode of submission.
Module Name: Business Finance (BSc (Hons) Business Management - Year 2 Semester 1 (Cohort 14 B - General)
Lecturer’s Name: Ms Leenshya GUNNOO
Date of Submission: 3rd session (10.10.2020)
Total Marks: 30 marks Word limit: 1500-2000
Assignment question-Answer all questions
The Board of Directors of ABC Co Ltd has assigned you the task of analysing the Discounted Cash Flow (DCF) technique for appraising large investment decisions.
Write a report to them giving your observations. (10 marks)
Discuss why diversification is important as risk management strategy within a portfolio of investment. (6 marks)
Suppose the current risk-free is 7.6 percent. P Inc. stock has a beta of 1.7 and an expected return of 16.7 percent. (Assume the CAPM is true)
a. What is the risk premium on the market? (2 marks)
b. M Industries stock has a beta of 1.8. What is the expected return on the M stock? (2 marks)
Company XYZ is considering an investment of $100,000. The useful life of the project is 10 years. The cut off period is three (3) years. The board of directors has identified two alternatives A and B. The expected annual cash flows are as follows:
Cost or Cash Flow Alternative A Alternative B
Initial cost ($100,000) ($100,000)
Cash flow year 1 35,000 35,000
Cash flow year 2 28,000 35,000
Cash flow year 3 32,000 35,000
Cash flow year 4 40,000 35,000
i. Calculate the payback period for Alternative A and Alternative B (5 marks) Marks shared equally for Alternative A and B
ii. Briefly explain which alternative should be selected based on the payback method. (2 marks)
iii. What are the limitations of using such a method (payback method) to appraise investment? (3 marks)