This assessment consists of five questions (some with multiple parts) and you must answer all questions. Please note you must solve each problem using the appropriate formula/e, which must be shown, and show ALL calculations.

You are required to complete this Assignment in Groups of 2 or 3 or 4 people.

All members of the Group should come from the same Tutorial class and you must form your own group. You may consult and discuss the Assignment topic with others, but you must write up your answers yourselves. Penalties for copying and plagiarism are severe.

Presentation:

• Answers to be typed. Handwritten, hand drawn parts will not be accepted and will not be marked.

• Please type each answer after each question.

• Arial or Times New Roman font (at minimum , 12 pitch), 1.5 line spacing; and

• Left and right margins to be at least 2.5 cm from the edge of the page.

• Research and Referencing – You should quote any references used at the end of the assignment listed in a Reference List. Use Harvard referencing! See http://en.wikipedia.org/wiki/Harvard_referencing

• As the questions are calculations problems, there is no need to submit via TURNITIN.

Marking Guide

The Assignment will be scored out of 100%, in line with the rubric in the Subject Outline. The marks on the Assignment pages which follow total 90, which will be allocated on the rubric as a mark out of 80 for calculations and 10 for Recommendations, Explanations and Conclusions. A further 10 will be adjusted for Presentation. This total score out of 100 (80+10+10) will be converted to a score out of 30%, and recorded in the bottom left-hand corner of the rubric.

Do not submit this page. Ensure that you submit page 2 onwards, with a KOI Group Assignment Cover Page in front and the Marking Rubric at the end of the assignment.

This Assessment consists of five questions (some with multiple parts). All questions must be answered. Please note you must solve each problem using the appropriate formula/e (which must be shown) and show ALL calculations. Excel formulas will not be accepted.

QUESTION 1

You have just borrowed $10,000. You are required to repay equal amounts at the end of each of 7 years, with the first payment starting in four years' time. Your interest rate is 8% per annum. How much will be the amount of each payment? (Show answer correct to the nearer cent)

QUESTION 2

CIMB Bank pays its clients 5% interest per annum, compounded on a semi-annual basis. To remain competitive, the bank’s major competitor, May Bank is willing to match the effective annual interest rate offered by CIMB Bank, but interest will be compounded on a quarterly basis. What nominal rate of interest must May Bank offer to its clients? (Show answer correct to four decimal places)

QUESTION 3

You want to buy a property valued at $1,200,000 and have arranged with the PB Bank for a 30 year mortgage equal to 90% of the sale price. The agreement calls for monthly repayments and the bank will charge 6% pa interest compounded monthly.

a. If your first monthly payment is due one month after the loan is received, calculate the amount for your regular monthly payments. (Show answer correct to the nearer cent) (2.5 marks)

b. After 5years (that is after the 60th payment) you want to refinance your mortgage with RH Bank. Assuming no exit fees, calculate the payout amount that is, the amount you have to pay PB bank to payout your mortgage. (Show answer correct to the nearer cent) (4 marks)

c. The RH Bank is charging 5% pa interest compounded monthly. If you refinance your loan with RH bank and maintain the same final loan repayment date, calculate what will be your new monthly payments. (Show answer correct to the nearer cent) (2.5 marks)

d. If you decide to pay RH Bank the same monthly repayments that you were paying PB Bank, how long will it take you to payout the mortgage with RH Bank? (Show answer correct to four decimal places) (6 marks)

QUESTION 4

New Furnishing Ltd is considering a new line of office chairs and has employed a marketing consultant for $50,000 to report on the viability of the new product.

The company expects that this range of chairs will be sold on average at $45 per chair in the first year and they will be able to sell 25,000 chairs per year. Whilst unit sales are expected to remain at the same level for the project’s 5 year life, price per chair over the life of the project is expected to increase at the long-term rate of inflation (estimated at 2.15%) per year. The cost of raw material and packaging will be $17.50 per chair in the first year and the company expects this cost will increase by 0.25% more than the rate of inflation per year. Other variable costs are expected to be 7% of total sales per year and fixed costs are estimated to be $385,000 per year.

If the company proceeds with this project it would need to extend their manufacturing facility at an estimated cost of $1,000,000 and the new equipment will cost another $1,000,000. The extended part of the facility and the equipment will be depreciated on a straight-line basis to zero salvage value over the 5 year life of the project. It is estimated the various components of equipment can be sold for $300,000 at the completion of the project. Assume all cash flows relating to sales and costs are received or made at the end of each year.

As a financial manager of the company, you’re conducting a capital budgeting analysis of the financial viability of the new model.

Company’s required payback is 3 years and required rate of return is 12%. The company tax rate is 30%.

a. Calculate the incremental cash flows for each year (Y0 to Y5 inclusive). (20 marks)

b. Calculate the payback period of the project. (Show answer correct to four decimal places) (2 marks)

c. Calculate the net present value, that is, the net benefit or net loss in present value terms of the project. (Show answer correct to the nearer cent) (5 marks)

d. Calculate the present value index of the project. (Show answer correct to four decimal places) (2 marks)

e. Calculate the discounted payback period of the project. (Show answer correct to four decimal places) (3 marks)

f. Calculate the internal rate of return of the project. (Show answer correct to four decimal places) (6 marks)

g. You are concerned that the company may not be able to sell 25,000 chairs per year. You believe they may only be able to sell 20,000 chairs per year. Calculate the incremental cash flows each year (Y0 to Y5 inclusive) and NPV of the project if only 20,000 chairs can be sold (all other assumptions are unchanged). (Show answer correct to the nearer cent) (5 marks)

h. Identify and discuss any further information that the company may require to help make the accept/reject decision about this project. (Maximum 250 words). (5 marks)

i. Explain if the company should accept this project or not. (2 marks)

QUESTION 5

Below is the Financial Year 2018 - 2019 monthly share price data for Qantas Airways Limited (ASX code QAN) (https://tinyurl.com/y3xkfsap)

Date Open Close

July 2018 $6.17 $6.72

August 2018 $6.72 $6.43

September 2018 $6.45 $5.9

October 2018 $5.81 $5.47

November 2018 $5.44 $5.96

December 2018 $6.06 $5.79

January 2019 $5.84 $5.44

February 2019 $5.44 $5.73

March 2019 $5.77 $5.66

April 2019 $5.66 $5.61

May 2019 $5.57 $5.55

June 2019 $5.47 $5.4

a. Calculate the 2018-2019 monthly percentage returns for Qantas Airways limited. (Show answer correct to six decimal places) (6 marks)

b. Calculate the average monthly return (%) for Qantas Airways limited. (Show answer correct to six decimal places) (1 mark)

c. Calculate the risk measured by the standard deviation for Qantas Airways limited. (Show answer correct to six decimal places) (5 marks)

d. If the standard deviation for the market is 3.2513%, how does this compare with Qantas’s standard deviation calculated in part c? Explain your conclusions. (3 marks)

END OF ASSIGNMENT QUESTIONS

You are required to complete this Assignment in Groups of 2 or 3 or 4 people.

All members of the Group should come from the same Tutorial class and you must form your own group. You may consult and discuss the Assignment topic with others, but you must write up your answers yourselves. Penalties for copying and plagiarism are severe.

Presentation:

• Answers to be typed. Handwritten, hand drawn parts will not be accepted and will not be marked.

• Please type each answer after each question.

• Arial or Times New Roman font (at minimum , 12 pitch), 1.5 line spacing; and

• Left and right margins to be at least 2.5 cm from the edge of the page.

• Research and Referencing – You should quote any references used at the end of the assignment listed in a Reference List. Use Harvard referencing! See http://en.wikipedia.org/wiki/Harvard_referencing

• As the questions are calculations problems, there is no need to submit via TURNITIN.

Marking Guide

The Assignment will be scored out of 100%, in line with the rubric in the Subject Outline. The marks on the Assignment pages which follow total 90, which will be allocated on the rubric as a mark out of 80 for calculations and 10 for Recommendations, Explanations and Conclusions. A further 10 will be adjusted for Presentation. This total score out of 100 (80+10+10) will be converted to a score out of 30%, and recorded in the bottom left-hand corner of the rubric.

Do not submit this page. Ensure that you submit page 2 onwards, with a KOI Group Assignment Cover Page in front and the Marking Rubric at the end of the assignment.

This Assessment consists of five questions (some with multiple parts). All questions must be answered. Please note you must solve each problem using the appropriate formula/e (which must be shown) and show ALL calculations. Excel formulas will not be accepted.

QUESTION 1

You have just borrowed $10,000. You are required to repay equal amounts at the end of each of 7 years, with the first payment starting in four years' time. Your interest rate is 8% per annum. How much will be the amount of each payment? (Show answer correct to the nearer cent)

QUESTION 2

CIMB Bank pays its clients 5% interest per annum, compounded on a semi-annual basis. To remain competitive, the bank’s major competitor, May Bank is willing to match the effective annual interest rate offered by CIMB Bank, but interest will be compounded on a quarterly basis. What nominal rate of interest must May Bank offer to its clients? (Show answer correct to four decimal places)

QUESTION 3

You want to buy a property valued at $1,200,000 and have arranged with the PB Bank for a 30 year mortgage equal to 90% of the sale price. The agreement calls for monthly repayments and the bank will charge 6% pa interest compounded monthly.

a. If your first monthly payment is due one month after the loan is received, calculate the amount for your regular monthly payments. (Show answer correct to the nearer cent) (2.5 marks)

b. After 5years (that is after the 60th payment) you want to refinance your mortgage with RH Bank. Assuming no exit fees, calculate the payout amount that is, the amount you have to pay PB bank to payout your mortgage. (Show answer correct to the nearer cent) (4 marks)

c. The RH Bank is charging 5% pa interest compounded monthly. If you refinance your loan with RH bank and maintain the same final loan repayment date, calculate what will be your new monthly payments. (Show answer correct to the nearer cent) (2.5 marks)

d. If you decide to pay RH Bank the same monthly repayments that you were paying PB Bank, how long will it take you to payout the mortgage with RH Bank? (Show answer correct to four decimal places) (6 marks)

QUESTION 4

New Furnishing Ltd is considering a new line of office chairs and has employed a marketing consultant for $50,000 to report on the viability of the new product.

The company expects that this range of chairs will be sold on average at $45 per chair in the first year and they will be able to sell 25,000 chairs per year. Whilst unit sales are expected to remain at the same level for the project’s 5 year life, price per chair over the life of the project is expected to increase at the long-term rate of inflation (estimated at 2.15%) per year. The cost of raw material and packaging will be $17.50 per chair in the first year and the company expects this cost will increase by 0.25% more than the rate of inflation per year. Other variable costs are expected to be 7% of total sales per year and fixed costs are estimated to be $385,000 per year.

If the company proceeds with this project it would need to extend their manufacturing facility at an estimated cost of $1,000,000 and the new equipment will cost another $1,000,000. The extended part of the facility and the equipment will be depreciated on a straight-line basis to zero salvage value over the 5 year life of the project. It is estimated the various components of equipment can be sold for $300,000 at the completion of the project. Assume all cash flows relating to sales and costs are received or made at the end of each year.

As a financial manager of the company, you’re conducting a capital budgeting analysis of the financial viability of the new model.

Company’s required payback is 3 years and required rate of return is 12%. The company tax rate is 30%.

a. Calculate the incremental cash flows for each year (Y0 to Y5 inclusive). (20 marks)

b. Calculate the payback period of the project. (Show answer correct to four decimal places) (2 marks)

c. Calculate the net present value, that is, the net benefit or net loss in present value terms of the project. (Show answer correct to the nearer cent) (5 marks)

d. Calculate the present value index of the project. (Show answer correct to four decimal places) (2 marks)

e. Calculate the discounted payback period of the project. (Show answer correct to four decimal places) (3 marks)

f. Calculate the internal rate of return of the project. (Show answer correct to four decimal places) (6 marks)

g. You are concerned that the company may not be able to sell 25,000 chairs per year. You believe they may only be able to sell 20,000 chairs per year. Calculate the incremental cash flows each year (Y0 to Y5 inclusive) and NPV of the project if only 20,000 chairs can be sold (all other assumptions are unchanged). (Show answer correct to the nearer cent) (5 marks)

h. Identify and discuss any further information that the company may require to help make the accept/reject decision about this project. (Maximum 250 words). (5 marks)

i. Explain if the company should accept this project or not. (2 marks)

QUESTION 5

Below is the Financial Year 2018 - 2019 monthly share price data for Qantas Airways Limited (ASX code QAN) (https://tinyurl.com/y3xkfsap)

Date Open Close

July 2018 $6.17 $6.72

August 2018 $6.72 $6.43

September 2018 $6.45 $5.9

October 2018 $5.81 $5.47

November 2018 $5.44 $5.96

December 2018 $6.06 $5.79

January 2019 $5.84 $5.44

February 2019 $5.44 $5.73

March 2019 $5.77 $5.66

April 2019 $5.66 $5.61

May 2019 $5.57 $5.55

June 2019 $5.47 $5.4

a. Calculate the 2018-2019 monthly percentage returns for Qantas Airways limited. (Show answer correct to six decimal places) (6 marks)

b. Calculate the average monthly return (%) for Qantas Airways limited. (Show answer correct to six decimal places) (1 mark)

c. Calculate the risk measured by the standard deviation for Qantas Airways limited. (Show answer correct to six decimal places) (5 marks)

d. If the standard deviation for the market is 3.2513%, how does this compare with Qantas’s standard deviation calculated in part c? Explain your conclusions. (3 marks)

END OF ASSIGNMENT QUESTIONS

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