ACCT6004 Finance Session 3, 2021

Assessment 2: Business Case Studies 1

Due date: 17 December 2021, 11PM (AEDT)

General overview

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).

Instructions:

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

2

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.

Marking Criteria:

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 1

Due date: 17 December 2021, 11PM (AEDT)

General overview

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).

Instructions:

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

2

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.

Marking Criteria:

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

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