BA301 - Finance - Introduction to Finance Assignment Help

BA301: Introduction to Finance Assignment Help

Assignment Task:

Question 1 BA301:
Outline and discuss the roles of corporate finance to help manage its financial activities and maximize shareholder value. Explain this using an actual organization of your choice.

Question 2 

a) Charlie plans to buy some investment property in Tasmania five years from today. He estimates that he will need $20 000 at that time. He would like to accumulate these funds by making equal annual deposits in your savings account, which pays 12% interest annually. If he makes his first deposit at the end of this year, and you would like your account to reach a balance of $20 000 when the final deposit is made, how much will you have to deposit in the account annually? 

b) Charlene has just bought a new flat-screen TV for $3000, and the store she bought it from offers to let her finance the entire purchase at an annual interest rate of 14%
compounded monthly. If she takes the financing offer and make monthly payments of $100, how long will it take to pay off the loan (loan amortisation)? How much will she
pay in interest over the life of the loan? 

c) Catherine is planning for her retirement in 10 years and currently she has $150 000 in a savings account and $250 000 in shares. In addition, she plans to deposit $8000 per year into her savings account at the end of each of the next five years, and then $10 000 per year at the end of each year for the final five years until she retires. (Ignore tax)

(i) Assuming her savings account returns 8% interest compounded annually, and her investment in shares will return 12% compounded annually, how much will she
have at the end of 10 years? 

(ii) If she expects to live for 20 years after she retires, and at retirement she deposits all of her savings in a bank account paying 11% interest annually, how much can she
withdraw each year after she retires (making 20 equal withdrawals beginning one year after she retires) so that she ends up with zero balance at death?

Question 3

a) Calculate and interpret Fisher Ltd’s

•  Operating profit margin
•  Total asset turnover
•  Operating return on assets (operating profit/total assets)
•  Return on ordinary shareholders’ investment 

b) Fisher Ltd plans to renovate one of its plants and the renovation will require an added investment in plant and equipment of $1 million and expects sales to remain constant. The operating profit margin will rise to 13%. What will be the new operating return on asset assets ratio for Fisher after the plant’s renovation? 

c) Given that the plant's renovation in part (b) occurs and Fisher Ltd’s interest expense rises by $ 50 000 per year, and the firm shall finance the investment with 50% of debt and 50% with equity, calculate what will be the new return earned on the ordinary shareholder’s investment (ROE). 

d) Compare this new return after the renovation with that of before the renovation, and based on this comparison, comment if the renovation had a favorable effect on the profitability of the firm.

Question 4 BA301:

a) Based on these potential outcomes, what is your estimate of the expected rate of return from this investment opportunity? 

b) Would you be interested in making such an investment? Why? (Note that you lose all your money in one year if the economy collapses into the worst state or you double your money if the economy enters into a rapid expansion) 

Part 2
Robert Cordon is evaluating the investment and wants to apply his recently acquired understanding of the security market line concept to his analysis.

c) If the risk-free rate of interest is currently 2.5%, and the beta for the investment is 2, what is the slope of the security market line for the real-estate mortgage security investment?

d) Robert is considering the investment of his money in a market-index fund that has an expected rate of return of 10%. What is the slope of the security market line for this investment opportunity? 

e) Based on your analysis of parts (c) and (d) above, communicate to Robert as to which investment he should take and explain the reasons accordingly.

Question 5 BA301:

a) Calculate the payback period for each of the two projects. Based on the calculated payback periods, which of the two projects appears to be the best alternative?Why?

b) Discuss ONE (1) limitation of the payback period method.

c) If Velas Energy uses a 20% discount rate to evaluate the present values of the energy investment projects, calculate the project’s Net Present Value (NPV) of the two proposed investments. Based on the calculated NPV, which of the two projects appears to be the better alternative? Why?

Question 6
Shaun Mendes owns a bond that has a $100 annual coupon payment and has a $1000 face value. The bond matures in 15 years. The market’s required yield to maturity on a comparable-risk bond is 12%.

a) Calculate the value of the bond. 

b) How does the value change if the yield to maturity on a comparable-risk bond increases to 15% or decreases to 8%? 

c) Explain the implications of your answers in part (b) in relation to interest-rate risk, premium bonds, and discount bonds. 

d) Assume the bond matures in five years instead of 15 years, recalculate your answers in part (b). 

e) Explain the implications of your answers in part (d) in relation to interest-rate risk, premium bonds, and discount bonds.

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