Highlights
Assignment Specificcation:
Assignment Tasks This assignment task is a written report that include 3 parts: Part 1 is a research on financial markets Part 2 is a fact finding of financial market of Australia and Part 3 is a risk analysis and project evaluation.
Part 1. Research on financial market
Comparison of three key financial products common stocks, bonds and preferred stocks from the perspective of an investor Criteria for comparison include: (i) ownership status; (ii) nature of funding; (iii) risks; (iv) income; (v) voting right, (vi) maturity and (vii) priority in liquidation. Your research should be supported by real life examples of common stocks, bonds and preferred stocks issued by any company with relevant data of first issuance, trading market, trading volume, market capitalization and market price.
Part 2. Analysis of five basis principles of finance
Define the five basic principles finance and justify your analysis by illustrating examples: Choose one or more events described by media (CNN Business, Financial Times, Dow Jones financial news etc.) about companies and financial market. Analyse that event (s) applying the five basis principles of finance. Note: Each principle is to be illustrated by at least one event.
Part 3. Risk analysis and project evaluation
3.1 Perform a sensitivity analysis with data provided
Assume that your selected company is considering a potential project with a new product that is expected to sell for an average price of $22 per unit and the company expects it can sell 400 000 units per year at this price for a period of 4 years. Launching this project will require purchase of a $2 450 000 equipment that has residual value in this project will require purchase of a $2 450 000 equipment that has residual value in four years of $250 000 and adding $ 500 000 in working capital which is expected to be fully retrieved at the end of the project. Other information is available below:
Depreciation method: straight line Variable cost per unit: $12 Cash fixed costs per year $250 000 Discount rate: 10% Tax Rate: 30%
Do an analysis with cash flows of the project to determine the sensitivity of the project NPV with the following changes in the value drivers and provide your results in (a) relevant tables:
Unit sales decrease by 10% Price per unit decreases by 10% Variable cost per unit increases 10% Cash fixed cost per year increases by 10% 3.2 Perform an NPV break even analysis for the case where price per unit decreases by 10 % to identify the number of unit sales that is needed for the project to get break-even Trial and error method is to be used with excel spread sheet.
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