Tristar Renewables Ltd - Interstate Expansion Phase - Finance Assignment Help

Assignment Task :

Question 1

a. Your twin daughters will be starting high school next year and they have indicated they wish to attend university when they finish school in six (6) years' time. You have no current savings and anticipate that it will cost approximately $90,000 in total for both children. Your financial institution has offered you a 6% p.a. (compounded quarterly). How much do you need to deposit to your bank account each quarter in order to save the total amount required before your children commence university? 

b. Due to the recent decrease in overseas demand for used plastics for recycling, your company has decided to invest in recycling technologies. The used plastics will be recycled into pellets to sell to Australian producers of plastic packaging products. The initial investment is expected to be $30,000,000 and the term of the project is 5 years. The expected return is from the project 12% p.a. The annual cash flows are outlined below: 

i. Based on your required rate of return would you purchase this investment? Present all calculations to support your answer. 

ii. Would you change your opinion if from (i) if the expected rate of return rose to 14%? Present all calculations to support your answer.  

c. You are a financial planner and have been provided details for a new client; Jayne Mansfield. Jayne is 37 years old today and plans to retire when she is 67. Jayne has $80,000 in a balanced managed fund. She will not add any further savings to this fund however it will remain in place until retirement. This fund earns 6% p.a. after tax on average. Jayne’s superannuation fund has a balance of $85,000, which she contributes $1,500 per month. The superannuation fund earns 7% p.a. When Jayne retires, she will add BOTH her super and investment balances together and purchase an annuity, which will provide her with a regular income stream throughout retirement. Her life expectancy is 85 years old, but she is concerned that if she reaches life expectancy and has spent all of her savings she will have nothing left to fund further lifestyle comforts she may need in her advanced years. To ensure she has some money left over to supplement her aged pension, she would like to have a balance of $200,000 remaining in the fund at age 85. 

Jayne’s retirement annuity will earn 7% p.a, which will be compounded monthly. 

i. What will be the value of Jayne’s financial assets when she retires at age 67? Present all calculations to support your answer.

ii. What will be the monthly pension amount that Jayne will receive in retirement to age 85? Present all calculations to support your answer.

Question 2 

Eric has just been made CEO (Chief Financial Officer) of Sun Energy Storage Ltd, a company that produces batteries for solar panels used in residential properties. His focus is to reduce costs as much as possible in the short term and improve profitability. This, he feels, is important to shareholders. 

a. Is Eric’s focus on short-term profitability the best strategy for Sun Energy? Why or why not? Justify your position, outlining why your choice of strategy is superior. 

b. Prior to the introduction of the dividend imputation system, dividends were taxed under the classical tax system. Explain the differences between the two different tax systems. Use examples to illustrate your explanation.

Question 3 

a. Tristar Renewables Ltd (Tristar) is entering into an interstate expansion phase and requires $100 mil to fund this project. Tristar does not have the funding for this investment today, hence a borrowing arrangement will be negotiated. Income from new branches will fund operation and borrowing costs over the 10-year term of the loan. 

The company is considering the following terms: 

• Global Banking Corp (GBC): quarterly repayments due at the end of each quarter. The interest rate of 4.1% p.a. compounding quarterly. 

• International Financing Group (IFG): Annual repayments paid at the end of each year over the 10 year period. The interest rate is 4% p.a. compounding annually. 

• Worldwide Wholesale Banking Services (WWBS): Repayments to be made at the end of each 2 year period, across the 10-year term. The interest rate of 4.05 % p.a. compounding annually. 

i. Calculate the payments for each of these options. 

ii. Indicate which one you prefer. You will need to justify your decision. 

b. i. You are currently employed in the role of a financial planner. You are speaking with a new client Jamie Ryan who wants to know more about investing in shares. He has heard about the concept of diversification and wants to know more about it.

ii. Jamie wants to invest in the following three companies.

1. Calculate the beta of his portfolio.

2. Explain to Jamie the risk of his portfolio compared to the market.

3. What might this mean in terms of risk and reward trade-off? 

Question 4

i. Calculate the 2018-2019 monthly holding period returns (in both $ and %) for Qantas (ASX code QAN). 

ii. Calculate the average monthly return (%) for Qantas. 

iii. Calculate the annual holding period return (HPR) for Qantas.

iv. Using Excel, prepare a line graph of the HPR for Qantas. 

v. Calculate the risk measured by the standard deviation for Qantas. 

vi. If the standard deviation for the market is 10.67%, how does this compare with Qantas’s standard deviation calculated in (v)? Explain your conclusions. [2.5 marks] 

Question 5 

a. In terms of share, investment defines that beta (β) represents.

b. According to Investing.com, Qantas has a beta of 0.59. What does this mean? 

c. In terms of riskiness, how would you compare Qantas’s beta to the market?  

d. Calculate the expected returns for Qantas using the Capital Asset Pricing Model (CAPM) and the following yields: 

•  The risk-free rate (Rf) as measured by the yield on Australian 10-year treasury bonds is 2.75%
• The average return on the market for the past 10 years has been 9.25%
•  Use the Qantas beta of 0.59 

e. i. Using the CAPM data from (d), create an Excel scatter lot graph to plot the Security Market Line (SML) using the Rf, return on the market and Qantas.

ii. Based on your CAPM findings, construct a portfolio made up of 45% Qantas and 55% market. Calculate the estimated return and beta for this portfolio.  

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