Business Case Studies 1
General overview
Overall, the assignment consists of:
a. 6 (six) questions on time value of money and bond valuation (part 1);
. 3 (three) tasks as part of a risk and return analysis (parts 2 and 3).
Your case company
At the beginning of Week 4, you will be assigned an ASX listed company as the context for this assignment. At that time, you can find your case company's ASX code in ‘Grades and Feedback’ on the unit's MySCU Learning site.
All input data you need to find for calculations in this assignment must be sourced from S&P Capital IQ. The link to the database can be found in the Web Links section of this unit’s MySCU site.
Attempt each of the following sections in your assignment submission:
1. TVM and bond valuation questions (1 mark each):
a. Your case company wants to purchase an asset. To finance this asset, they approached their bank. The bank has offered a fixed rate of 6% APR, compounded monthly, with your case company to make monthly payments of the amount shown in Table 1 (page 4 of this document) at the end of each month for 5 years. What amount is your case company bo
owing?
. Your case company has annual revenue as shown in Table 1. Assume this revenue will grow continuously at the annual rate shown in Table 1. Estimate annual revenue in 5 years.
c. Your case company needs to bo
ow funds and has several options available to it, Loans A, B and C. The interest rates (APR) for these options are given in Table 1. What is the EAR of the loan option the company should choose?
d. Your case company is buying new property for the amount given in Table 1. To finance this, the company’s bank has offered an amortised loan at 4.2% APR, semi-annual compounding, with 20 years of semi-annual payments. What semi-annual payment will the company 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. Your case company has an issue of $1,000 par value annual coupon bonds with 6 years remaining until maturity. The annual coupon rate is given in Table 1, along with the cu
ent price of the bonds. What is the yield to maturity on the bonds?
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Assessment 2: Business Case Studies I ACC00716 S1 2020
f. Your company has an issue of $100 par value bonds that offer a 5% coupon rate paid semiannually. The bonds have 4 years remaining until maturity. The market’s required return on these bonds is given in Table 1. What is the market price of the bonds?
2. Risk and return estimates (4 marks):
a. Use CAPM to estimate the expected return for the shares of: i) your case company; and ii) a hypothetical company with a beta of 1.60. To do this, use the yield to maturity of a 10-year Australian Government bond on 1 April 2020 as a proxy for the risk-free rate, assume the market risk premium is 5.50% and use your case company’s most recent 5-year beta.
. Using the data from part 2a, estimate portfolio expected return and beta, assuming a portfolio with 70% invested in your case company and the remainder invested in the hypothetical company.
3. Risk and return analysis (15 marks):
a. Drawing on expectations from theory and incorporating the overall context of your chosen company, interpret and discuss the 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 co
ect (1 mark) or inco
ect (0 marks). List your final answers, with each answer on a separate line. Give all answers to two decimal places. No workings are required and no part marks will be provided but if you want feedback on any e
ors, provide
ief workings (e.g. screenshot of completed spreadsheet template section) as a separate numbered list below the initial list of answers.
Parts 2 and 3 will be marked using the ru
ic that follows.
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Assessment 2: Business Case Studies I ACC00716 S1 2020
Marking criteria for risk and return estimates
MARKING CRITERIA
Excellent
Very Good
Good
Satisfactory
Poor
Accurate calculation of expected returns for companies and portfolio and accurate calculation of portfolio beta (Tasks 2a and 2b: 4 marks)
Co
ect input data used. Technique and all final calculated figures are co
ect
(4 marks)
Mostly co
ect input data. Co
ect techniques and calculations. (3.5 marks)
Co
ect input data. Mostly co
ect techniques and calculations. (2.5 marks).
Mostly co
ect input data. Mostly co
ect techniques and calculations. (2 marks).
Mostly inco
ect data and techniques. (0 to 1.5 marks)
Marking criteria for written risk and return analysis and its presentation
MARKING CRITERIA
Excellent
Very Good
Good
Satisfactory
Poor
Insightful and relevant discussion of risk and return (Task 3a: 10 marks)
Accurately and comprehensively interprets all calculated risk and return
measures. Co
ectly compares appropriate measures and explains differences, drawing on relevant theory. Accurately weaves relevant context (e.g. company industry, market conditions) into explanations. Uses tables or graphs effectively to enhance the discussion. Uses and explains relevant technical terms. (9 to 10 marks)
Accurately interprets nearly all calculated risk and return
measures. Co
ectly compares appropriate measures and explains differences, drawing on relevant theory. Weaves relevant context into explanations. Uses tables or graphs effectively to enhance the discussion. Uses and explains most relevant technical terms. (8 marks)
Accurately interprets most calculated risk and return measures. Co
ectly compares appropriate measures and explains some differences, drawing on relevant theory. Incorporates some relevant context. Uses tables or graphs but may not be effective or explained. Uses and explains some technical terms. (7 marks)
Accurately interprets most calculated risk and return measures. Co
ectly compares some appropriate measures and explains some differences. Tables or graphs, if used, may not be effective or explained. Uses and explains some technical terms. Context and theory are limited or inco
ect (5 to
6 marks)
While an explanation of technical terms may have been attempted, there is little or no accurate interpretation or comparison of risk and return measures. Context, theory and explanations are limited, inco
ect or absent. (0 to 4 marks)
Presentation, sources and written expression
(Task 3a: 5 marks)
Overall presentation is well organised and looks professional. All data sources and other references are provided where needed in appropriate format and detail. Use of language makes meaning consistently clear. There are no or very
few grammar, syntax and
spelling e
ors. (5 marks)
Overall presentation is mostly well-organised and professional. All necessary data sources and other references are provided, mostly in appropriate positions, format and detail. Use of language makes meaning consistently clear. There are very few grammar, syntax and spelling e
ors. (4 marks)
Overall presentation is mostly well-organised and neat. All necessary data sources and other references are provided, mostly in appropriate positions, format and detail. Use of language mostly makes meaning clear. There may be several grammar, syntax and spelling e
ors. (3.5 marks)
Overall presentation is fairly neat and organised. Not all necessary data sources are provided or most are not in appropriate positions, format and detail. Use of language mostly makes meaning clear. There are several grammar, syntax and spelling e
ors. (2.5 marks)
Overall presentation is generally unprofessional. Not all necessary data sources are provided or most are not in appropriate positions, format and detail. Use of language often makes meaning unclear. There may be many grammar, syntax and spelling e
ors. (0 to 2 marks)
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Assessment 2: Business Case Studies I ACC00716 S1 2020
Table 1: Case company data (hypothetical except where noted)
Breville (BRG)
Adairs (ADH)
Harvey
Norman
(HVN)
Nick Scali (NCK)
Beacon
Lighting
(BLX)
Super
Retail
(SUL)
Payment per month
$4,359.00
$2,050.00
$15,897.00
$536.00
$891.00
$11,500.00
Annual total revenue
($millions)1
$760.00
$344.40
$2,234.10
$268.00
$247.70
$2,711.40
Annual growth in total
evenue2
10.70%
15.50%
8.10%
12.40%
9.90%
5.30%
Loan A (APR, compounding frequency)
3.93%, monthly
3.02%, semiannually
2.48%, quarterly
4.26%, semiannually
5.45%, monthly
6.00%, semiannually
Loan B (APR, compounding frequency)
4.00%, semiannually
2.85%, monthly
2.45%, daily3
4.25%, quarterly
5.50%, semiannually
5.95%, monthly
Loan C (APR, compounding frequency)
3.91%, daily3
2.95%, quarterly
2.52%, semiannually
4.24%, daily3
5.40%, daily3
5.97%, quarterly
Property cost
$1,540,000
$2,910,000
$9,950,000
$760,000
$1,650,000
$840,000
6 year bond annual coupon
ate
5.15%
4.35%
3.95%
4.90%
5.85%
4.55%
6 year bond cu
ent price
$1,111.50
$956.60
$1050.50
$980.95
$922.00
$1,077.00
4 year bond required rate of return
3.40%
4.90%
4.80%
4.10%
5.80%
3.90%
1 Data from S&P Capital IQ for the company’s most recent financial year.
2 Most recent 5 year historical CAGR from S&P Capital IQ
3 Assume a 365-day year
Business Case Study
CASE COMPANY ADH
S&P LINK http:
www.capitaliq.com PASSWORD – Finance101
ALSO, Please take the beta value of 1st April
General overview
Overall, the assignment consists of:
a. 6 (six) questions on time value of money and bond valuation (part 1);
. 3 (three) tasks as part of a risk and return analysis (parts 2 and 3).
Your case company
At the beginning of Week 4, you will be assigned an ASX listed