Page 1 XXXXXXXXXXKaplan Business School Assessment Outline
Assessment 2 Information
Subject Code: FIN203
Subject Name: Finance
Assessment Title: Individual Assignment
Assessment Type: Written Assignment and Excel Spreadsheet
Word Count: 1000 Words (+/-10%)
Weighting: 25 %
Total Marks: 60
Submission: Via Turnitin for written assignment, via excel link for excel spreadsheet
Due Date: Friday (19:55pm AEST) Week 10
Assessment Instructions
• Complete this individual assignment (parts 1-3) by the due date above.
• Please submit written answers and final numbers through the Turnitin “Written Report”
link and submit ONE excel spreadsheet you used in calculating answers through “Excel
Submission” link (you can use multiple sheets in your one file). Both of these sections
will be marked.
• The written part of your assignment will be put through Turnitin and any plagiarism will
e traced and penalised. Please refer to the policy.
Assessment Description
Answer the questions below with reference to the following sources:
1. Company Perspective – The a2 Milk Company Limited [30 marks]
Source 1: The a2 Milk Company Limited Annual Report 2019
https:
thea2milkcompany.com/wp-content/uploads/The-a2-Milk-Company_FY19-Annual-
Report_double-pages-1.pdf
Source 2: The a2 Milk Company Limited (A2M.AX) Yahoo Finance
https:
au.finance.yahoo.com/quote/A2M.AX/
https:
thea2milkcompany.com/wp-content/uploads/The-a2-Milk-Company_FY19-Annual-Report_double-pages-1.pdf
https:
thea2milkcompany.com/wp-content/uploads/The-a2-Milk-Company_FY19-Annual-Report_double-pages-1.pdf
https:
au.finance.yahoo.com/quote/A2M.AX
Page 2 XXXXXXXXXXKaplan Business School Assessment Outline
a) Consider the 2019 Annual Report of The a2 Milk Company Limited (A2M). Briefly explain
how the “A2M” governance is organized. Do you notice any strategies in place to align
manager and shareholder interests based on the Annual Report? Provide one
ief
example. [5 marks]
) What is the Net Working Capital for “A2M” both in 2018 and 2019. What type of cu
ent
asset management strategy is the company pursuing? Explain why and what are the pros
and cons of this strategy. [4 marks]
c) Consider “A2M” 2019 Annual Report. Identify three of the major risks discussed. Are these
isks systematic or unsystematic? Why? [3 marks]
d) You are trying to value “A2M” share today (End of June XXXXXXXXXXAssume the cu
ent price of
the share in the stock market is $17.15 and that you would like to hold the investment for 4
years. Assume that “A2M” will pay its first dividend ($0.5 AUD) one year from now. The
total dividend will be paid as a lump sum (at once). After this you also estimate that the
dividends will grow respectively at 30%, 25% per year. After that (starting in time 3) you
estimate dividends will grow at a constant rate of 5% forever. Assume that today the
Australian treasury notes is 1.5%, the market risk premium is 10% and the beta of “A2M” is
0.8. Based on this price would you purchase the share? Why or why not? [10 marks]
e) “A2M” wants to reduce its weighted average cost of capital by replacing some of its equity
with long-term debt. Assume that “A2M” would like to raise $200 million with a new issuing
of bonds. Assume that the issue will have a coupon rate of 3% with a 5 year maturity.
Assume this are semi-annual coupon bonds and each have a face value of $1.000 and the
equired rates of return for similar bonds in the market is 4%. What would be the issuing
price of these bonds? How many bonds does the company have to sell in order to achieve
its target? [8 marks]
Page 3 XXXXXXXXXXKaplan Business School Assessment Outline
2. Capital Budgeting – The a2 Milk Company Limited (A2M) [30 marks]
Answer the below questions in your word file and refer to your excel spreadsheet as a supporting
document. Upload your excel spreadsheet under “Excel Submissions”.
All amounts are in $AUD. The “A2M” board of directors (BoD) is exploring the opportunity to
vertically integrate the business by acquiring one of its cu
ent suppliers. The BoD has
instructed, one of the Big 4 Consulting firms to perform a screening process amongst the best
dairy farms in Australia with the goal of selecting potential candidates. The firm is asking
$100,000 dollars as a fixed fee for its consulting services. The report generated by the
consulting firm has identified two different dairy farms that can fit the “A2M” business model.
Project A has an initial outlay of dollars $100 million and Project B has an initial outlay of $150
million. Project A will produce 85,000,000 liters of milk starting at the end of year 1 until the end
of year 5 and 50,000,000 liters of milk starting at the end of year 6 until the end of year 10. It
will also incur working capital expenses at the end of year 6 to 9 of $5 million (this working
capital will not be recovered). Project B will produce 100,000,000 liters of milk starting at the
end of year 1 until the end of year 10. It will also incur working capital expenses at the end of
year 1 to 3 of $2 million (this working capital will not be recovered). Assume that the average
selling price (farmgate price) of a liter of milk is $0.5 over the ten years. The operating costs of
oth projects will be 30% of the revenues from year 1-10. Both investments will be depreciated
on a straight-line basis over ten years to 0 book value. “A2M” has estimated that the dairy farms
can be sold at the end of year 10 respectively for $50 million (Project A) and 75 million (Project
B).The tax rate is 30%. All cash flows are annual and are received at the end of the year. The
weighted average cost of capital for both projects is 10%.
a) Calculate the FCFs to each project [10 marks]
) What is the NPV for each project? [5 marks]
c) What is the Discounted Payback Period for each project? [5 marks]
d) What is the IRR for each project? [5 marks]
e) Suppose that the “A2M” management payback rule is 6 years. Based on your analysis in b),
c) and d) which project should be chosen? Justify your answer with reference to theory.
What other elements could be taken into consideration when selecting the project?
[5 marks]
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Important Study Information
Academic Integrity Policy
KBS values academic integrity. All students must understand the meaning and consequences
of cheating, plagiarism and other academic offences under the Academic Integrity and Conduct
Policy.
What is academic integrity and misconduct?
What are the penalties for academic misconduct?
What are the late penalties?
How can I appeal my grade?
Click here for answers to these questions:
http:
www.kbs.edu.au/cu
ent-students/student-policies/.
Word Limits for Written Assessments
Submissions that exceed the word limit by more than 10% will cease to be marked from the point
at which that limit is exceeded.
Study Assistance
Students may seek study assistance from their local Academic Learning Advisor or refer to the
esources on the MyKBS Academic Success Centre page. Click here for this information.
http:
www.kbs.edu.au/cu
ent-students/student-policies
https:
elearning.kbs.edu.au/course/view.php?id=1481