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FINAL Examination Cover Sheet Trimester XXXXXXXXXX STUDENT INFORMATION name Course Title ID number Signature and Date EXAMINATION INFORMATION Subject BVF204 Business Valuations & Financial Statement...

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FINAL Examination Cover Sheet
    Course Title
    ID numbe
    Signature and Date
    BVF204 Business Valuations & Financial Statement Analysis
    No. of pages including cover sheet and blank page
    Total marks in exam
    % of Final grade
    1. Section A .1 - Discussion Questions
    3 out of 5 questions
    48 %
(16 marks each question)
    1. Section A.2 - Calculation
    2 out of 2 questions
    32 %
(16 marks each question)
    2. Section B – Case Studies
    1 out of 2 Cases
1. This is a Take-home exam. Text books, dictionaries and notes are allowed in the exam.
2. This is an individual exam. You must not speak to other students or look at others work.
3. Create a new word document and on top of the first page type your StudentID_First Name_Last Name_Lecturer’s Name_T2 2020.
4. Do NOT rewrite the question in your exam answers. Just write the number of the question.
5. The typed answers must need to be submitted in Turnitin in Moodle within the 24 hours of the given timeframe.
Section A: Theory (Short Ans. Questions) / Calculations (80 Marks)
Section A .1 - Discussion Questions (48 Marks)
You are required to attempt any three (3) of the five (5) questions below. Each question is worth 16 marks.
Question 1: (16 marks)
a. What are likely to be the long-term critical success factors for the following types of firms?
i.    a high technology company, such as Microsoft XXXXXXXXXX4 marks)
ii.    a large, low-cost retailer such as Kmart XXXXXXXXXX4 marks)
i.    How useful is financial accounting data for evaluating how well these two companies are managing their critical success factors? XXXXXXXXXXmarks)
ii.    What other types of information would be useful in your evaluation? (2 marks)
iii.    What are the costs and benefits to these companies from disclosing this type of information to investors? XXXXXXXXXX2 marks)
Question 2: (16 marks)
a. A banker asserts: ‘I avoid lending to companies with negative cash from operations because they are too risky.’ Is this a sensible lending policy? (8 marks)
. Relative to last year, HK Traders working capital ratio has increased, is quick ratio has decreased, and its operating cash flows to cu
ent liabilities ratio has decreased. What are the likely explanations for this? (8 marks)
Question 3: (16 marks)
Consider the following accounting changes:
1) Decrease in the estimated life of depreciable assets
2) Decrease in doubtful debts as a percentage of gross receivables
3) Recognition of revenue from gold mining from when it was extracted rather than when gold is delivered
4) Capitalization of a higher proportion of R&D costs
a. If management reports truthfully, what economic events are likely to prompt the above accounting changes? (8 marks)
. If potential earnings management had taken place how would the above accounting changes impact the financial statements? (8 marks)
Question 4: (16 marks)
a) What are the critical drivers of industry profitability, according to” Porter’s Five Forces”? (10 marks)
) What are the advantages of accounting standards for financial statement analysis? (6 marks)
Question 5: (16 marks)
a) Julie, an accounting major student, and states: ‘Strategy analysis seems to be an unnecessary detour in doing financial statement analysis. Why can’t we just get straight to the accounting issues?’ Explain to Julie why she may be wrong. (10 marks)
) What are the disadvantages of accounting standards for financial statement analysis?
(6 marks)
Section A.2 - Calculation     (32 Marks)
You are required to attempt Two (2) questions of the Two (2) question below. The question is worth 20 marks.
Question 1: (16 marks)
    Cost of debt
    After-tax cost of debt
    Cost of equity
    Treasury bond rate (risk free rate)
    Risk premium
    Capital structure
    % net debt
    % equity
    Required : Please calculate following for each of the year from 2014 to 2017 :
1. Cost of debt (before tax XXXXXXXXXXmarks)
2. Cost of Equity (6 marks)
3. WACC ( Weighted average cost of capital) (6 marks)
Question 2: (16 marks)
a) Please calculate Equity value using discounted dividends valuation method . (5 marks)
    Dividend ($'000 000)
    Cost of Capital
b) Please calculate Equity value using discounted abnormal earnings valuation method. (6 marks)
    Cost of Capital
    Yr / ($'000 000)
    Net income
    Beginning book value of equity
c) Please calculate Equity value using discounted free cash flow model. (5 marks)
    Free Cash Flows ($'000 000)
    Cost of Capital
Section B – Case Studies (20 Marks)
You are required to attempt one (1) case of the two (2) cases below. The case is worth 20 marks.
Case 1: (20 marks)
Read the case “Divid Jones” provided in the next several pages and then answer the following questions in your exam answer booklet:
a. Using the 5 years condensed financial reports provided in the case for David Jones , calculate following key financial ratios for 2013: XXXXXXXXXX10 marks)
1)    EBIT/Sales
2)    Debt to Equity
3)    ROE
4)    Return on Operating assets
5)    Profit Margin
6)    Asset Turnove
7)    Cu
ent Ratio
8)    Quick Ratio
9)    Dividend Payout Ratio
10)    Sustainable Growth Rate
. Using all key statistics provided ,comments on how its fortunes have changed from 2009 to 2013 in the area of : XXXXXXXXXX10 marks)
1) Profitability
2) Asset turnove
3) Liquidity
4) Sustaina
ility growth
5) Capital structure
Case 1: David Jones
Osiris Holdings Pty Ltd, a subsidiary of Woolworths Holdings Limited, is the parent company of department store David Jones. David Jones was founded in 1838 as a small corner store in Sydney. Since then, it has developed into a department store chain operating across Australia and New Zealand. In late 1995, it became a publicly listed company, before being bought out by Woolworths Holdings Limited in 2014. David Jones positions itself as a department store retailer with a range of prestigious international and domestic
ands. There are cu
ently 43 David Jones department stores, which are mainly located on the eastern seaboard. David Jones stores offer a range of products including apparel, cosmetics, shoes, accessories, housewares, furniture, electrical goods, food and general merchandise. Refu
ishment of Melbourne's Bourke Street store was completed in August 2010 with the store housing over 2,500 international and domestic
ands, 1,600 of which are exclusive to David Jones.
The $2.2 billion takeover of David Jones by South Africa's Woolworths Holdings Limited was completed in August 2014. Woolworths Holdings aims to transform the up-market department store, with plans to sell more private-label fashion apparel and to boost the presence of Woolworths' other
ands such as Country Road, Witchery and Mimco. David Jones aims to increase private-label sales from 2.5% to 20.0% over the next five years. The company is also reviewing its customer loyalty program and replacing old IT systems.
Industry at a Glance
Financial performance
David Jones' revenue is expected to increase at an annualised 4.0% over the five years through XXXXXXXXXX, to reach $2.3 billion, outperforming the overall industry in nominal terms. Over the past five years, largely negative consumer sentiment caused consumers to become more price-conscious. Consumers increasingly turned to overseas online retailers and mid-market department stores to save money, negatively affecting David Jones's performance.
In response, David Jones has applied heavy discounting techniques to clear excess stock, subduing profit margins. This was particularly evident in XXXXXXXXXXwhen earnings before interest and tax fell by 21.2%. However, company revenue has since improved following the takeover of David Jones by Woolworths. The subsequent transformation strategy implemented led to a 17.6% revenue boost in XXXXXXXXXXand contributed to a recovery in overall profit margins over the past five years.
Many Australian retailers have heavily invested in technology over the past five years, either to update or create their online presence. Accordingly, David Jones has invested in and grown its online presence. Over the past five years, the company has invested in several warehouses and online fulfilment centres to support its online operations.
David Jones has aimed to win back consumers from specialty retailers and boutique fashion stores by increasing efficiency via store upgrades and improved customer service. The company has focused on fashion to differentiate its
ands, signing numerous exclusive distribution deals with key labels. These deals have helped protect profit margins by cutting out the need for a wholesaler. The company has also introduced a new point of sale system that reduces the amount of time customers spend queuing and paying for their purchases, allowing them more time to
owse and shop. In addition, David Jones has equipped its staff with tablet devices in an effort to improve customers' shopping experiences.
5 years condensed financial reports
Answered Same Day Aug 18, 2021


Harshit answered on Aug 18 2021
131 Votes
Section A.1
Question 1
a. The likely long-term critical success factors for the following types of firms are as follows:
i) High technology companies, like Microsoft
The factors include the following:
1) The ability of the company to adopt the changing environment and accept new challenges and opportunities. They have enough resources planned out to handle setbacks effectively and efficiently.
2) They quickly adapt to new technologies and are very responsive & adaptive in the implementation of dynamic strategies. This helps to keep pace with the industry standards and meet the required needs of the users.
3) They review the performances of the employees every year. Various methods of performance appraisal are ca
ied out by the company to motivate the employees to give their best services.
ii) Large Low-cost retailer like Kmart
The factors include the following:
1) Developing an excellent strategy of the product mix to fulfill the requirements of its target markets
2) Spreading its business to different regions with different geographic diversity to improve its sales by product diversification.
3) Creating a personal touch with its customers and taking feedback for them regularly. They also provide after-sales services and changes as required by the customers based on the feedback. This will help in building trust and confidence and increase customer loyalty.
i. The financial accounting data is useful for evaluating how the companies are managing their critical success factors in the following manner:
· It helps in keeping track of the key financial ratios and data. The expenses are kept under control and steps are taken to maximize the revenues to earn profits.
· Through the financial data, the real cost of the profits and services can be known to the company and helps in achieving real profits.
· The increase in profits and revenues as seen from financial data and the incentives linked to financial results motivate the employees to work better and earn higher incentives.
· Areas of improvement can be known through financial information.
ii. The other information which is useful in the evaluation are:
· The plans and strategies of the company for its future course of action
· The information regarding the performances of the employees and whether the right people are selected for the work.
· The availability of resources to ca
y out its activities and the ability of the company to manage risk.
· Monitoring, communicating and valuing the needs of the customers to provide them customized services.
iii. The benefit of providing this information is that helps to build a sense of trust and confidence among the customers and they consider themselves a part of the company. It increases reliability. The cost involved in adapting to a changing environment to meet the needs of the customers.
a) Porter's Five forces model is used to analyze the five competitive forces that determine the strength, weakness, and profitability of an industry. The critical drivers of the industry profitability as per Porter's Five Forces model are:
· Competition in the Industry: One of the five forces is competition from others in the industry. If the company has high competition in the market, the company has fewer powers to set prices and deals. This reduces its sales and profit margin. But if the competition is low, the company can set high prices and gain greater profits.
· Potential new entrants into the industry: If a new company can easily enter into the particular industry, then the competition and power of the existing larger companies get reduced. It will not be able to charge a high price and negotiate with customers easily. Hence, an industry where the ba
iers to entry are strong is preferable for the profitability of the industry.
· Power of the suppliers: if fewer suppliers are supplying the product to the industry, they will have more power to charge higher prices from the manufacturers. But if competition between the suppliers exists, the company can prefer to buy low-cost inputs and enhance its profit.
· Power of Customers: If a company has a small customer base...

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