ASSESSMENT COVER SHEET

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Student Number
Student Name
Unit Code	ABF204
Unit Title	APPLIED BUSINESS FINANCE
Assignment Topic/Title	ASSESSMENT NUMBER 02 – WEIGHTING % OF TOTAL UNIT MARKS – 30%
Unit Lecturer	Jasvir Kaur	Date Submitted
Due Date	Week 10
Word Count

PLAGIARISM

Plagiarism is the act of representing as one’s own work the creative works of another, without appropriate acknowledgement of the author or source.

COLLUSION

Collusion is the presentation by a student of an assessment as his or her own which is in fact the result in whole or in part of unauthorised collaboration with another person or persons. Collusion involves the cooperation of two or more students in plagiarism or other forms of academic misconduct as such both parties are subject to disciplinary action. Plagiarism and collusion constitute cheating. Disciplinary action will be taken against students who engage in plagiarism and collusion as outlined in the College’s policies.

StudentDeclaration(studenttocomplete)

I hereby certify that:

Thisassessmentismyownworkbasedonmypersonalstudy/researchandnottheworkofanotherstudentand/or source.
Ihave acknowledged all material and sources used to prepare this assessment.
I have not plagiarised or copied any part of this assessment for them work of any other student or source.
I have retained a copy of this assessment for my own records in the event I have to reproduce my work.

Please tick the box if you agree and comply with the above declaration

© Macleay College 2022

Learning Outcomes being assessed:

Describe and apply the basic concepts and techniques of finance to deal with financialproblems.

Apply financial mathematics to solve business problems and perform financial functions (such as calculating present and futurevalue of single cash flows, simple interest rate, annuities andperpetuities).
Interpret the importance of weighted average cost of capital (WACC)

Assessment Brief

Mini Cases provide complex problem-solving opportunities to real-world challenges by exploring current issues in the relevant field of study.

The case study assessment builds on scenario-based learning throughout the unit and encourages the development of reasoning, problem-solving and decision-making skills. This allows students to learn by doing, as a final step before applying knowledge in professional practice.

Answer both questions.

References

Provide a reference list that shows all sources of information.

The Assignment has a weighting of 30% in Applied Business Finance.

Due Date

The assessment is due by the end of Week 10, Sunday night at 11:59.

Question 1 – Understanding NPV Marks 50%

The CEO of Fosters (Daniel Andrews) is considering the acquisition of a new project known as Heineken. Daniel needs your advice as a chief financial officer (CFO) on the new acquisition using NPV analysis.

A feasibility study has been undertaken at the cost of $850,000, which has indicated that the project is technically feasible.

Heineken is priced at $30 million, and the acquisition would require:

$4million in transportation costs
An installation cost of $3 million.
Initial working capital required for the project of $400,000. Assume a cash outflow in Year 0, and this is refunded back to Fosters at the end of the 8-year period. This assumes when the business is closed down at the end of Year 8, the working capital (accounts receivable plus inventory minus accounts payable) will be all converted into cash.
Heineken has a useful life of 8 years and will be depreciated using straight-line depreciation over 5-years.
It is expected to have a salvage value of $200,000 at the end of 8 years.

Heineken estimates for the 8 years that the following cash inflows and outflows for the business:

Revenueof $12.5 million per annum
Operating costs by $3.5 million per annum

The marginal tax rate is 30 precent.

The CEO advises you the company’s cost of capital assumption is 15precent.

Would you go ahead with the new acquisition using NPV analysis?

Explain your recommendation in a 100-word proposal to the CEO.

Required:

Prepare an 8-year Income Statement Summary using the above information for the new Heineken Business, including depreciation and taxation (20 marks)
Prepare a cash flow summary, based on the Income Statement. Using Excel or a financial calculator to calculate the Net Present Value of the Project cash flows. (15 marks)
Prepare a 100-word summary explaining your recommendation on the acquisition. (5 marks)

Question 2 – Using Weighed Average Cost of Capital (WACC) Marks 50%

ABC’s capital structure is made of 50% Ordinary Equity, 30% Preferred Stock and 20% Debt.

ABC’s dividend payout ratio is 35precent, and the current expected net income is $750,000.

ABC’s marginal tax rate is 30% and investors expect the dividends and earning to grow at the rate of 5percent per year in perpetuity.

ABC just paid a dividend of $4 per share on its 850,000issued ordinary shares and is currently trading at$40 per share.

ABC has issued 400,000 new preference shares with the market price of $60 per share. ABC is committed to pay a dividend of $9 per share on its preference shares.

ABC has issued 12,000 corporate bonds with face value of$1000 and 15 years to maturity that currently are traded at their face value. ABC offers an annual coupon amount of $100 for each bond.

1) Determine the market value of ordinary equity, preference shares and debt. (10 Marks)

2) Determine the cost of each capital structure component of ABC. (15 marks)

3) Calculate the weighted average cost of capital of ABC. (10 marks)

4) Which projects should ABC accept given the following investment opportunities.? (5 marks)

Project	Initial Investment	Rate of return
Dill	$500,000	16.5%
Pit	$450,000	14.5%
Sam	$300,000	17.5%

Assessment two marking criteria (Total marks 100, worth 30%)

Criteria	Fail	Pass	Credit	Distinction	High Distinction	Mark
Content (Elements: Table of Contents, Executive Summary, Introduction, Analysis (Body), Conclusion and Recommendations)	The report does not include all the appropriate elements, or the information is not relevant or not adequately developed	The report includes all the appropriate elements, however, some information is not relevant or not adequately developed	The report includes all the appropriate elements, and the information is relevant, however, some parts require further development	The report includes all the appropriate elements, and the information is relevant and adequately developed	The report includes all the appropriate elements, and the information is well developed with highly relevant	/10
Depth of Analysis (Business Scenario one)	Poor evaluation, explanation with incorrect numerical values.	Simple discussion, explanation, with few correct numerical values.	Identified and discussed some of the key areas with Some correct numerical values.	Identified and clearly explained the key areas with most correct numerical values.	Identified and discussed the key areas in detail with all correct numerical values.	/40
Depth of Analysis (Business Scenario two)	Poor evaluation, explanation with incorrect numerical values.	Simple discussion, explanation, with few correct numerical values.	Identified and discussed some of the key areas with Some correct numerical values.	Identified and clearly explained the key areas with most correct numerical values.	Identified and discussed the key areas in detail with all correct numerical values.	/40
Structure/ Cohesion And Style (Grammar, punctuation, and vocabulary)	The report is neither logically organised nor correctly formatted Grammar, punctuation, and vocabularyerrors are noticeable and often impede the message	Parts of the report are logically organised and correctly formatted Grammar, punctuation, and vocabularyare sometimes accurate, but the message is unclear at times	The report is mostly logically organised and correctly formatted Grammar, punctuation and vocabularyare often accurate and show some range	The report is logically organised and correctly formatted Grammar, punctuation, and vocabularyare usually accurate and show competency	The report is of an excellent standard, logically organised and correctly formatted Grammar, punctuation, and vocabularyare mostly accurate and skilfully used	/10
Total	/100

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