Free sample   Finance assignment resolving financial affairs of businesses

## Finance Assignment: Resolving Financial Affairs Of Businesses

Question

Task: The present finance assignment is based on the following case studies:
Case Study 1

Jane Fisher was a sole trader selling a range of hair care products to various hair dressing saloons for five years. However, in 2020 COVID-19 pandemic induced prolonged and frequent lockdowns resulted in cancellation of most of her orders and she had to shut down her business. After a six-month search, she joined Axis Ltd as a procurement manager. She sought the job in Axis as she has been a shareholder of Axis Ltd for 7 years and did not sell those shares even when she had to close her business.

Analyse the two different types of business in this case study. Compare and contrast their advantages and disadvantages with examples.

Case Study 2
Rory Williams is an independent management consultant with a portfolio of clients. One of his long-term clients John Hawk has recently introduced Rory to Melody Malone who runs a secretarial service and has offered Rory a long-term contract through which Rory expects to generate the following stream of cash flows. Cash flows will occur at the end of the nominated years.

 Cash flow Year 0 Year 1 + 5000 Year 2 Year 3 +5000 Year4 -2500 Year5 +2700 Year6 Year7 Year 8 +8000 Year9 Year 10 +20000

Rory expects the market interest rates will be 2.5% p.a. for the next 5 years, then it will increase to 5% p.a. for the following three years (years 6 – 8) and will increase again in years 9 – 10 to 6% p.a.

Assuming Rory’s expectations regarding cash flows and interest rates are correct, calculate the present value today and future value in 10 years’ time of all these cash flows. (Show all calculations and show answers correct to the nearer cent.)

Case Study 3
Tim Shaw is a portfolio manager of a large fund. It is December 2021 and Tim intends to sell two bonds he holds. Each bond has a face value of \$100,000, a coupon rate of 8% p.a., paid half-yearly, and a yield to maturity of 10% p.a. The first bond will mature in three years and the second bond will mature in 5 years. With the funds Tim intends to buy Sapphire Ltd shares. Sapphire Ltd shares just paid a dividend of \$1.20 per share in December 2021. Tim believes the dividend is expected to increase by 20% in December 2022, 15% in December 2023, 10% in December 2024, and thereafter by 5% per year forever from December 2025 onwards. Tim requires a 12% p.a. return on Sapphire Ltd shares.
If Tim sells both bonds and use the funds to buy Sapphire Ltd shares, how many shares he can buy (Show all calculations to two decimal places, show final answer correct to whole number.)

Case Study 4
22marksBelow is the monthly share price data for Afterpay Limited (ASX code APT.AX) for2020 (Source: https://finance.yahoo.com)

 Month Open\$ Close\$ Jan 29.28 38.55 Feb 37.57 33.17 Mar 32.18 18.80 Apr 19.85 31.20 May 29.75 47.41 Jun 46.53 60.99 Jul 60.49 68.54 Aug 68.50 91.44 Sep 89.80 79.99 Oct 81.85 96.69 Nov 96.50 95.01 Dec 95.80 118.00

Afterpay Limited did not pay any dividend in 2020.
a. Calculate the monthly percentage returns for APT for 2020. (Show all calculations, show answers as percentage correct to two decimal places.)
b. Calculate the risk measured by the standard deviation for APT. (Show all calculations, show answer as a percentage correct to two decimal places.)
c. If the standard deviation for the market is 8.02%, how does this compare with APT’s standard deviation calculated in part b Explain your conclusions.

Answer to case study 1 of finance assignment

 Year 0 1 2 3 4 5 6 7 8 9 10 Interest rate 2.50% 5% 6% Cash flows 5000 5000 -2500 2700 8000 2000 present value 4878.049 4996.914 -2264.88 2386.407 5414.715 1116.789554 Net present value 16528.00 "=SUM(B5:L5)" "=J4*1/(1+I3)^J2" "=L4*1/(1+L3)^L2"

 Year 0 1 2 3 4 5 6 7 8 9 10 Interest rate 2.50% 5% 6% Cash flows 5000 5000 -2500 2700 8000 2000 Future value 3905.992 3905.992 -1953 2109.236 4911.306 1116.789554 Total future value "=G11*1/(1+\$E\$10)^\$L\$9" "=J11*1/(1+I10)^L9" "=L11*1/(1+L10)^L9" 13996.32 "=SUM(B12:L12)"

Net future value at 10th year 13996.32

Face value = \$100000
Coupon rate = 8% per annum paid half yearly
Yield to maturity = 10%
Bond 1 maturity = 3 years
Bond 2 maturity = 5 years
Price of bond 1 = (100000*8%/2)*(1-(1+10%/2)^(-3*2))/(10%/2)+100000/(1+10%/2)
= 115540.8635
Price of bond 2 = (100000*8%/2)*(1-(1+10%/2)^(-5*2))/(10%/2)+100000/(1+10%/2)
=126125.035
Hence, total amount in hand = 126125.035 + 115540.8635
= 241665.8985
Now, it is given that the current dividend of Sapphire Ltd share is \$1.20
g1 = 20%
g2 = 15%
g3 = 10%br
g4 = 5%
and required rate of return (r) = 12%
hence, the share price of Sapphire Ltd is calculated as
P = 1.20*(1+20%)/(1+12%) + 1.20*(1+20%)*(1+15%)/(1+12%)^2+1.20*(1+20%)*(1+15%)*(1+10%)/(1+12%)^3+1.20*(1+20%)*(1+15%)*(1+10%)*(1+5%)/(1+12%)^4+1.20*(1+20%)*(1+15%)*(1+10%)*(1+5%)/((1+12%)^4*(12%-5%))
=22.48288494
Therefore, total number of shares can be purchased
= 241665.8985 / 22.48288494
=10748.88294
= 10748 (aprx)

Part [a]

 Month Open\$ Close\$ Calculation return Jan 29.28 38.55 (38.55-29.28)/29.28 24.05% Feb 37.57 33.17 (33.17-37.57)/37.57 -13.26% Mar 32.18 18.8 (18.8-32.18)/32.18 -71.17% Apr 19.85 31.2 (31.2-19.85)/19.85 36.38% May 29.75 47.41 (47.41-29.75)/29.75 37.25% Jun 46.53 60.99 (60.99-46.53)/46.53 23.71% Jul 60.49 68.54 (68.54-60.49)/60.49 11.74% Aug 68.5 91.44 (91.44-68.5)/68.5 25.09% Sep 89.8 79.99 (79.99-89.8)/89.8 -12.26% Oct 81.85 96.69 (96.69-81.85)/81.85 15.35% Nov 96.5 95.01 (95.01-96.5)/96.5 -1.57% Dec 95.8 118 (118-95.8)/95.8 18.81%

Part [b]

 Month Open\$ Close\$ Calculation return (Xi-mu)^2 Calculation Jan 29.28 38.55 (38.55-29.28)/29.28 24.05% 2.63% (2.63%-7.84%)^2 Feb 37.57 33.17 (33.17-37.57)/37.57 -13.26% 4.46% (4.46%-7.84%)^2 Mar 32.18 18.8 (18.8-32.18)/32.18 -71.17% 62.43% (62.43%-7.84%)^2 Apr 19.85 31.2 (31.2-19.85)/19.85 36.38% 8.14% (8.14%-7.84%)^2 May 29.75 47.41 (47.41-29.75)/29.75 37.25% 8.65% (8.65%-7.84%)^2 Jun 46.53 60.99 (60.99-46.53)/46.53 23.71% 2.52% (2.52%-7.84%)^2 Jul 60.49 68.54 (68.54-60.49)/60.49 11.74% 0.15% (0.15%-7.84%)^2 Aug 68.5 91.44 (91.44-68.5)/68.5 25.09% 2.97% (2.97%-7.84%)^2 Sep 89.8 79.99 (79.99-89.8)/89.8 -12.26% 4.04% (4.04%-7.84%)^2 Oct 81.85 96.69 (96.69-81.85)/81.85 15.35% 0.56% (0.56%-7.84%)^2 Nov 96.5 95.01 (95.01-96.5)/96.5 -1.57% 0.89% (0.89%-7.84%)^2 Dec 95.8 118 (118-95.8)/95.8 18.81% 1.20% (1.20%-7.84%)^2 Average 7.84% Formula =AVERAGE(E3:E14) Standard deviation 28.67% Formula =SQRT(SUM(F3:F14)/COUNT(F3:F14))

Part [c]
It is given that the market risk is 8.02%, whereas the risk calculated above is 28.67%. Hence, it can be concluded that the market is far less risker than this Afterpay Limited stock. Therefore, it can be concluded that investment in the market index will be beneficial than investment into this specific stock.

References
Chen, J., Huang, J., Su, W., Štreimikien, D. and Baležentis, T., 2021. The challenges of COVID-19 control policies for sustainable development of business: Evidence from service industries. Finance assignment Technology in Society, 66, p.101643. Fabeil, N.F., Pazim, K.H. and Langgat, J., 2020. The impact of Covid-19 pandemic crisis on micro-enterprises: Entrepreneurs’ perspective on business continuity and recovery strategy. Journal of Economics and Business, 3(2).

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