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The a-s-s-e-s-s-m-e-n-t willbe doing assessment questionsPlease see the questions shown in the screenshot. I will send you all the info after being hired, eg PPTs, student access etc. Please send a draft in 12hrs -1 day time, day 2, and day 3 as well. + Will need to draft some questions to ask the teacher and revise base on feedback (Send bk ard in 1 day max)
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FNCE2000 Introduction to Finance Principles
ASSIGNMENT COVER SHEET
Name:
Student ID
(If the given name by which your tutor knows you, differs from your name on University records, please indicate BOTH
names)
Tutor:
Day & Time of Tutorial:
Due date: To be submitted by 5pm on Monday 15th of January 2024
IMPORTANT INSTRUCTIONS:
• Show all working to demonstrate you have understood how to solve each problem.
• If you use a financial calculator, state the sequence of steps to solve the problem.
• Please present your answers in at least 4 non-zero decimal places. i.e., 0.00001234 or
0.1234.
• Students are to submit their assignments onto Blackboard. The assignment must be typed
(Word, Excel or PDF).
• Answer must be legible. If the marker cannot follow or read your answers, marks cannot be
rewarded.
• Answer all sections.
Your assignment should meet the following requirements
A copy of the assignment has been retained by me
Declaration below is complete
Declaration
Except where I have indicated, the work I am submitting in this assignment is my own work and has
not been submitted for assessment in another Unit or course. I warrant that any computer files
submitted as part of this assignment have been checked for viruses and reported clean.
________________________________________
(Signature of student)
All forms of plagiarism, cheating and unauthorised collusion are regarded seriously by the University and could
result in penalties including failure in the course and possible exclusion from the University. If you are in
doubt, please contact your lecturer, Unit Controller, or your Course Coordinator.
Page 1 of 6
Part 1 (25 marks) – Capital Budgeting
As a senior analyst for Lawton Enterprise, you have been asked to evaluate a new computer
hardware project with the following characteristics:
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Acquiring a computer hardware for a cost of $2,500,000.
The computer hardware has an expected six-year life.
The initial investment in net working capital (in Year 0) is $500,000. The investment in
working capital is to be completely recovered by the end of the project’s life (in Year 6).
The computer hardware can be depreciated on a straight-line (prime cost) basis and there
is no expected salvage value after six years.
The produced software is expected to generate sales of $1,250,000 in Year 1. They grow
at a 25% annual rate for the next two years, and then grow at a 10% annual rate for
remaining years.
Fixed operating expenses are $100,000 for Years 1-3 and $110,000 for Years 4-6.
Variable operating expenses are 20% of sales in Years 1-2 and 25% of sales in Years 3-6.
Lawton does not have any available space where the project can be located for six years
and you anticipate to rent the required office space it would cost $65,000 per year for the
life of the project. You expect that the project will need to hire three new software
specialists at $50,000 (each specialist) per year (start in Year 1) for the full six years to
work on the software.
The project will use a van currently owned by Lawton. Although the van is not currently
being used by Lawton, it can be rented out for $20,000 per year for six years. The book
value of the van is $20,000. The van is being depreciated straight-line (with six years
remaining for depreciation) and is expected to be worthless after the sixth year.
Lawton’s marginal tax rate is 35%, and the discount rate is 11.5%.
Based on the information presented above, answer the following questions.
1.
(12 marks)
Calculate the incremental free cash flow during the project’s life (starting from Year
0 to Year 6). Show workings.
2.
(13 marks)
Calculate the NPV, payback period and IRR of the project. Should the project be
accepted? Show workings and explain your answer(s).
Page 2 of 6
Students may present the workings using the table below. Please set out your work clearly and
neatly. If you choose you can take advantage of the table below or you can continue your workings on
the following page which has been intentionally left blank.
Page 3 of 6
THIS PAGE IS LEFT BLANK PAGE FOR YOUR WORKINGS
Page 4 of 6
Part 2 (25 marks) – risk and return
You are considering investing in stocks and have identified the following potential stocks.
They are Alibaba Group Holding Limited (BABA), Amazon (AMZN), Kogan (KGN) and China
Petroleum & Chemical (386). The table below shows the historical share prices ($) between
2016 and 2022. Note that these prices are recorded on the 1st day of the year, for example,
1st of January 2020. Students should assume no dividend is distributed during this period and
ignore the exchange rate conversion.
Year
2016
2017
2018
2019
2020
2021
2022
Amazon
(NASDAQ: AMZN)
587
823.48
1450.89
1718.73
2008.72
3206.2
2991.47
Alibaba
(NYSE: BABA)
67.03
101.31
204.29
168.49
206.59
253.83
125.79
Kogan
(ASX: KZN)
1.715
1.53
7.15
4.3
5.16
17.99
6.19
China Petroleum & Chemical
(HKG: 386)
4.33
6.21
6.76
6.57
4.13
3.17
4.08
1. (2 marks)
Provide a discussion on the similarities and differences of two companies: China
Petroleum & Chemical and Alibaba. Minimum four key points for full marks.
Hints: students may consider the following when attempting this question.
• What services/products each company offers?
• Which industry the company operates in?
• Where their stocks are listed?
• Where the company is found?
Do not forget to cite the source of information. Referencing (Chicago 17B referencing)
is mandatory.
2. (8 marks)
Calculate the return and risk (standard deviation) of each stock.
3. (2 marks)
Explain the relation (positive or negative) between risk and return based on your
answers in the previous question.
4. (4 marks)
Calculate the correlation coefficient between (1) Amazon and Alibaba, and (2) Amazon
and China Petroleum & Chemical.
5. (3 marks)
Page 5 of 6
Calculate the expected (annual) return and standard deviation if you owned a
portfolio consisting of 50% in Amazon and 50% in Alibaba.
6. (3 marks)
Calculate the expected (annual) return and standard deviation if you owned a
portfolio consisting of 80% in Amazon and 20% in China Petroleum.
7. (3 marks)
Compare the portfolios in parts 5 or 6. Which portfolio (parts 5 or 6) provides better
diversification? Define diversification and explain your answer(s).
Page 6 of 6
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