Question 2 [Calculation-based]: The Income Statement [Chapter 3 Applying the theory]
(Refer to Example on page 46 of Textbook)
Construct an Income Statement. Use an Excel spreadsheet and/or tables to present your work. Show all workings. | Mark | |
Part 1 | CQU Oil Limited is a an oil wholesale company that had:
· sales last year of $2.5 million; · cost of goods sold of $700,000; · paid interest of $200,000; · cash operating expenses of $150,000; · Depreciation expense amounting to $150,000 · a tax liability equal to 30% of the firm’s taxable income. a. Construct an Income Statement with the above data. b. Determine CQU Oil’s taxable income and tax payable for the year. c. Determine the total amount of: i. fully franked dividends ii. imputation credits that the company is able to declare from its past year’s results. d. Analyse the data and outcome. What information can we derive from CQU Oil’s Income Statement? |
15 Marks |
Question 4: [Calculation-based] Time Value of Money [Chapter 5 Mini-case]
Use an Excel spreadsheet and/or tables to present your calculations. Show all workings. | Mark | |
Part 1 | Mini-case: Emily Dao, 27, just received a promotion at work that increased her annual salary to $74,000. In addition to standard compulsory employer superannuation, she is eligible to participate in her employer’s retirement savings plan, to which the employer matches, dollar for dollar, worker’s compensation contribution of up to 5% of salary. However, Emily wants to buy a new $50,000 car in three years, and she wants to have enough money to make a $14,000 deposit on the car and finance the balance. Fortunately, she expects a sizeable bonus this year that she hopes will cover that deposit in three years. A wedding is also in her plans. Emily and her boyfriend, Paul, have set a wedding date two years in the future, after he finishes his medical degree. In addition, Emily and Paul want to buy a home of their own as soon as possible This might be possible because at age 30 Emily will be eligible to access $100,000 trust fund left to her as inheritance by her late grandfather. Her trust fund is invested in 7% government bonds.
a. Justify Emily’s participation in her employer’s retirement savings plan using the time-value-of-money concepts by explaining how much an investment of $20,000 will grow to in 40 years if it earns 10% annual interest. b. Calculate the amount of money that Emily needs to set aside from her bonus this year to cover the deposit on a new car, assuming she can earn 6% annual interest on her savings. What will happen if she could earn 10% annual interest on her savings? c. What will be the value of Emily’s trust fund at age 60, assuming she takes possession of half of the money ($50,000 of the $100,000) at age 30 for a house deposit, and leaves the other half of the money untouched where it is currently invested? d. What is the relationship between discounting and compounding? e. List at least two actions that Emily and Paul could take to accumulate more for their retirement (think about i and n)? |
20 Marks |
Question 5: [Calculation-Based] Risk and Return [Chapter 7 Study Questions 7.4, Study Problems 7.7]
Use an Excel spreadsheet and/or tables to present your calculations. Show all workings. | Mark | |||||||||||||||||||||||||
Part 1 | Calculating rates of return: Syntex Ltd is considering an investment in one of two shares.
a. Given the information that follows, which investment is better, based on risk (as measured by the standard deviation) and return.
b. How does the expected-rate-of-return concept differ from the realised rate of return? c. Do cash dividends affect the realised rate of return from investing in ordinary shares? If so, how? d. In an investment’s rate of return what is a reasonable indication of the risk of an investment? Explain. |
15 Marks |
Question 6: [Theory] Risk and Return [Chapter 8 Study Questions 8.6, 8.7, 8.8 and 8.9]
Unpack the question and develop your responses by reviewing journal articles, professional publications and/or credible texts. | Mark | |
Part 1 |
Describe what is meant by systematic risk and unsystematic risk. How is this distinction related to an investment’s beta? | 20 Marks |
Part 2 | How is the beta of a portfolio related to the betas of the individual investments in the portfolio? | |
Part 3 | What is a security market line? What do the slope and the intercept of this line represent? | |
Part 4 | Describe to your father who has never studied Finance, how the Capital Asset Pricing Model can be used to inform investment decisions. What is the key insight to gain from this model? |
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