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This assessment is worth 15% of the total subject assessment and is marked out of 100.
Part A (50 Marks)
DecaSport is producing high technique and specialised sport shoes. The company has been conducting research and development of a new model, where the lower mould can automatically adjust itself to avoid foot injury. The model has been tested and the managing board is happy to launch its production if it’s financial viable. The company already spent $800,000 for research and development. The new model will have a five-year lifetime, after that the company will stop its production. The new production machines will need to be bought and are budgeted at $7.5 million but can be used for another 5 years after the production of the new product is finished. The company depreciates fixed assets on a straight line basis to zero.
The company expects to sell 80,000 pairs in the first year at $300 per pair. As the new technique can be potentially followed by competitors, every year the sale quantity is expected to decrease by 10% and the sale price will decrease by 8%. Gross profit on the product is targeted at 60% of sales. While the new model generates a high gross profit rate, the company expects a high level of product returns of 5% on sales. Marketing is one of the major parts of launching this new model. The company decides that the marketing cost of $1.2 million will be allocated annually based on annual units of sales.
As a financial manager of the company, you’re conducting a capital budgeting analysis of the financial viability of the new model. The company shareholders expect a return on investment of 25% pa. The company pays tax at the rate of 30% on profits.
a. Use an Excel spreadsheet to calculate the following criteria, and then consider whether the new model will maximise wealth for the shareholders:
- After-tax cash flows (7 marks).
- Net present value (4 marks).
- Payback period (4 marks).
- Profitability index (3 marks).
- Is it a viable project? Explain your answer (2 marks).
b. Although the company is optimistic about the new model, the board wants to know at what level launching the new model becomes risky. Use an Excel spreadsheet and recalculate after-tax cash flows and net present value for the below scenarios:
(i) Sales units at 10% higher than estimated in the first year (6 marks).
(ii) Sales units at 10% lower than estimated in the first year (6 marks).
(iii) Comments on your findings (4 marks).
(iv) You are required to use after-tax cash flows. Explain why this requirement is appropriate in decision making (4 marks).
c. Regarding buying new production machines at $7.5m to produce the new product, you can pay all at once when the purchasing contract is signed and receive a 5% discount. You can also choose to pay monthly or quarterly. If you pay monthly, you will pay at the end of each month. The monthly payment is $260,000 in the first year and $410,000 in the second year. If you pay quarterly, you will pay at the end of the quarter and the quarterly payment is $670,000 in 3 years. Using a risk adjusted rate of 8% and an Excel spreadsheet, provide a fully worked analysis. Decide and explain which payment option should be undertaken (10 marks).
Part B (45 Marks) Report
For this assignment, you are encouraged to use the information provided on the firm’s corporate websites together with the following sources:
- OneSource: Global Business Browser (available through Library Databases: http://library.csu.edu.au/services/find-books-and-other-resources/databases/subject/business)
- Australian Stock Exchange http://www.asx.com.au/
- Yahoo Finance https://au.finance.yahoo.com/
- Reuters http://www.reuters.com/finance/markets
News sources such as those secured through the Library’s ANZ Newsstream and Factiva databases are also likely to be relevant (http://library.csu.edu.au/services/find-books-and-other-resources/databases).
Show all your calculation on the annexure.
Your report should include:
- A brief executive summary.
- Body (use appropriate headings and sub-headings as relevant sign-posts).
Australia and New Zealand Banking Group Limited (ANZ) is one of the big four banks in Australia, providing various banking and financial products and services to individual and business customers and playing a substantial role in the financial sector (Yahoo Finance, n.d.). However, together with other big banks within the sector, ANZ has been under the scrutiny of the banking royal commission.
As part of the finance team of ANZ Limited you have been tasked with reviewing and preparing a report on the capital structure of the firm to critique whether the firm has been successful in maximising wealth generation for shareholders.
Your report should be approximately 1000 words (in total) and cover the following areas:
1. Using data from the firm’s 2017 financial year annual report and other sources assume that the firm has a Beta of 1.37 (Yahoo Finance) and that capital return on the market for 2017 was 8.2%:
a. Categorise the ANZ’s current capital structure into debt and equity using its 2017 balance sheet. (6 marks)
b. Calculate the firm’s after-tax Weighted Average Cost of Capital (include any assumptions you have made in developing this metric). (4 marks)
c. Using the CAPM calculate whether the firm is providing an appropriate return given its risk. (4 marks)
d. Compare the firm’s capital structure with at least one other firm operating within a similar industry (6 marks).
2. Use five (5) key financial ratios to evaluate ANZ Limited’s performance. For each ratio used, you have to justify why these ratios are relevant to your evaluation (10 marks).
3. Outline and discuss any significant changes that have occurred to the firm’s capital structure during the past three years. What can we learn from these changes? (5 marks).
4. In the 2017 Annual Report, on page 10, ANZ’s Directors highlighted that they care about integrity and accountability. On page 35, they described the reputation risk facing by the business and how the business manages this risk. Given the impact on the share price of ANZ following the scandals identified by the banking royal commission during 2018, discuss whether you believe ANZ’s 2017 annual report adequately or properly represents the reputation risk that ANZ is facing and whether the firm has been acting with integrity and accountability. In your response critically identify some of the key findings from the royal commission and evaluate the extent to which the firm has been successful in managing its reputation risk (approx. 450-600 words) (10 marks).
Presentation – 5 marks
You are required to provide a quality presentation of the total assignment including using the correct report format for Part B, referencing throughout and a bibliography.
Please reference any sources of information you use with APA referencing style. Please refer to the CSU referencing site at http://student.csu.edu.au/study/referencing-at-csu
Online submission via Turnitin is required for this assignment. Please see details under Requirementsafter Marking Rubric.
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This assessment task will assess the following learning outcome/s:
- be able to evaluate and explain the congruence of accounting, finance and treasury functions.
- be able to explain and critique the objectives of financial management in contemporary organisations.
- be able to discuss and evaluate ethical considerations in financial dealings.
- be able to demonstrate appropriate communication skills in the context of corporate finance.
- be able to demonstrate specific technical competencies and skills in utilising quantitative techniques in financial analysis.
This assessment task covers Topics 6 through 10. This will provide an opportunity to apply the concepts in an authentic scenario that you may encounter in the workplace.
Marking criteria and standards
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Where necessary, state any assumptions you have made. Assignments should show all workings and students will be penalized for failing to do this.
Use the following rubric as guidance:
|Problem types/criteria||HD( 85% to 100%)||DI (75% to 84%)||CR (65% to 74%)||PS (50% to 64%)||FL (0% to 49%)|
|Be able to determine capital budgeting cash flows and calculate various measures relating to capital budgeting problems; Be able to identify and determine individual cost of capital and compute weighted cost of capital.||Correctly identify incremental capital budgeting cash flows and calculate various measures relating to capital budgeting problem using appropriate finance methodology with no errors. Identify and determine the cost of capital and be able to compute the cost of capital correctly with no flaws.||Correctly identify incremental capital budgeting cash flows and calculate various measures relating to capital budgeting problems using appropriate finance methodology with very few errors. Identify and determine the cost of capital and be able to compute the cost of capital correctly, with minor flaws.||Identify most of the incremental capital budgeting cash flows and calculate various measures relating to capital budgeting problems using appropriate finance methodology with few errors. Identify and determine most of the cost of capital and be able to compute the cost of capital correctly, with minor errors||Identify a majority of the capital budgeting cash flows and calculate some of the measures relating to capital budgeting problems using appropriate finance methodology. Identify and determine some of the cost of capital and be able to compute weighted cost of capital, with substantial errors.||Fail to Identify the incremental capital budgeting cash flows and fail to calculate the measures relating to capital budgeting problems using appropriate finance methodology. Fails to identify and determine most of the cost of capital. Does not demonstrate the ability to compute weighted cost of capital, contains multiple and substantial errors.|
|Be able to analyse the elements in the business environment that at a particular time cause the cost of the individual source of capital to be high or low.||Explicit and detailed analysis of all elements in business environment that cause cost of the individual source of capital to be high or low. Analysis of elements demonstrates a very broad and deep knowledge of the topic||Clear and detailed analysis of all elements in business environment that cause cost of the individual source of capital to be high or low.||Clear analysis of most key elements in business environment that cause cost of the individual source of capital to be high or low. Analysis lack explicit detail.||Limited analysis of some elements in business environment that cause cost of the individual source of capital to be high or low.||No analysis of relevant elements, fails to make links to the specific business environment.|
|Use appropriate financial technology such as excel spreadsheet to analyse data and and gather information relevant websites to conduct financial analysis.||Data used skilfully and demonstrates explicit integration into the analysis. The correct answers are derived using multiple relevant sources and the results are presented in a clear and professional manner.||Data used competently and demonstrates integration into the analysis. The correct answers are derived using relevant sources and the results are presented in a clear and professional manner.||Data sources used competently. Most correct results are derived using relevant sources but they may be some minor errors||Data sources used competently. Most correct results are derived using relevant sources but they may be some major errors||Data sources are not used competently. Most results are incorrect and derived using irrelevant sources. Contains major errors|
|Analyse business situations|
|Reach reasonable conclusion and recommendations on an alternative capital structure to lower cost of capital.||Quantitative and qualitative analysis persuasively and explicitly supports the conclusion and recommendations incorporating all factors determining cost of capital.||Quantitative and qualitative analysis is use in a clear and concise manner to make reasonable conclusion and recommendations incorporating most of the factors determining cost of capital.||Quantitative and qualitative analysis is used to make reasonable conclusion and recommendations incorporating most factors determining cost of capital.||Quantitative and qualitative analysis is used to make reasonable conclusion and some recommendations.||Quantitative and qualitative analysis is too simplistic or convoluted.|
|Use of literature/market research/evidence of reading.||Has developed and justified own ideas based on a wide range of sources which has been thoroughly analysed, applied and discussed. Reference list of an extensive rant of resources used.||Literature is presented with soundly based criticisms, in a descriptive way and indicates a good understanding of the literature.||Literature is presented with some criticisms, in a descriptive way and indicates a few limitations of understanding.||Literature/market research is presented with some criticisms, in a descriptive way and indicates few limitation of understanding.||No evidence of literature or irrelevant to the research question|
|Effectively and appropriately present your material and results and clearly convey your understanding of the results to the reader. All references and resources acknowledged and professionally presented using APA (6th ed) referencing.||Output is logically argued, and well written in a manner that very effectively conveys the key outcomes and recommendations to the end user. All references and sources acknowledged and professionally presented.||Well written argument with references and sources acknowledged and output professionally presented.||Well written with a logical argument and with references and sources acknowledged and professionally presented.||Written in clear language with references and sources acknowledged and professionally presented.||Does not meet minimum (PS) expectations|
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As per the CSU Referencing Policy, each assessment item must indicate the style of referencing required for each task. Students should be directed to a single Guide that supports the required referencing style for each assessment task. For those tasks requiring the use of APA, students should be directed to the CSU Referencing website at http://student.csu.edu.au/study/referencing-at-csu
This assignment must be submitted through Turnitin.
It is recommended that your name and student ID are included in the first page and the pages should be numbered.
Further details about submission in Turnitin are provided in online submission.