HI5002 Finance for Business Assignment Sample
Word limit 3,000 words ± 500
Due Date Final Submission of Group Assignment: Week 10
I. Assignment Tasks
This assignment task is written reports that include 3 parts:
Part 1: Reflective journal of one assigned topic among 9 first topics of the course.
Part 2: Fact finding of securities market in Australia.
Part 3: Capital Budgeting and Project Evaluation.
II. Contribution of group members
Each group needs to ensure that members are equally contribute in group work (10% each for a four-member group). Non-responding and non-contributing members need to be reported by groups to Unit Coordinator for removal from the groups before week 10.
Percentage of contribution and tasks (for example: Part 1. Question 1 and 2) done by each group member must be agreed by all group members and specified clearly in the table of Information for HI5002 Group Assignment
III. Assignment structure and questions
The assignment should cover the structure and contents described below.
A brief introduction of your group’s work: the purpose of assignment, key findings and structure of the assignment (not more than 150 words)
Part 1. Reflective journal of a selected topic among 9 first topics of the course (13 marks)
Your group is required to write a reflective journal of what you had learnt in a tutorial session that covers one assigned topic among 9 first topics of HI5002 course. Once your groups are formed on Black Board, you need to contact HI5002 Unit Coordinator to get the topic assigned to your groups.
The following requirements must be met for this Reflective Journal to be marked:
1) Correct name of the assigned topic as per syllabus, lectures and tutorials must be provided
2) Correct time, date and name of the lecturer who delivered the tutorial session should be provided.
3) Evidence of your discussion with HI5002 Unit Coordinator on the assigned topic for Part 1. Reflective Journal: screen shots of email exchanges submitted in an appendix to your assignment.
To complete the reflective journal, answer the following reflective questions:
Question 1: What are the financial concepts you have learnt in the session? Briefly explain the concepts? (please note that only list the financial concepts discussed in the interactive tutorial session, not all the financial concepts discussed in the recorded lecture) (3 marks)
Question 2: What are the important issues your lecturer reminded you to note down and pay your special attention to regarding the financial concepts/formulas/calculations/skills/techniques you have learnt in that session? (5 marks)
Question 3: How many practice questions did you work on the class with your lecturer? Briefly summarize the content of that questions and what you have done with your lecturer in practicing with those questions. What are the problems did you encounter when you worked on that practice questions? (3 marks)
Question 4: How can you potentially apply what you have learnt in that class in your real life? (2 marks)
Part 2. Fact finding of securities market in Australia (10 marks)
You are required to go to Online Portals of ASX and ASIC, explore the data and information in the portals and perform the following tasks:
Task 1. Search for guidance of ASX on securities listing and answer the questions assigned to your groups. Students are required to attend the tutorial session in week 9 to get the guidance from lecturers about which questions they need to answer in this Part. This information will not be available in tutorial solutions (3 marks).
Task 2: Search for guidance of ASX on ASX participants and answer two questions assigned to your group. Students are required to attend the tutorial session in week 9 to know what are the questions you need to answer in this Task. This information will not be available in tutorial solutions. (3marks).
Task 3: Search for information in the ASIC Portal for Finance Professional and answer the questions assigned to your group. Students are required to attend tutorial session in week 9 to get the guidance from lecturers about the questions your group will need to answer in this Task. This information will not be available in tutorial solutions. (2 marks)
Task 4: Search for information in the ASIC Portal for Consumers and answer the questions assigned to your group. Students are required to attend tutorial session in week 9 to get the guidance from lecturers about the questions your group will need to answer in this Task. This information will not be available in tutorial solutions. (2 marks)
Guidelines – Adapted Harvard Referencing
1. Reference sources in assignments are limited to sources which provide full text access to the source’s content for lecturers and markers.
2. The Reference list should be located on a separate page at the end of the assignment and titled: References.
3. It should include the details of all the in-text citations, arranged alphabetically A-Z by author surname. In addition, it MUST include a hyperlink to the full text of the cited reference source.
In this report, there will be a discussion on topic 7 of the course. While discussing that topic, many things will be considered, such as the lessons learnt, essential points discussed, and many more. Apart from that, questions are being answered that were asked about ASX and its operations for finance assignment help.
Part 1: Reflective journal
The two main topics discussed in the Interactive Tutorial Session Week 9 – topic 7 are incremental cash flow, value drivers, and scenario analysis. Incremental cash flow is the additional cash flow that a firm can generate from a new project (CHENG, 2021, p251(1)). Therefore, incremental cash flow is the difference between the cash flow of the firm with the project and the cash flow of the firm without the project. In the incremental cash flow, a number of things need to be ignored and considered. Sunk cost, overhead cost, and interest payment are the three things that are required to be missed.
On the other hand, working capital investment should be considered because it will lead to an increase or decrease in the cash flow of the company. The opportunity cost should be considered as well because there could be a difference in cash flow due to the different opportunities that the company has possessed (INDAH and KARPRIANA, 2021, p3(5)). The sunk cost is required to be ignored since it has been incurred already and will not be recovered. The value drivers assist the managers in refining the forecasts as well as making corrections to the project. For instance, variable cost per unit could be a value driver that could increase or decrease the cash flow depending on whether it has increased or decreased. Scenario analysis can be reframed to be stated as situational analysis, where changes in the value drivers of a project change the forecasted cash flow of the company. There can be worst-case or best-case scenarios. In the case of a worst-case scenario, the value drivers, such as cost, will increase, which will ultimately decrease the cash flow. On the other hand, in the best-case scenario, the cost could decrease, or the sales might increase, which would increase the cash flow. The worst-case and best-case scenarios will also consider the base case.
The lecturer put an emphasis on the things that are required to be ignored and considered during the calculation of incremental cash flow. She had given important examples of sunk cost, which is market research cost. One of the important things that she had asked to focus on was an example of sunk cost based on Toyota company. She stated that suppose Toyota is trying to launch a new product. However, before launching the product, the company had conducted market research that cost the firm 200000 dollars. Therefore, this market research cost is a sunk cost since it cannot be recovered. This example is an important one because it will help us understand what sunk cost is in relation to the business world. While discussing the things that are required to be considered during the incremental cash flow, one of the things that she explained and asked us to pay attention to was opportunity cost. She emphasized the concept by examples of how there could be a different amount of cash generation due to the different decisions being taken by the company.
The lecturer also discussed the scenario analysis, where she discussed the worst-case and best-case scenarios. While discussing that segment, she also mentioned that during the sensitivity analysis, there is no requirement to calculate the base scenario again, thus making the calculation simpler. The lecturer had given the emphasis on the analysis of the worst case and best scenario. She explained that if, in the worst-case scenario, the NPV is 0, then the management will consider the project. It must be kept in mind that even though the NPV is 0, it is 0 in the worst case; therefore, it will definitely be high when the scenario is the base case or best case (ILLÉS, 2020, p41(1)). She asked us to pay attention to the fact that in the case of very low NPV, the company will be considering taking alternative actions that would reduce the probability of the worst case.
There are a number of short questions being discussed in class. The quiz consisted of 10 questions, out of which there were five questions that were filled in the blank format, and the other five were true or false questions. For instance, question 7 of the quiz asked whether or not inventory turnover is one of the value drivers of a company. Question 10 asked whether or not the fixed or indirect cost varies with the increase or decrease in sales revenue. Similarly, there were other questions being asked. Apart from these small questions, there was a numerical question based on scenario analysis. In the scenario analysis, it was asked that there is a company that is considering a project where products will be sold at an average price of 25 dollars per unit. The company has assumed to sell 200000 units annually for the upcoming five years. Also, there is an estimate of the investment that the company would require to start the project has been stated. The total cost amounts to 1.5 million dollars. Other information about the residual value and working capital has been given as well. The depreciation method, variable cost per unit, fixed cost, rate of discount, and rate of tax have been disclosed as well. There are two scenarios that have been taken into consideration which are best case and worst case. In the worst-case scenario, the annual sales and price per unit have decreased, and the fixed cost and variable cost per unit have increased. In the best-case scenario, the sales and selling price have increased, and the variable cost and fixed cost have decreased. During the discussion of this question, the lecturer asked us first to calculate the NPV of the project based on the base case. After the base case results were found, she emphasized how the best- and worst-case scenarios should be taken care of. Firstly, the unit sales decreased to 150000, and the price per unit decreased to 23 dollars. The cost increased as per the given information. Then NPV in the worst case was calculated. After that, the best-case scenario had to be considered where the unit sales were increased to 250000, and the unit selling price was increased to 28 dollars. The NPV was calculated, and it was found that the NPV in the worst case is really low compared with the best case. One thing that the lecturer wanted us to focus on was that the discount rate and tax rate would remain the same. One of the problems that I encountered during the solving of the question was whether or not the fixed cost increased by 50000 dollars in the first year, and then it remained the same for the other years. Apart from that, the lecturer made us understand the question really well. Hence, I did not face any problems.
In real life, I want to work in the finance department of an organization; therefore, this kind of knowledge about incremental cash flow or scenario analysis will help me strategize. For instance, in the future, when I get the opportunity to make a decision on behalf of the firm on whether or not the company should make an investment in a potential project. At that time, I will be calculating the NPV of the project, and in addition to that, the best case and worst case will be calculated as well. Therefore, I will have comprehensive data on the change in the NPV of the project based on the changes in the value drivers. Also, I will be better at identifying how different value drivers affect the NPV of the company. In doing so, if there will be any value driver that is required to be focussed more often by the company, then I will be considering that and make changes accordingly.
Part 2: Fact findings of the securities market in Australia
Seven-step listing process
The seven steps for listing in the ASX are discussed below:
Step 1: Appointing advisers
A team of advisers who are experienced in the listing of stocks must be considered. The team of professionals will have a manager, lawyer, and accountant. The time required for this step is one week.
Step 2: Preparing for the IPO
This step will include drafting the prospectus, listing the application, and documents that are necessary. In some cases, the company can also have to apply to the ASX for the in-principle advice to gauge the company's suitability for listing in the ASX. The time required for this step is nine weeks.
Step 3: Commencing institutional marketing
As per the corporation's act, there is a limitation in the advertisement of IPO before the company can lodge the prospectus with the ASIC. The time required for this step is three weeks.
Step 4: Lodging the prospectus with the ASIC
From the date of lodgement, a seven-day period known as the exposure period starts. During that period, the prospectus of the company is being prepared. The prospectus becomes available to the public, and the firm will not have the right to accept any application under that offer. The exposure period can be extended to 14 days by the ASIC. The time required for this step is two weeks (Australian Securities Exchange, 2022).
Step 5: ASX will process the listing application
The company will have to lodge the formal listing application with ASX within seven days of lodging the prospectus with the ASIC. The time required for this step is six weeks.
Step 6: Offer starts, and the company will commence marketing to the retail investors
After the exposure period, the offer to the retail investors will be made. It is open for five weeks. This process takes 3 to 5 weeks.
Step 7: Offer closes, and the process of listing on ASX commences
The offer of the company closes, there is the allocation of shares, and the company is listed on the ASX (Australian Securities Exchange, 2022). After this, the trading of the company on the ASX commences. The estimated time required for this process is two weeks.
(1) Securities lending
Securities lending is a way of loaning shares, derivatives, commodities, and many more to other investors or companies. Securities lending will require the borrowers to put up collateral in the form of shares or cash, or a credit letter. When the shares are being loaned, then the title and ownership of the shares are transferred to the borrowers as well. A fee for the loan, which is also known as the borrowing fee, is being charged to the company as well by the brokerage to the client who is borrowing the shares in addition to the interest charged for the loan.
(2) Non-settlement days
As per the ASX settlement rules, a business day implies a day apart from Saturday, Sunday, Good Friday, and any other day that the ASX Settlement has notified (Www2.asx.com.au, 2022). Therefore, the non-settlement days are the days when ASX will not be conducting any business. If ASX has declared that on 1st of October is an ASX Settlement Non-business day, then that day will become an ASX non-settlement day when it will not operate for the market.
General obligations of Australian financial services licensees
Any Australian Financial Services Licensee need to follow some general obligations under s912A (1) of the Corporations Act 2001 (Corporations Act). Following are the obligations that are needed to be followed:
• Do all the necessary things that will ensure the efficiency, honesty and impartiality of all the financial services covered by the licence are provided to the licensee s912A(1)(a));
• Having a proper and sufficient amount of management in order for any sudden rise of conflict of interest in relation to the actions or activities followed in the provision of financial services by the licensee or their representative. (s912A(1)(aa));
• Acting according to the conditions given on the licence of a licensee (s912A(1)(b));
• Acting according to the laws of the financial services (s912A(1)(c));
• Taking proper measures that will ensure the compliance of the representative (insurance providers) with the financial service laws. (s912A(1)(ca)) (Www5.austlii.edu.au, 2022);
• Keeping in hand enough financial, technological and human resources, those will provide the financial services covered by the licence of the licensee and take responsibility for the supervision (s912A(1)(d)).
The following obligations will not be applicable if a person is supervised by the Australian Prudential Regulation Authority (APRA) unless the person is the holder of an ARPA license and they have been provided with the authority to operate managed investment schemes.
A reverse mortgage is basically a financial agreement that lets the older people of Australia hand over equity in their home in exchange for regular payments that can be considered retirement income (Asic.gov.au, 2022). The repayment of such a loan is not expected sooner until the person receiving the mortgage leaves the house or dies. A reverse mortgage is 2% more expensive than a general home loan, and the interest upon the amount is calculated as compound interest because the chances of repayment are almost none. According to ASIC, the rate of demand for Reverse mortgages has increased since the global crisis earlier, which was $1.3 billion in 2008, that increased to $ 2.5 billion by 2017. The people who were borrowing money as a loan have very less knowledge about the risks and the interest amount, they would have to pay in their future, and that would make them financially weak to lead their future needs. A reverse mortgage works opposite to that of a loan, where the borrower pays money to the homeowner. The owner gets an approximate amount of monthly income to live his life and meet his needs. The choice of payment option is made by the owner, and they need to repay the interest percentage amount in the principal amount provided by the money lender. Over time as time passes, the debt amount of the owner keeps on increasing, and the equity of the house goes down gradually.
Part 3: Capital budgeting and project evaluation
3.1. Capital budgeting decision making
Considering the given case scenario, it is identified that the company should adopt the net present value analysis to select the equipment that it should purchase. Based on the case study, no income-related information is provided there for the project, which has the minimum net present value regarding the expenses that should be selected by the organization if the income is indifferent in both cases. The reason behind the net present value analysis is based on the following aspect.
? The net present value analysis considered the investor's earnings requirement for making the investment.
? Secondly, under the net present value analysis, the critical aspect regarding inflation, change in product output, sales price, variable cost, and other expenses are included in the decision-making process, which enhances the result (KIM et al., 2021, p47(2)).
? The net present value analysis provides a pivotal decision-making process because if the net present value of the project is not positive, then it should not be invested; on the other hand, the other capital budgeting techniques and tools depend on comparisons.
? To calculate the net present value, the discounting rate is required to be calculated; however, there is no defined parameter to calculate the discount rate. Most organizations consider the cost of capital as the discount rate; however, the change in capital structure and the market environment will change the discounting rate applied at the time of selecting the project (CHUNDI and SHILPA, 2022, pp68(1).
? Secondly, under the net present value analysis, the investment size is not considered, which is conducted in the internal rate of return and the payback period to determine the preferability of a particular project.
Based on the calculation and the net present value analysis, it is identified that the cost of Project A is comparatively lower than the present value of the total cash flow of Project B. Hence the company should select Project A.
See Appendix 1:
3.2. Risk analysis and project evaluation
Base case scenario
Under the base-case scenario, if it is assumed that the company's assumptions are correct, then the project will generate a net present value of $19225678. Therefore, at a discounted rate of 12%, the company can easily select the project because it is delivering more than the investor's requirement.
Worst Case scenario
Under the worst-case scenario, the company has encountered a decrease in production units by 10% along with a decrease in sale price by 10%, whereas the variable cost and the fixed cost of production increased by 10%, which is impacting the contribution and the net profitability. Even after those adjustments, the proposed project has a positive net present value of $13445960.39. Therefore, the company can select the project for investment because it is delivering more than the required profit in different adverse scenarios.
Best case scenario
In the best-case scenario, when all the preferred assumptions in terms of unit sales price, variable cost per unit, and the fixed cost per annum are in favor of the organization, the company's net profitability is expected to increase because even in the base case scenario the company has delivered a good amount of net present value. Dissimilar identification is made in the case of the best-case scenario where the company’s net present value has increased to $25835576.
Based on the calculation and the discussion, it is identified that the potential project is sensitive to the business movement; however, even in adverse situations, it delivers a good amount of profit to the investors in comparison with its discounting requirement; therefore, the company can easily select this project for the investment purpose (FA, SHAO and LAN, 2021, pp 7(2)).
Based on the discussion above, it is evident that the things that were taught in topic 7 were extremely important in the practical life of a person. Learning about scenario analysis has made me realize that I can use this knowledge in my day-to-day life as well when I invest in anything. Apart from that, the discussion on the other questions is an indication that the steps taken to list a company in the ASX are simple if the team who is responsible behind is very efficient. Also, the discussion has helped me understand a number of concepts that can potentially help me in the future.
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