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ACC515 Assessment 2 Assignment One Rationale This assignment directly addresses some of the key learning outcomes for ACC515 including that on successful completion of the subject students will: · 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 critically evaluate mainstream financial theory and concepts; · be able to discuss and evaluate ethical considerations in financial dealings; · be able to demonstrate appropriate communication skills in the context of corporate finance; and · be able to demonstrate specific technical competencies and skills in utilising quantitative techniques in financial analysis. Therequirements of this assignment cover up to and including Topic 5 of the Online Learning materials. The assignment is designed to develop your financial analysis and problem solving skills anddevelop your written communication skills. The questions require you to apply the knowledge and tools covered in the subjecttopics in order to demonstrate your understanding of the subject content. This first assignment has a heavy focus on fundamental financial mathematics which is a critical building block to develop your capacity to understand and resolve complex finance problems. Submission Requirements High level oral and written communication skill is consistently rated the most important attribute of finance and accounting professionals by the professional bodies. It is important that text responsesare well written and that the written work (including formulae) have a professional level of presentation and formatting. The CSU ALLeN team can provide guidance of a non-technical nature to assist students who are having difficulty composing grammatically correct text responses. In the assignment students are expected to write out the appropriate formula that they have selected to solve specific finance problems and show all workings. In terms of presentation for formula a guide to using Microsoft Equation will be available on the subject Interact site and it is recommended that students adopt this tool for completing complex formulae in a professional manner within a Word Document. Task Question 1(15 marks) This question relates to material covered in the Topics1 to 3. This question addresses the 5th and 6th subject learning outcomes. For the following numerical problems, detailed answers must be shown. This involves providing a brief description of the problems, formulae used, progressive and final answers to the questions. For assignments you are expected to show your workings using the appropriate formula. a. Sandy expects to receive the following stream of cash flows from an investment over the next 5 years: End of year Cash flow ($) 1 400 2 800 3 500 4 400 5 300 If the relevant rate of interest is 9% per annum on this investment, how much should she pay for this investment opportunity? (4 marks) b. Lee has taken out a loan of $100,000 with an interest rate of 10% per annum. The loan is to be paid off by 20 equal quarterly payments;the first payment is due today. How much will Lee’s quarterly payment be?(4 marks) c. Dianne won a lottery prize of $200,000. She invested the entire amount and expects a yearly return of 10% per annum compounded monthly on her investment. Dianne will receive 150 equal monthly payments with the first payment due to be paid to her in exactly 2 years. Find the size of the monthly payments that Dianne will receive. (7 marks) Question 2(15 marks) This question relates to material covered in the Topics1 to 3. This question addresses the 5th and 6th subject learning outcomes. Following is an example of a cash flow timeline developed using the Table Function within MS Word. Please use this example as a means to develop a similar timeline in your answer to the following question Example only: % ← 5 → ← 6.5 → Cfi $1000 $1000 $1000 YEAR 0 1 2 3 Below are the expected cash flows and interest rates for the next nine years. Cash flows will occur at the end of the nominated years. Cash Flows Interest Rates Year 0 Years 1 - 2 8% Year 1 Year 2 +$ 6,500 Year 3 +$ 1,500 Years 3 – 8 6% Year 4 Year 5 Year 6 -$ 2,500 Year 7 Year 8 Year 9 +$ 10,000 Years 9 - 10 7% Year 10 i. Using the Table function within MS Word, draw a time line showing the above cash flows and interest rates (6 marks). ii. What will be the value of all these cash flows at each of the following times: · Time 1 · Time 5 · Time 10 (9 marks) Question 3(20 marks) Australian Corporate Tax Cuts This question relates to material covered in Topic1 particularly the Australian taxation system and the dividend imputation. credits. This question addresses the 1st, 2nd, 3rdand 4th subject learning outcomes. Students are expected to conduct their own research and develop their own opinions about the merits of this topic. There is no single correct answer and students will be marked on the depth of their research, the quality of their arguments (for and against), and their demonstrated understanding of the issues involved. In this complex area of financial policy Write an essay of between 600 and 1,000 words discussing the following topic. The Australian federal government plans to eventually lower the Australian corporate tax rate to 25%. The government believes that this will improve the economy and ultimately taxpayers by stimulating business investment and creating jobs. Internationally, many countries are lowering their corporate tax rates including, most recently, Donald Trump’s United States. Is lowering the Australian corporate tax rate good policy?Discuss. Give particular consideration to the Australian dividend imputation system and how the Australian corporate tax rate impacts on Australian taxpayers. There are a divergence of views and resources available for students to access. There are many items in the mainstream online media which canvas the Government’s view and also that of those opposing. However, students should not limit themselves to any particular source for their information. Community activist group Get Up! produced this humorous advertisement querying the value of providing such a large tax break to large multinational companies: https://www.facebook.com/GetUpAustralia/videos/10154926758921455/?hc_ref=ARQcaLC4GaIaKB94Z_J_iQgnVS66WwEft6R_SnTxBjiOPrdWCxUI-zaTg3d-jyPKiJY&pnref=story. Remember, there is no correct answer and individual students will be assessed on their demonstrated understanding of the issues and the depth and quality of their individual research. Question 4 (50 marks) This question relates to material covered in Topics1-5. This question addresses the 1st, 2nd and 3rd subject learning outcomes. i. Find the monthly holding period returns for 2016 for National Australia Bank (NAB), BHP Billiton (BHP) and the market (MKT) as proxied by the All Ordinaries index. The monthly holding period return is the return you would receive if you bought an asset on the first day of the month (opening price) and sold it on the last day of the month (closing price). Using Excel, graph your % return results on one graph with returns on the y axis and time on the x axis to enable comparison between options. (Use 'Close' rather than 'Adjusted Close' for the selling price.) Note: Opening price MUST equal previous month closing price (12 marks). ii. For each investment, what is the average monthly holding period return? (4 marks) iii. For each investment, what is the annual holding period return? (4 marks) iv. Calculate the standard deviation of the monthly rates of return for each share and the market (9 marks). v. Using Excel plot your results from (iii) and (iv) above with risk on the x axis and return on the y axis (3 marks). vi. If the 10 year government bond rate is 2.95% and the long term return on the market is 6.5%, assuming the beta (β) for NAB is 1.23 and for BHP is 0.90, use the Capital Asset Pricing Model (CAPM) to find the expected returns for NAB and BHP (4 marks). vii. Construct and graph the Security Market Line (SML) showing where NAB and BHP lie (5 marks). viii. Based on your findings construct a portfolio made up of 30% CBA and 70% RIO. Calculate the estimated return and β for this portfolio (4 marks). ix. Based on your understanding of the CAPM and the SML, which of these asset(s) or portfolio(s) would you invest in and which would you not invest in. Explain your choice (5 marks). · 1 Marking Rubric – ACC515 2017 60 Assignment Learning outcome Marking Criteria High Distinction Distinction Credit Pass Fail 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 critically evaluate mainstream financial theory and concepts; be able to demonstrate appropriate communication skills in the context of corporate finance Ability to identify issues in modern finance theory and apply the appropriate finance technique. Understanding of the theoretical issues underpinning financial management. Appropriate and professional referencing of sources. Ability to present your answers neatly, effectively, and appropriately using computers. Correctly identify underlying financial management issues and all of the potential implications of finance data/ results. Output and recommendations are well researched, 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. Correctly identify underlying financial management issues and all of the potential implications of finance data/. Output and recommendations are well researched and include well written arguments with references and sources acknowledged and output professionally presented Correctly identify underlying financial management issues and major implications of finance data/results Output and recommendations are well written and logically argued with references and sources acknowledged and professionally presented Identify underlying financial management issue and some implications of the reported finance data/. Written in clear language with references and sources acknowledged and professionally presented Fail to identify underlying financial management issue. Incapacity to interpret the results of quantitative problem analysis in a manner that adds value to the accounting data/results developed for management be able to demonstrate specific technical competencies and skills in utilising quantitative techniques in financial analysis Ability to identify type of finance problem and apply appropriate financial management technique to solving problem. Ability to correctly interpret the results of your analyses and to clearly convey your understanding of the results to the end user Correctly identify underlying financial management problem and identify and use appropriate finance technique to accuratelysolve problem. High level ability to interpret the results of quantitative problem analysis in a manner that adds value to the data/results. Use of appropriate formulae with no errors. Excellent standard of formatting enhancing the logical presentation of the data output enhancing comprehension by report end users Correctly identify underlying financial management problem and identify and use appropriate finance technique to accurately solve problem. Ability to interpret the