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Microsoft Word - Business Finance - Assignment part 1 - SP4 2019 (Questions) (Final).docx University of South Australia SCHOOL OF COMMERCE Business Finance (BANK 2007), SP4, 2019 On Campus and Off Campus Students Assignment (Part A) — Topics 1-3 To be completed and submitted individually Due Date: 5 pm (S.A. Time) Friday 5 July 2019 Instructions a) Your answers for this assignment are to be typewritten in a new Microsoft word document. b) Read the Assignment Instructions that can be accessed from the Course Outline. c) Marks will not be given for any calculation type of questions without showing full calculations. d) Ensure you keep a copy of your assignment. Please include your name, student ID number and page numbers in the footer of your document before saving and submitting this file via Gradebook on the learnonline course website. e) The report must have 1.5 line spacing with margins of two (2) centimetres. Marks will be deducted for both bad grammar and poor spelling. General report formatting requirements of any good report will be expected. It is important that you document how you arrived at your answer, particularly detailing calculator key strokes used for your calculations. For some problems, it is beneficial to draw a time line to identify the amount and timing of cash flows. f) Most of the marks for each question will be given for the process used to arrive at your answer. Therefore, if you just provide an answer that is wrong and there are no supporting details as to how you arrived at that answer, you won’t get any marks. But if you have detailed your process (which may have been correct but you made some error with your calculations) then you have the opportunity to get some marks for the question. If you provided a correct formula but the workings are wrong, you won’t get marks for just providing a correct formula. g) Ignore inflation in your answers and where possible interest rates should be calculated as percentages to 4 decimal places (e.g. 1.2678%). h) You must ensure that your assignment answers are your own work. The Academic Integrity section of the Course Outline Booklet details the various University policies that will apply to academic misconduct. Please refresh yourself with what is meant by Academic Integrity and Misconduct. a. Ensure that you have properly acknowledged the work of others that enabled you to complete your assignment. A finance assignment that mostly comprises calculations is no different from a written (e.g. essay) assignment. b. You must acknowledge by a reference list and/or bibliography all texts and sources that provided you with the formulae etc. to do your calculations. This includes directly copying material, closely paraphrasing, submitting another students work in whole or in part or using another person’s ideas, work or research without acknowledgement. The final assignment marks will be deducted if no references or inadequate references have been provided. (UniSA APPM, 2019) c. You must complete your own work. Working with friends and peers is a good way to learn, but the communication of the findings, results and explanation must be your own work, and be independently done. 2 | P a g e Brief: You have been employed to provide a comprehensive analysis and discussion on a number of investment scenarios provided by your client. As the client has little knowledge of finance, it is your responsibility to provide the theoretical and mathematical calculations for the investment(s) they provide and the theoretical questions they pose. Background: Your client, whom you are writing the report for, is a nurse by profession. She has two children - aged 18 and 10, with a steady income. Her knowledge of financial theory and financial mathematics is almost non- existent. She (and her partner) is in a position to invest into sound investments for both short-term and long-term returns. She has done some research and has found a number of investments that she wishes to have analysed. As such, you do not have to search for viable investments for her. You also note that she wishes to invest into securities for retirement, with only the viability of the investment(s) should be considered in this report. Lastly, as we do not know her (and her partners) financial position, it is impossible to know how many of these investments they can purchase / invest. Therefore, you are expected to provide advice on each investment in isolation from the other investments, i.e. not as a portfolio of investments. Clients Financial Questions: (25 marks) • Why is it not possible to determine the future value of a perpetual stream of cash flows? (6 marks) • How can we make a financial decision relating to cash flows occurring at different points in time? (4 marks) • Your client has been given the choice of borrowing at a nominal interest rate of 10% p.a. compounded annually, or 9.2% p.a. compounded monthly, which should your client choose? Explain the reasons to your client with clear theoretical explanations. (6 marks) • How do we handle a situation when both the compounding period and the cash flow interval are known but both are less than a year and not equal (i.e. different frequencies) to each other? (5 marks) • Can the nominal interest rate ever be negative? Can the real interest rate ever be negative? Explain. (4 marks) 3 | P a g e Clients Investments: (40 marks) 1. Your client has been offered the opportunity to invest in a project which will pay $1,000 per month at the end of months 1 to 10 and $2,000 per month at the end of months 21 to 30. The interest rate over the period of the investment is a nominal rate of 8% p.a. If your client can buy the investment today for $25,000 would you recommend that this is a good investment? Why or why not? (12 marks) 2. Your client’s second child is planning to study a four year Bachelor degree in Physiotherapy when she graduates from high school, 7 years from now. She anticipates that she will need $10,000 at the beginning of each of her four years of university to pay for tuition fees and study expenses and have some spending money. She has made an arrangement with your client to do the household chores if your client deposits $3,500 at the end of each year, for the next 7 years in a bank account paying 8% interest p.a. Will there be enough for your client’s daughter to pay her university expenses? If there is not enough, how much does your client need to deposit at the end of each year in order to provide sufficient funding for her daughter’s university education? Assume the rate of interest stays at 8% during her university years. (10 marks) 3. Your client has just won the Golden Basket lottery which gives the choice of prize being either a house and land package with a current market value of $500,000 or receiving cash totalling $600,000 paid in three instalments of $200,000, $150,000 and $250,000 respectively. If she chooses the cash alternative, the first of amount will be paid at the end of two years from today’s date and the next and subsequent amount will be paid at the end of three years from the date of the previous instalment. If she uses a nominal rate of 6.5% p.a. compounded monthly as her time value of money, use appropriate calculations to determine whether she should accept the house and land package or the cash instalment alternative. She would like you to draw appropriate timeline(s) to demonstrate your calculations. (18 marks) 4 | P a g e Business Finance Study Period 4, 2019 Assignment Part A Student Name: ID#: Key Components of the assignment Very Good Good Fair Poor Comment A Introduction: (10%) Purpose and limitations explained B Standard of analysis and discussion: • an appropriate standard of discussion relating to the financial questions (25%) • correct and informative analysis of the client’s investment opportunities (40%) C Conclusion and Recommendation (10%) D Standard of presentation (5%) (an appropriate standard for the report) E Standard of language (5%) (an appropriate standard of grammar and correct spelling) F Standard of Referencing (5%) (an appropriate standard within text and in the reference list) Penalties Total Mark /100 General Comments