MA514 Business Finance XXXXXXXXXXPage 4 of 4 Assessment Details and Submission Guidelines MA514 Business Finance School Business Course Name Master of Professional Accounting (MPA) Unit Code MA514...

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MA514 Business Finance Page 4 of 4 Assessment Details and Submission Guidelines MA514 Business Finance School Business Course Name Master of Professional Accounting (MPA) Unit Code MA514 Unit Title Business Finance Trimester Trimester 3, 2018 Assessment Author Dr Jayasinghe Hewa Dulige Assessment Type Report Assessment Title Assessment Task 3 – Assignment [individual] Unit Learning Outcomes Addressed: c. Demonstrate strong conceptual corporate finance knowledge to analyse and interpret advances in theory for professional practice. e. Communicate relevant high level finance knowledge with other professionals. Weight 20% Total Marks 100 Word limit 1500-2000 Release Date Week three Due Date Week 6 Submission Guidelines · This assignment should be completed individually. · All work must be submitted on Moodle by the due date along with a completed Assignment Cover Page. · The assignment must be in MS Word format, 1.5 spacing, 11-pt Calibri (Body) font and 2 cm margins on all four sides of your page with appropriate section headings. · Reference sources must be cited in the text of the report, and listed appropriately at the end in a reference list using APA 6th edition for the School of Business. Extension If an extension of time to submit work is required, an Application for Special Consideration and supporting documentation must be submitted directly to the School's Administration Officer via your MIT AMS login [https://online.mit.edu.au/ams/default.aspx?ReturnUrl=%2fams%2f]. You must submit this application no later than three working days after the due date of the specific piece of assessment or the examination for which you are seeking Special Consideration. Further information is available at: http://www.mit.edu.au/about-mit/institute-publications/policies-procedures-and-guidelines/specialconsiderationdeferment Academic Misconduct Academic Misconduct is a serious offence. Depending on the seriousness of the case, penalties can vary from a written warning or zero marks to exclusion from the course or rescinding the degree. Students should make themselves familiar with the full policy and procedure available at: http://www.mit.edu.au/about-mit/institute-publications/policies-procedures-and-guidelines/Plagiarism-Academic-Misconduct-Policy-Procedure. For further information, please refer to the Academic Integrity Section in your Unit Description. Assessment Cover Sheet Student ID Number/s: Student Last name/s: Student First name/s: Course: School: Unit code: Unit title: Due date: Date submitted: Campus: Lecturer’s Name: Tutor: Student Declaration I/We declare and certify that: 1. the work contained in this assessment is my/our own work/group work, except where acknowledgement of sources is made; 1. this assessment has not been submitted previously for academic credit in this or any other course; 1. I/we have read MIT’s Plagiarism and Academic Misconduct Policy and Procedure, and I/we understand the consequences of engaging in plagiarism, collusion and contract cheating; 1. a copy of the original assignment is retained by me/us and that I/we may be required to submit the original assignment to the Lecturer and/or Unit Co-ordinator upon request; I/we have not plagiarised the work of others or participated in unauthorised collaboration or contract cheating when preparing this assessment. MIT ID Signature Date Assessment Task Description A new finance manager has been appointed to the firm of Simpsons Ltd (SL), which is a public company. Board of directors approved the proposal of purchasing a new plant to the factory submitted by company CEO. CEO has instructed his newly appointed finance manager to organize to sell $ 5 million in new 12-year bonds to finance the purchase of the plant. The bonds make yearly payments. CEO instructed finance manager that he is indifferent towards receiving full amount ($ 5M.) or 95% of par value. By analysing similar risk bonds issued, Finance manager decided Yield to maturity (YTM) to be 5%. Furthermore, finance manager has to decide about which bond features SL should consider and what coupon rate the bond issue is likely to have to meet company’s financial requirements. Although finance manager is aware of the bond features, she is uncertain about the costs and benefits of some features, so she is not clear how each feature would affect the coupon rate of the bond issue. Required You are finance manager’s assistant, and she has asked you to calculate the coupon rates if bonds currently sell for 95% of par value and par value respectively, and prepare a detailed report to finance manager describing the effect of each of the bond features on the coupon rate of the bond. She would also like you to describe any advantages or disadvantages of each feature. In your report 1. Explain how a bond issuer decides on the appropriate coupon rate to set on its bonds. Explain the difference between the coupon rate and the required return (YTM) on a bond. 2. Calculate Coupon rates to set on its bonds (95% of par value and par value, respectively), and evaluate. 3. Examine bonds with different features. (You should critically examine at least 5 features highlighting their implications for bond holders and issuers drawing on the literature from agency theory.) This assignment must be written/structured in the form of a ‘business report’. That is, it must have a/an; (a) Executive summary (between 100 to 150 words), (b) Introduction that; Succinctly summarizes this assignment’s topic and its key issues, controversies, etc. (no more than 200 words), and (c) Body that addresses all the requirements – see above 1-3 (no more 1500 words), (d) Conclusion that sums up the mains issues of this assignment (no more than 200 words), and (e) Reference list containing all cited works. (f) Proper English Grammar, appearance, format, etc. At least 4 recognized journal articles should be cited. Marking criteria: MA514 / Business Finance /Semester T1, 2020, Assignment (Individual) Name: Student Number Assessment Criteria Total Marks Marks awarded Criterion 1 - Structure and Clarity of the Report/Assignment · introductory paragraph · logical flow of clarity and structure of ideas and arguments · appropriate use of paragraph and headings to explain and discuss ideas · appropriate concluding paragraph 3 2 2 3 Total marks for criterion 1 10 Criterion 2 - Body/contents 1. Explain how a bond issuer decide on the appropriate coupon rate to set on its bonds. Explain the difference between the coupon rate and the required return (YTM) on a bond. 2. Calculate Coupon rates to set on its bonds (95% of par value and par value respectively), and evaluate. 3. Examine bonds with different features (Should critically examine at least 5 features highlighting their implications for bond holders and issuers) (5 marks x 5) 10 20 25 Total marks for criterion 2 55 Criterion 3 - Research and Analysis · quality of research undertaken · accuracy and depth of analysis · appropriate use of in-text and end text referencing · quality of information sources · appendices 7 8 5 5 5 Total marks for criterion 3 30 Criterion 4 - Presentation · layout · formatting · spelling/grammar · proof read · professional format 1 1 1 1 1 Total marks for criterion 4 5 Total Assessment task marks 100 Total Unit marks 20 Other Comments Using Technology for Assessment Rationale Activities Technological tools selected · Industry knowledge & skills · reflection on learning · feedback on performance · practice of critical thinking · check for plagiarism · problem-based learning · online forum on Moodle · Turnitin © MIT August, 2019T1-2020
Answered Same DayApr 29, 2021MA514

Answer To: MA514 Business Finance XXXXXXXXXXPage 4 of 4 Assessment Details and Submission Guidelines MA514...

Kushal answered on May 01 2021
153 Votes
Introduction
Firms issue bonds to raise the funds at a lower cost as compared to equity. This means of financing present additional risk of the interest rates and term structure. To make sure that the issuers protect their interests against the business cycle changes, macroeco
nomic variables like inflation, they add different features to the bonds. The bond pricing can be done using the discounting of the future cashflows and adding them back. The cash flows are the coupon payments and that can be decided by the issuer based on the characteristics they are willing to include.
Price of the bond –
Here, we can assume that out of the funds that need to be raised about $5 million, we will need to raise as many as 52,632 bonds at the price of 95. We will have to decided upon the coupon rate which can generate the 5% yield to maturity for the 12 year bond. The frequency of the coupon payment is annual and there will be 12 coupon payments. At the end of the 12th year, there will be repayment of the principal to the bondholders.
The price of the bond is the present value of the all future cash flows. We can use the following formula to understand what coupon rate is required to make sure that we achieve 5% rate of return for this bond.
Price = Coupon1 / ( 1+ YTM ) + ……. + Coupon12 / ( 1+ YTM ) ^12 + Principal / (1+ YTM ) ^ 12
95 = x% * 100 / ( 1 + 5%) + …. + x% * 100 / ( 1 + 5%)^12 + 100 / (1 + 5%)^12
Solving for this,
We will get the value of this coupon rate equal to 4.44%.
     
    t=1
    t=2
    t=3
    t=4
    t=5
    t=6
    t=7
    t=8
    t=9
    t=10
    t=11
    t=12
    Coupon Payment
    4.4
    4.4
    4.4
    4.4
    4.4
    4.4
    4.4
    4.4
    4.4
    4.4
    4.4
    4.4
    Principal Repayment
    0.0
    0.0
    0.0
    0.0
    0.0
    0.0
    0.0
    0.0
    0.0
    0.0
    0.0
    100.0
    Present value of coupon Payments
    4.2
    4.0
    3.8
    3.6
    3.5
    3.3
    3.2
    3.0
    2.9
    2.7
    2.6
    58.2
    Price of the bond
    95
     
     
     
     
     
     
     
     
     
     
     
    Face Value
    100
     
     
     
     
     
     
     
     
     
     
     
    Coupon Rate
    4.44%
     
     
     
     
     
     
     
     
     
     
     
    Yield to Maturity
    5%
     
     
     
     
     
     
     
     
     
     
     
Since the bonds are trading at a discount , the coupon rate would be lesser than the discount rate which is the yield to maturity. If the coupon rate is equal to the YTM, then the bonds trades at the issue price which is 100.
Difference between the YTM and coupon rate -
YTM is equivalent to the internal rate of return where we invest the coupon payments at the same rate of YTM. YTM is the required rate of return on a bond that the bond holders generates for holding the bond for the maturity period. Coupon rate is the rate at which the issuers provides the coupon payments to the holders.
Features of the bonds
Firms while issuing...
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