FIN203_ Assessment 2_v1.docx Assessment Information COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 This material has been reproduced and communicated to you by or on behalf of Kaplan Business...

Main question part 1 and part 2


FIN203_ Assessment 2_v1.docx Assessment Information COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (‘Act’). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Kaplan Business School is a part of Kaplan Inc., a leading global provider of educational services. Kaplan Business School Pty Ltd ABN 86 098 181 947 is a registered higher education provider CRICOS Provider Code 02426B. Assessment 1 Information Subject Code: FIN203 Subject Name: Corporate Finance Assessment Title: Assessment 2: Individual Assignment Weighting: 25% Total Marks: 60 marks Due Date: Friday, Week 10 on the portal by 19:55pm (AEST) .Assessment Description Answer the questions below with reference to the following sources and submit: 1) A word document with answers to the below questions on Turitin (MyKBS) 2) An excel document with supporting calculations in the drop box on the portal (in Assessment table) Source 1: Apple Annual Report Apple 2018 Annual Report: https://s22.q4cdn.com/396847794/files/doc_financials/quarterly/2018/Q4/10-K-2018-(As-Filed).pdf Source 2: Apple plans to build a store in Melbourne 'Terrible': Apple plan slammed by a Fed Square designer https://s22.q4cdn.com/396847794/files/doc_financials/quarterly/2018/Q4/10-K-2018-(As-Filed).pdf Assessment Information COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (‘Act’). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Kaplan Business School is a part of Kaplan Inc., a leading global provider of educational services. Kaplan Business School Pty Ltd ABN 86 098 181 947 is a registered higher education provider CRICOS Provider Code 02426B. One of the architects who designed Federation Square has spoken out for the first time against plans to demolish one of the square's key buildings to build an Apple mega-store. Architect Peter Davidson was one of two designers behind Federation Square when it was commissioned by then premier Jeff Kennett in the 1997. Completed in 2002 amid much criticism, many have come to love the square's landmark buildings and public spaces. Now, on the cusp of a decision on whether to allow one of the square's buildings to be demolished for Apple, Mr Davidson has voiced his opposition. In the Yarra building's place, under a plan designed by British architecture firm Foster and Partners, a new Apple “global flagship store” would be built. The new building, exclusively for Apple, would help deliver more public space and better integration between the Yarra River and the square. Mr Davidson said he would support the plan if Apple, instead of demolishing the building, chose to move into it. On Tuesday, Melbourne City Council will vote on whether to oppose demolition of the Yarra building. Federation Square management have applied for a waiver of heritage rules to knock it down. A council officers' report said demolition should not be allowed because the Apple store “does not successfully form part of an assembly of campus buildings, rather due to its architecture and siting, it presents as a stand-alone building”. “The proposed replacement building does not adequately contribute to the cultural and heritage significance, character and appearance of Federation Square and does not satisfy the requirements of local heritage policy.” Source: https://www.theage.com.au/politics/victoria/terrible-apple-plan-slammed-by-a-fed-square-designer-20190304- p511os.html https://www.theage.com.au/politics/victoria/terrible-apple-plan-slammed-by-a-fed-square-designer-20190304-p511os.html https://www.theage.com.au/politics/victoria/terrible-apple-plan-slammed-by-a-fed-square-designer-20190304-p511os.html Assessment Information COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (‘Act’). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Kaplan Business School is a part of Kaplan Inc., a leading global provider of educational services. Kaplan Business School Pty Ltd ABN 86 098 181 947 is a registered higher education provider CRICOS Provider Code 02426B. Source 3: Apple Financial Data Source 4: Apple Stock (Share) Performance Source 5: Apple Working Capital Management 2015 Article: https://www.forbes.com/sites/greatspeculations/2016/06/07/why-is-apples-cash-conversion-cycle- significantly-shorter-than-samsungs/#25e5193e58eb https://www.forbes.com/sites/greatspeculations/2016/06/07/why-is-apples-cash-conversion-cycle-significantly-shorter-than-samsungs/#25e5193e58eb https://www.forbes.com/sites/greatspeculations/2016/06/07/why-is-apples-cash-conversion-cycle-significantly-shorter-than-samsungs/#25e5193e58eb Assessment Information COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (‘Act’). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Kaplan Business School is a part of Kaplan Inc., a leading global provider of educational services. Kaplan Business School Pty Ltd ABN 86 098 181 947 is a registered higher education provider CRICOS Provider Code 02426B. Part 1: Company Perspective (25 marks) a) Calculate the Cash Conversion Cycle for Apple in 2017 as compared to 2018 by referring to Source 1 pp. 38-40 and evaluate how it has changed. In your analysis consider the working capital efficiency of competitors like Samsung (See Source 5). (Keep in mind that in America Gross Margin is Net Sales) (10 marks) b) On page 8 of Apple’s Annual Report (Source 1) what are three of the major risks discussed? Are these risks systematic or unsystematic? Why? (5 marks) c) Apple Shares and Debt: i. How has Apple share price preformed over the last three years relative to the market? (See Source 4) (2 marks) ii. From 2014 to 2018 has Apple taken on more or less long-term debt? See Source 3 and justify your answer. (2 marks) iii. Imagine that in 2007 you purchased an Apple $1000 face value bond with a fixed annual coupon rate of 4.5% which matures at the end of 2020. Currently it is the end of 2019 and the bond has a yield to maturity of 5%. What would be the price of the bond today in 2019? (6 marks) Part 2: Capital Budgeting (30 marks) Answer the following questions with the aid of excel spreadsheets. **You also need to answer the below questions in your word file and refer to your excel spreadsheets as supporting documents. Upload your ONE excel spreadsheet separately under “Excel File for Report”. Consider Sources 1-5 above and the below graph for some of the answers. (All figures are in AUD) Apple is considering whether to build the “Global Store” in Federation Square Melbourne today in 2019. Apple has already purchased the land on the site and wants to make a decision about whether to build on it. Assume the store will have a life of 20 years and will generate revenues of $40 million per year AUD over the 20 years (with the first cash flow at the end of year 1). By developing the site Apple will lose existing rental income of $1 million per year which would have continued for 20 years. The total annual costs of the store will be 12% of the revenues from the new store and will similarly continue for 20 years with the first cost incurred at the end of year 1. The initial outlay for the project is $300 million AUD for building the store (The land has already been purchased so should not be considered in the analysis). The store will be depreciated straight line over the 20 years to a book value of 0. All values are in AUD. Assume the tax rate is 30% over the 20 years. Using the above information as well as Sources 1-5 answer the following questions. Assessment Information COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (‘Act’). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Kaplan Business School is a part of Kaplan Inc., a leading global provider of educational services. Kaplan Business School Pty Ltd ABN 86 098 181 947 is a registered higher education provider CRICOS Provider Code 02426B. a) Why does the analysis not consider the price of the land? Explain with reference to theory. (2 marks) b) Based on the above information and sources what are the free cash flows generated by Apple’s new store over the 20 years? (Refer to your excel spreadsheet) (10 marks) c) Calculate the NPV for new Apple store assuming the cost of capital is 5.94% and recommend whether they should accept the project. (8 marks) d) What is the IRR for new Apple store with a cost of capital of 5.94%? Should they accept the project at a 5.94% cost of capital? Why? (4 marks) e) Based in your analysis in a-d should Apple build the new store if we assume the cost of capital is 5.94%? Consider the NPV and IRR calculation in your answer. (6 marks) Part 3: Appropriate referencing, layout and research (5 marks) Students need to reference sources appropriately based on this guide: https://elearning.kbs.edu.au/pluginfile.php/190037/mod_resource/content/0/NEW_Kaplan%20Harv ard%20Referencing%20-%20Interactive%20Road%20Map%20v.1.pdf Students also need to ensure that the work is their own and conduct independent research. Total Marks = 60 https://elearning.kbs.edu.au/pluginfile.php/190037/mod_resource/content/0/NEW_Kaplan%20Harvard%20Referencing%20-%20Interactive%20Road%20Map%20v.1.pdf https://elearning.kbs.edu.au/pluginfile.php/190037/mod_resource/content/0/NEW_Kaplan%20Harvard%20Referencing%20-%20Interactive%20Road%20Map%20v.1.pdf Assessment Information