Part 2 is to be completed and submitted in a word document through the Assignment 2 Turnitin Link Assume Fly Safely Limited, a fictitious company, is part of the airline industry. It has a beta of...

Part 2 is to be completed and submitted in a word document through the Assignment 2 Turnitin Link

Assume Fly Safely Limited, a fictitious company, is part of the airline industry. It has a beta of 1.43. While it has only been operating for 10 years its financial results to date have been pleasing returning a profit most years. Over the past six years it has paid its shareholders the following returns:

Recently Fly Safely Limited has compared itself to a well-established airline company Always Reliable Limited. Always Reliable Limited has a beta of .88 and has a long history of paying consistent returns to its shareholders. The average shareholder returns have been 8% with a standard deviation of 1.7%.

Fly Safely Limited is currently investigating options for raising finance to expand its operations. It is considering two options, either long term bank finance or issuing corporate bonds. Currently the 10-year Australian Treasury bond rate (proxy for risk free rate) is 2.1%. Fly Safely Limited has reviewed the Annual Report published by Always Reliable Limited and have noted that their average cost of debt is 7.5%.

Required:

Prepare a report analysing and comparing the risk and return for Fly Safely Limited and Always Reliable Limited. Your report needs to consider the following

a.
The overall industry context in relation to the risk profile of the comany

b.
Risk and return theory

c.
The meaning and relevance of beta in risk analysis

d.
The relationship between risk and return

e.
The relationship between company risk and the cost of debt.

Part 2 will be marked using the rubric provided.