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Page 1 Kaplan Business School Assessment Outline Document Classification: Public Assessment 2 Information Subject Code: FINM4000 Subject Name: Finance Assessment Title: Individual Assignment Assessment Type: Written Assignment and Excel Spreadsheet Word Count: 1000 Words (+/-10%) Weighting: 30% Total Marks: 50 Submission: Online (MyKBS) Due Date: Friday (19:55pm AEST) Week 11 Assessment Instructions • Submit written answers and final numbers using the Turnitin “Written Report” link and submit one excel spreadsheet used in calculating your answers using the “Excel Submission” link. • The written part of your assignment will be put through Turnitin and any plagiarism will be traced and penalised. Refer to the policy for details. • Answer the questions using the following two sources: Source 1: Coles Limited (COL) Annual Report 2022 https://www.colesgroup.com.au/FormBuilder/_Resource/_module/ir5sKeTxxEOndzdh00hWJw/fil e/Annual_Report.pdf Source 2: Yahoo Finance https://au.finance.yahoo.com/quote/COL.AX/ Page 2 Kaplan Business School Assessment Outline Document Classification: Public 1. Company Perspective (25 marks) Consider the 2022 Annual Report for Coles Limited (COL). a) Briefly illustrate how COL governance is organized. Do you notice any strategies in place to align manager and shareholder interests at COL based on the Annual Report? Provide one example. (3 marks) b) What is the net working capital for COL in 2021 and 2022? What type of current asset management strategy is COL probably pursuing? Explain why, and what are the pros and cons of this strategy? (3 marks) c) Identify two of the major risks discussed in the annual report. Are these risks systematic or unsystematic? Why? (2 marks) d) You are trying to value COL shares today (end of 2022). Assume the current price of COL shares is $16.69. Assume that the total dividend paid by COL in 2022 was a lump sum. You also estimate that for the next two years dividends will grow respectively at 15% and 10% per year. After this (starting in time 3) you estimate dividends will grow at a constant rate of 4% forever. Assume that today the Australian 10 year government bond has a yield of 3.6%, the market risk premium is 6.5% and the beta of COL is 0.6. (The yahoo finance page says the beta is 0.20, but let’s use 0.6.) Based on this price would you purchase COL shares? Why or why not? (7 marks) e) What was the market capitalization of COL on 31 December 2022, assuming that the total number of shares outstanding on this day is the same as that reported in the annual report? (Use the closing price on that day). (2 marks) f) What source of funding (non-current) is COL primarily using to finance its operations? What are the advantages and disadvantages of this source of financing? (3 marks) g) Consider the COL bond issue with a coupon rate of 2.65% and a 10 year original maturity. Assume the bonds are semiannual with payment dates of 6 May and 6 November of every year, the bonds have a face value of $10,000 and the required rate of return for similar bonds in the market is 4.87%. Calculate the market price of these bonds today (end of 2022). (You may like to visit: https://xtbs.com.au/xtbs-profile/ytmcol/) (5 marks) Page 3 Kaplan Business School Assessment Outline Document Classification: Public 2. Capital Budgeting (25 marks) Consider the following information. In order to satisfy a sharp increase in demand, COL is evaluating investing in one of two “mega warehouse” projects in Australia (called Project A and Project B). COL has already identified two existing warehouses that might meet their needs. In order to mitigate risk and assess these facilities, COL asked Rachel Consulting Ltd to conduct technical due diligence. Rachel Consulting is asking $400,000 as a fixed fee for its consulting services. Project A has an initial outlay of dollars $150 million and Project B has an initial outlay of $85 million. Project A will generate additional revenues of $45 million starting at the end of year 1 until the end of year 10. It will also incur additional working capital expenses of $1 million immediately, this working capital will be recovered at the end of the project. Project B will generate additional revenues of $25 million starting at the end of year 1 until the end of year 10. It will also incur additional working capital expenses of $2 million immediately, this working capital will be recovered at the end of the project. The operating costs of both projects will be 30% of the revenues from years 1 to 10. Both investment projects will be depreciated on a straight line basis over ten years to zero book value. COL has estimated that the mega warehouse can be sold at the end of year 10 respectively for $25 million (Project A) and $10 million (Project B). The tax rate is 30%. All cash flows are annual and are received at the end of the year. The weighted average cost of capital for both projects is 6%. a) Calculate the FCFs for each project. (10 marks) b) What is the NPV for each project? (5 marks) c) What is the discounted payback period for each project? (2.5 marks) d) What is the IRR for each project? (2.5 marks) e) Assume that the risk of investing in these mega warehouses is higher than the overall risk of the company. What would happen to the discount rate and consequently NPV of the two projects if this was the case? Why? (2 marks) f) Suppose that COL has a payback rule of 8 years. Based on your analysis in b), c) and d) which project should be chosen? Justify your answer with reference to theory. What other factor might affect the final decision? (3 marks) Page 4 Kaplan Business School Assessment Outline Document Classification: Public Important Study Information Academic Integrity Policy KBS values academic integrity. All students must understand the meaning and consequences of cheating, plagiarism and other academic offences under the Academic Integrity and Conduct Policy. What is academic integrity and misconduct? What are the penalties for academic misconduct? What are the late penalties? How can I appeal my grade? Click here for answers to these questions: http://www.kbs.edu.au/current-students/student-policies/. Word Limits for Written Assessments Submissions that exceed the word limit by more than 10% will cease to be marked from the point at which that limit is exceeded. Study Assistance Students may seek study assistance from their local Academic Learning Advisor or refer to the resources on the MyKBS Academic Success Centre page. Click here for this information. http://www.kbs.edu.au/current-students/student-policies/ https://elearning.kbs.edu.au/course/view.php?id=1481 Finance Assessment 2 Information Subject Code: Subject Name: Individual Assignment Assessment Title: Written Assignment and Excel Spreadsheet Assessment Type: Weighting: Total Marks: Online (MyKBS) Submission: Friday (19:55pm AEST) Week 11 Due Date: 30% Word Count: 50 FINM4000 Coles Group Limited 2022 Annual Report A Coles Group Limited ABN 11 004 089 936 2022 Annual Report Our vision is to become the most trusted retailer in Australia and grow long-term shareholder value Coles Group Limited 2022 Annual Report 1 Welcome to the Coles Group 2022 Annual Report Contents Overview 2022 performance 4 2022 highlights 5 Message from the Chairman 6 Managing Director and Chief Executive Officer’s report 8 Our vision, purpose and strategy 12 How we create value 14 Sustainability at Coles 17 Governance at Coles 20 Operating and Financial Review 24 Board of Directors: Biographical Details 59 Directors’ Report 61 Remuneration Report 65 Financial Report 85 Independent Auditor’s Report 131 Shareholder Information 137 Corporate Directory 139 Acknowledgment of Country Coles Group acknowledges the Traditional Owners and Custodians of the lands on which we live and operate. We pay our respects to Elders past, present and emerging and acknowledge their continuing connection to waters, skies, seas and country. Coles Group endorses the Uluru Statement from the Heart and its objectives to enshrine a First Nations Voice in the Australian Constitution. Supporting the Uluru Statement from the Heart reflects our commitment to our Aboriginal and Torres Strait Islander Plan and Better Together Strategy. Coles Group has long supported elevating the voices of Aboriginal and Torres Strait Islander peoples, and we believe this structural reform and constitutional change is a significant step forward in creating lasting reconciliation in Australia. Aboriginal and Torres Strait Islander peoples are advised that this report may contain names and images of people who are deceased. All references to Indigenous and First Nations peoples in this report are intended to include Aboriginal and/or Torres Strait Islander peoples. Forward-looking statements This report contains forward-looking statements in relation to Coles Limited Group (‘the Company’) and its controlled entities (together ‘Coles’, Coles Group’, or ‘the Group’), including statements regarding the Group’s intent, belief, goals, objectives, opinions, initiatives, commitments or current expectations with respect to the Group’s business and operations, market conditions, results of operations and financial conditions, and risk management practices. This report also includes forward- looking statements regarding climate change and other environmental and energy transition scenarios. Forward-looking statements can generally be identified by the use of words such as ‘forecast’, ‘estimate’, ‘plan’, ‘will’, ‘anticipate’, ‘may’, ‘believe’, ‘should’, ‘expect’, ‘intend’, ‘outlook’, ‘guidance’ and other similar expressions. Any forward-looking statements are based on the Group’s current knowledge and assumptions, including with respect to financial, market, risk, regulatory and other relevant environments that will exist and affect the Group’s business and operations in the future. The Group does not give any assurance that the assumptions will prove to be correct. The forward-looking statements involve known and unknown risks, uncertainties and assumptions, that could cause the actual results, performances or achievements of the Group to be materially different from the relevant statements. There are also limitations with respect to scenario analysis, and it is difficult to predict which, if any, of the scenarios might eventuate. Scenario analysis is not an indication of probable outcomes and relies on assumptions that may or may not prove to be correct or eventuate. Readers are cautioned not to place undue reliance on forward- looking statements. Except as required by applicable laws or regulations, the Group does not undertake to publicly update, review or revise any of the forward-looking statements or to advise of any change in assumptions on which any such statement is based. Past performance cannot be relied on as a guide to future performance. Non-IFRS information This report contains IFRS and non-IFRS financial information. IFRS financial information is financial information that is presented in accordance with all relevant accounting standards. Non-IFRS financial information is financial information that is presented other than in accordance with relevant accounting standards and may not be directly comparable with other companies’ information. Any non-IFRS financial information included in this report has been labelled to differentiate it from statutory or IFRS financial information. Non-IFRS measures are used by management to assess and monitor business performance at the Group and segment level and should be considered in addition to, and not as a substitute for, IFRS information. Operating metrics that are prepared on a non-IFRS basis have been included in the segment commentary to support an understanding of comparable business performance. Non-IFRS information is not subject to audit or review. Cover image Coles chefs Michael Weldon and Courtney Roulston with a selection of exclusive Coles Own Brand products. Coles Group Limited 2022 Annual Report 2 Coles Group Limited 2022 Annual Report 3 Our purpose is to sustainably help all