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BUACC5936 FINANCIAL MANAGEMENT

tag 0 Download 9 Pages / 2,139 Words tag 29-10-2020
  • Course Code: BUACC5936
  • University: Federation University
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  • Country: Australia

Question:

Students are to complete this assignment in groups of three (3). It consists of four (4) questions and an essay section, all of which must be attempted. (If it is unavoidable, groups of two may be considered). Students should concentrate on the following for Part three (3):  

  • Introduction,
  • Content,
  • Expression,
  • Presentation, Conclusion, and 
  • Reference List. 

Note:  

  • While the above items are attributes of a good assignment, they are not necessarily sections.
  • Work that fails to show adequate acknowledgement of sources will not receive a mark. 
  • Essays must have academic references in the reference list and the referencing must follow good academic format. Students are strongly urged to read reviewed academic journal articles. 
  • The link to the library website for more information is: 
  • Penalty for late submissions: 10 per cent of your earned marks will be deducted for each day after the due date, unless prior arrangements are made with the lecturer and are consistent with the School rules and Practices 

A high level of scrutiny will be conducted to detect plagiarism. Students are strongly advised to use Turnitin. 

Question 1

a). *Your grandfather put some money in an account for you on the day you were born. You are now 18 years old and are allowed to withdraw the money for the first time. The account currently has $3996 in it and pays a 5% interest rate.

  1. How much money would be in the account if you left the money there until your 25th birthday?
  2. What if you left the money until your 65th birthday?
  3. How much money did your grandfather originally put in the account?

                                                                                                  (1 X 3 = 3 Marks)

 Question 2

    Consider the following alternatives:

  1. $100 received in one year;
  2. $200 received in five years;
  3. $300 received in 10 years.
  4. Rank the alternatives from most valuable to least valuable if the interest rate is 10% per year.
  5. What is your ranking if the interest rate is only 5% per year?
  • What is your ranking if the interest rate is 20% per year?  (1 X 3 = 3 Marks)

Question 3

Suppose Sonic Health Care and Healthscope have the expected returns and volatilities shown below, with a correlation of 22%. In addition, Sonic Health Care and Health scope have beta’s of 1.2 & .5 respectively.

For a portfolio that is equally invested in Sonic Health Care and Healthscope shares, calculate:

  1. the expected return;
  2. the volatility (standard deviation)
  3. Calculate the expected return and portfolio beta if you increase your investment in Sonic Health Care from 50 to 60% and reduced your investment in Healthscope from 50 to 40%.  (1 X 3 = 3 Marks)  

Question 4    

  1. Fed Ltd is choosing between two projects, but can only take one (mutually exclusive). The cash flows ($ million) for the projects are given in the following table:
  2. What are the IRRs of the two projects?
  3. If your discount rate is 5%, what are the NPVs of the two projects?
  4. Why do IRR and NPV rank the two projects differently?
  5. Calculate the pay-back period for each project. Which one would be deemed acceptable if Fed management decided and acceptable period would be under 3 years? Are there any limitations to this method of project evaluation?   (2 +2+ 1 + 1 = 6 Marks)                             

  Essay section        (Word Limit: 1500+/100)   (10 marks)

“Enron Corporation’s December 31, 2000, balance sheet showed long-term debt of $10. 2 billion and $300 million in other financial obligations. These figures gave the company a 41 percent ratio of total obligations to total capitalization. That didn’t seem out of line for a company in the capital-intensive energy industry. Yet as the company’s financial condition fell apart in the fall of 2001, investors and lenders discovered that Enron’s true debt load was far beyond what its balance sheet indicated. By selling assets to perfectly legal special-purpose entities (SPEs), Enron had moved billions of dollars of debt off its balance sheet into subsidiaries, trusts, partnerships, and other creative financing arrangements. Former CFO Andrew Fastow claimed that these complex arrangements were disclosed in footnotes and that Enron was not liable for repayment of the debts of these SPEs.

Enron’s required filing of Form 10-Q with the SEC, on November 19, 2001, told a different story: If its debt were to fall below investment grade, Enron would have to repay those off-balance-sheet partnership obligations. Ironically, its disclosure of about $4 billion in off-balance- sheet liabilities triggered the downgrade of its debt to “junk” status and accelerated debt repayment. Enron’s secrecy about its off-balance-sheet ventures led to its loss of credibility

in the investment community. Its stock and bond prices slumped downward; its market value plunged $35 billion in about a month; and on December 2, 2001, Enron became the largest U.S. Company ever to have filed for bankruptcy. Enron is not alone in its use of off-balance-sheet debt. Most airlines have large aircraft leases structured through off-balance sheet vehicles, although analysts and investors are aware that the true leverage is higher. Pacific Gas & Electric, Southern California Edison, and Xerox have also run into problems from off-balance sheet debt obligations”. 

The above quotation is taken from: Peter Behr, “Cause of Death: Mistrust,” Washington Post

(December 13, 2001), p. E1; Ronald Fink, “What Andrew Fastow Knew,” CFO (January 1, 2002); and David Henry, “Who Else Is Hiding Debt?” Business Week (January 28, 2002), (In) Gitman, L., (2012), Principles of Managerial Finance 10th ed. p.524.

Required: You are asked to examine and comment on the above in the light of the concept of business ethics and its importance to corporate governance. 

NB:    1) Understanding the notions of business ethics and corporate governance is more important than an enlargement with the advanced maths in many articles. 

          2)  Do not plagiarise articles content-instead cite, of better yet, paraphrase it and always give full references. This shows that your opinions are informed opinions. 

NB: Students are strongly urged to read reviewed academic journal articles and provide at least three academic journals in the reference.

Plagiarism, Cheating & Collusion

Plagiarism, cheating or collusion is regarded as a serious breach of the University's academic standards.  

RULES WILL BE STRICTLY ENFORCED. 

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