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CORPFIN 7101 Managerial Finance

tag 0 Download 12 Pages / 2,813 Words tag 15-07-2021


Case Study 1: Financial markets

“Troy Dexter is an affluent venture capitalist based in Sydney. In 2009 Troy founded a hedge fund called Northwest Capital Management. A hedge fund is an investment fund whose aim is to deliver positive returns on money invested while minimising risk. A hedge fund can be thought of as a company whose main activity is to invest in a range of financial assets. Troy’s hedge fund adopts a macro investment strategy that aims to profit from significant shifts in the economy. Apart from his own money which he uses to invests in a range of financial assets, the fund is also open to investors who can participate in the fund for an annual management fee. Although hedge funds aim at reducing risk by employing different hedging techniques, there is still a certain element of risk as there are periods where the returns on investments are negative. Troy’s vision of the future is that the strong growth in Australian housing market will come to an end, economic growth will stall and the price of oil will escalate. This Troy is currently buying treasury bonds in the debt markets and energy stocks in the share market.

  1. From the point of view of Northwest Capital Management, are treasury bonds and energy stocks direct or indirect securities? Explain.
  2. Consider an investor who invests money in Northwest Capital Management. The money ends up being invested in treasury bonds and energy stocks. From the perspective of the investor, does she hold direct securities by investing in Northwest Capital Management? Explain.”(Petty et al., 2012, p. 79)

For this case study, please make sure you provide at least 5 different peer-reviewed references plus your prescribed textbook to develop and demonstrate your research skills as a financial analyst in training. Make sure you explain your reasons for choosing a position in each answer in your own words and supported by evidence in the form of peer-reviewed references.

Word limit: Case 1 should be approximately 1,500 words (or not longer than 4 pages).

Case Study 2: “Making Norwich Tool’s lathe investment decision

Norwich Tool, a large lathe machine shop, is considering replacing one of its lathes with either of two new lathes-lathe A or lathe B. Lathe A is a highly automated, computer-controlled lathe; lathe B is a less expensive lathe that uses standard technology. To analyse these alternatives,”(Gitman, 1994, p. 393) you, “a financial analyst, prepared estimates of the initial investment and incremental (relevant) cash inflows associated with each lathe. These are summarised in the following table:



Lathe A

Lathe B

Initial Investment




Cash Inflows
















a. Use the payback period to assess the acceptability and relative ranking of each lathe.
b. Assuming equal risk, use the following sophisticated capital budgeting technique to assess the acceptability and relative ranking of each lathe.

(1) Net present value (NPV)

(2) Internal rate of return (IRR)

c. Indicate which lathe you would recommend, if either, if the firm has

(1) unlimited funds or

(2) capital rationing” (Gitman, 1994, p. 394)

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