b) The management agreed that a ratio analysis provide a measure of the company's performance. They have chosen Sezzle as Afterpay's

comparable company. Would you choose Sezzle as a comparable company? Why or why not? There are other BNPL companies that we

could use as comparable companies. Discuss whether it is appropriate to use any of the following companies: Splitit, EML Payments,

FlexiGroup, Zip, OpenPay, FuturePay, LayBuy, Affirm, PayPal Credit, Klarna. Explain your answer.

c) Estimate the current market price of Afterpay equity. Suppose that Afterpay expects to pay dividends of $5.75, $6.00, $7.50, and $8.00 per share for the next four years. Thereafter, the company expects its growth rate to be at a constant rate of 6%. If this information is communicated to the market, and the market's required rate of return is 12%.

d) You are required to recommend (to the management) a "buy", "hold" or "sell" strategy for Afterpay so that the management can make a better decision on the theoretical value of their company prior to investors' roadshow. Explain your recommendation.

e) If the beta of Afterpay is greater than 1.0, the stock return will tend to exaggerate that of the market. In other words, the stock will tend to go up more than the market goes up and tend to go down more than the market goes down. Is this statement true or false? Explain your answer. (5 marks)

Part 2 (30 marks)

In your report to the board of directors of Afterpay, you are expected to:

a) Explain what is meant by business risk and financial risk. Suppose Firm A has greater business risk than Firm B. Is it true that Firm A also has a higher cost of equity capital? Explain your answer. (10 marks)

b) Discuss "debt makes a good situation better however a bad situation worse", in relation to the M&M propositions I and II. (20 marks)

Part 3 (25 marks) In the report to the board of directors of AfterPay, you are expected to:

a) Discuss the scenario below, as to whether a riskless opportunity exists in the FX market and how to capitalise the opportunity. Suppose that you can borrow 21 million today. Assume that the current spot rate is 110/AUD and that the 6-month forward rate (Forward /AUD) is Forward /AUD = 107/AUD. The 12-month interest rate on a Yen deposit is 0.1% and on an AUD deposit is 7.5%. (5 marks)

b) Discuss the advantages and disadvantages of derivative instruments. (10 marks)

c) Explain why a put option on a bond is conceptually the same as a call option on interest rates. (10 marks)