For each of the investments shown in the following table, calculate the rate of return earned over the unspecified time period.

BACHELOR OF ARTS (HONS) ACCOUNTING & FINANCE COURSEWORK Year 2016 Quarter Subject Weightage INVESTMENT DECISION 40% Submission Date September 2016 7/11/2016 Regulations A. Late Submission A 10% deduction per day of total coursework marks (excluding weekends and public holidays). Late submission between 5 to 10 days, results in a 50% deduction of total coursework marks. Late submission past 10 days results in an automatic 0% for coursework and the student will be barred from the final examination. B. Deliverables Students must submit all materials supporting their coursework listed in the deliverable section. The coursework must be entirely your own work. Please make sure that you are aware of the rules concerning plagiarism. If you are unclear about them, please consult your program coordinator/lecturer. Plagiarism is presenting somebody else's work as your own. It includes: copying information directly from the Web or books without referencing the material; submitting joint coursework as an individual effort; copying another student's coursework; stealing coursework from another student and submitting it as your own. Suspected plagiarism will be investigated and if found to have occurred will be dealt with according to the procedures set down by the university/college. The coursework should exhibit formal research skills i.e. with a table of content, proper citations, references, and appendixes. The coursework write up must be able to demonstrate critical analysis and application of both theory and practical issues to the company that you have selected. Student may include additional relevant data/information apart from the proposed guidelines in conjunction to your research. Additional marks will be awarded for such attempt. Your coursework should not be more than 2000 words. 1 BACHELOR OF ARTS (HONS) ACCOUNTING & FINANCE COURSEWORK You should bind your coursework with the coursework cover as the 1st page. All written reports MUST be submitted for similarity checks to Turnitin You should attach a softcopy of the assignment in a CD together with the assignment. QUESTIONS Question 1 (10 marks) For each of the investments shown in the following table, calculate the rate of return earned over the unspecified time period. Investment A B C D E Cash Flow during period -$800 15,000 7,000 80 1,500 Beginning-ofperiod value $1,100 120,000 45,000 600 12,500 End-of-period value $100 118,000 48,000 500 12,400 Question 2 (10 marks) a) Scotto Manufacturing is a mature firm in the machine tool component industry. The firm's most recent common stock dividend was $2.40/share. Because of its maturity as well as its stable sales and earnings, the firm's management feels that dividends will remain at the current level for the foreseeable future. i) If the required return is 12%, what will be the value of Scotto's common stock ? (1 mark) ii) If the firm's risk as perceived by market participants suddenly increases, causing the required return to rise to 20%, what will be the common stock value ? (1 mark) iii) Judging on the basis of your findings in i) and ii), what impact does risk have on value ? Explain. (1 mark) b) Kelsey Drums Inc. is a well-established supplier of fine percussion instruments to orchestras all over the United States. The company's class A common stock has paid a dividend of $5.00/share per year for the last 15 years. Management expects to continue to pay at that amount for the foreseeable future. Sally Talbot purchased 100 shares of Kelsey 2 BACHELOR OF ARTS (HONS) ACCOUNTING & FINANCE COURSEWORK class A common 10 years ago at a time when the required rate of return for the stock was 16%. She wants to sell her shares today. The current required rate of return for the stock is 12%. How much capital gain or loss will Sally have on her shares ? (3 marks) c) Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has an $80 par value and pays an annual dividend of $6.40/share. Similarrisk preferred stocks are currently earning a 9.3% annual rate of return. i) What is the market value of the outstanding preferred stock ? (2 marks) ii) If an investor purchases the preferred stock at the value calculated in i), how much does she gain or lose per share if she sells the stock when the required return on similarrisk preferred stocks has risen to 10.5% ? Explain. (2 marks) CASE STUDY (20 marks) CSM Corporation has a bond issue outstanding at the end of 2012. The bond has 15 years remaining to maturity and carries a coupon interest of 6%. Interest on the bond is compounded on a semiannual basis. The par value of the CSM bond is $1,000 and it is currently selling for $874.42. a) Create a spreadsheet to solve for the yield-to-maturity (YTM). (6 marks) b) Create a spreadsheet to solve for the price of the bond if the YTM is 2% higher. (6 marks) c) Create a spreadsheet to solve for the price of the bond if the YTM is 2% lower. (6 marks) d) What can you summarise about the relationship between the price of the bond, the par value, the YTM and the coupon rate ? (2 marks) Adapted from Gitman, L.J. and Zutter, C.J. (2012), Principles of Managerial Finance, 13th Edition, Pearson Education Limited. 3 BACHELOR OF ARTS (HONS) ACCOUNTING & FINANCE COURSEWORK 4