Hi, could you please help me to solve Part A question, which is Risk and Return. It mentioned a, b, c and d four types of questions.I was really confused and don't really understand the first three questions that are included in Part A. Question a, b, c are really hard but i have finished question d. So could you please help me to solve a, b, and c. Those are under attached blow.

Regards!

MAF203 GROUP ASSIGNMENT DEADLINE 5pm SEPTEMBER 15 The assignment has a weighting of 30% of your overall mark and is made up of two parts A and B with total marks of 60. - The focus of part A is the relationship between risk and return. This part is worth 25 marks allocated across four questions. The questions are designed to enhance your technical skills in stock picking and investment design. You will need to be familiar with Excel spreadsheet to do this part. - The focus of part B is on capital budgeting. This part is worth 35 marks allocated across five questions. The questions are designed to enhance your analytical skills on evaluating capital projects and your understanding on how firms make investment decisions based on incremental cash flows of the project. - It is up to the group to manage individual tasks and get equal contribution from all members. It is a good idea to appoint a leader to direct and coordinate the activities of the group, including allocating tasks among the group members. All group members are expected to discuss the assignment as a whole and contribute to preparing answers to all questions. - As the assignment questions are handed out 6 weeks before submission, any request for special consideration should be sent to the Unit Chair at least three days before the deadline (i.e. before Sep 12). After this time, any request for special consideration is not accepted under any circumstances. I. Instruction on Group Enrolment - All students need to enroll in a group of 3 to 4 students to submit the assignment on CloudDeakin. You can form a group with students from any cohort or campus. The only requirement is that all members are currently enrolled in MAF203 2017 Trimester 2. - You can enroll yourself into a group or remove yourself out of a group before 5 pm Sep 14 2017. After this time, requests for group change are not permitted under any circumstances. II. Instruction on Submission - Before the final submission of the assignment all group members are expected to review and edit all answers, as appropriate. Only one member of the group should submit the assignment on CloudDeakin on behalf of all the group members. - At the last page of your document, you need to specify each member's contribution in percentage to the group assignment. Mark is allocated according to individual contribution. - The following declaration relating to academic honesty must be made and submitted along with any assignment: "I/We certify that the attached work is entirely my/our own except where material quoted or paraphrased is acknowledged in the text. I/We also declare that it has not been submitted for assessment in any other unit or course." - All long tables and supplementary texts should be included in the Appendix and not in the main content. - List names and ID numbers of all group members on the first page of your Word document. Only one member of the group should submit the assignment on CloudDeakin on behalf of all the group members. - Only one file (Word document or PDF) should be uploaded for your group on the MAF203 CloudDeakin site. - Assignments sent as e-mail attachments or by mail will not be accepted under any circumstances. Part A. Risk and Return (25 marks). Use historical prices of the Australia market index All Ordinaries (^AORD) and the following four companies traded in the Australian market: Wesfarmers Ltd. (WES.AX), BHP Billiton Ltd. (BHP.AX), AGL Energy Ltd. (AGL.AX) and ANZ Ltd. (ANZ. AX) provided on CloudDeakin, answer the following questions: a. Compute continuously compounded monthly return of the above stocks and index using adjusted Close Price (Adj Close) (4 marks). Hint: Use Excel function ln to compute the compounded monthly return. = ln( ) ln( 1 )where ln means natural logarithm. b. Compute expected return for the above stocks and index (4 marks). c. Compute return correlation coefficient between two stocks and between each stock and the market index. Hence, comment on the return movement of these stocks and index. If you were to form a portfolio of 2 stocks which ones would you choose to maximise diversification benefit? (9 marks) Hint: Use Excel function CORREL() to compute the correlation coefficient between two data series. d. Assume to be 1.5% and ( )to be 7.5%. Using the CAPM model, calculate the expected return for each stock and compare it with (b). Explain why the expected return from the CAPM is different from answers in (b)? Is the stock undervalued or overvalued? Explain. (8 marks) Note: We assume that the performance of All Ordinaries represents the average performance of the Australian market. Question 2 Capital Budgeting ( 35 marks). a. Read AusSteel Case Study at the end of the document and fill in the missing information in the following table ( 5 marks): Applicable tax rate Cost of capital Asset life Old Equipment New Equipment Production tons Unit SP Fixed overheads Excluding Depreciation Depreciation Variable costs Fixed OH per unit including depreciation Total costs per unit Profit margin per Unit Total profit before tax Machinery Cost price Terminal value Book Value Resale value now Annual Depreciation Extra working capital inventory increase b. Prepare cash flow statement/s and compute NPV and IRR for the proposed project (15 marks). c. Refer to the companion document titled \"Steel Has Never Been More Competitive\" published by the Australian Steel Institute. What qualitative factors (i.e. factors which are unquantifiable at present) would you consider relevant in evaluating the riskiness of the project (5 marks). d. Perform a sensitivity analysis on NPV of the new project, applying a +/-10% variation factor to the estimates for output and sales, selling price, variable costs, incremental working capital and applicable discount rate (5 marks). e. Write your recommendation (with reasons) on the feasibility of the new project and what issues AusSteel needs to take into account if they accept the project (5 marks). Case Study - AusSteel AusSteel Company Ltd (AusSteel), based in Victoria, is considering investing in a project to replace its current machinery and equipment being used in fabricating base steel. Despite the stagnated prices in the fabricated base steel market from 2007, AusSteel believes that current price levels are still profitable and that the market is likely to improve in the near future. The CEO of AusSteel firmly believes that the enterprise should invest in capital assets now to ensure that they will be around tomorrow. The director of marketing also believes that the company should invest in latest technology and machinery to maintain market share, otherwise \"we are going to be bypassed\". On the other hand, the director of finance, who is well aware of the possible financial repercussions of committing a huge amount of capital in new technology and machinery, insists that the new machinery, if purchased, should generate positive net cash flows and increase the value of the company. \"Otherwise, the shareholders would not be happy\". AusSteel's manufacturing process, at present, is semi-automatic and considered environmentally friendly as it consumes less energy. The machinery and equipment currently being used on the manufacturing site cost $50,000,000 five years ago and has a written down value of $25,000,000. The demand for the products has been fairly stable and output has been maintained at 500,000 tons per annum in recent years. It is expected that the output and sales will increase to 550,000 tons if the proposed new machinery and equipment are purchased and installed. The accountant of the company has prepared the following data, based on the current level of output, and existing machinery and equipment: Selling Price per ton $1,250 Variable expenses - per ton manufactured and sold $ 1,000 Fixed overhead expenses excluding depreciation of machinery and equipment Depreciation of machinery and equipment Profit per ton $18,000,000 $5,000,000 $204 The fixed overhead expenses are cash expenses and the total fixed overhead expenses are expected to remain the same irrespective of any change in the level of production and sales. The existing equipment is expected to last for a further five years, and will have no resale (scrap/salvage) value at that point in time. The new machinery and equipment will cost $100,000,000 and will have an expected life of 5 years. At the end of which it would be sold for an estimated scrap value of $8,000,000. However, the finance manager who is a graduate of Deakin University, knows that he should depreciate the machinery in such a way that that the time value of the tax benefits relating to depreciation maximised, while honouring the taxation rules. If the new machinery and equipment are purchased now, the old machinery and equipment could be sold for $11,000,000 immediately. AusSteel has already spent $1,000,000 for the feasibility study of the new project. If the proposed project goes ahead, AusSteel will have to use their existing excess warehouse facilities to store the additional inventories. These excess existing warehouse facilities have been currently rented to another company at an annual rent of $1,200,000. The accountant has also prepared the following data to help assess the proposed change. Selling Price per ton $1,250 Variable expenses - per ton manufactured and sold $ 900 Fixed overhead expenses excluding depreciation of machinery and equipment Depreciation of machinery and equipment Profit per ton $18,000,000 $20,000,000 $280.91 If the new machinery and equipment are installed, the raw material (steel) inventory will have to be increased by $12,000,000. The new technology involves using more chemicals, which may be harmful to the environment if not treated properly. The appropriate, after tax, cost of capital (discount rate) for the project is considered to be 12%. This is same as the company's after tax weighted average cost of capital. Assume that the company is subject to 28% corporate tax and that the tax is paid at end of the same year (i.e. not the following year). Also assume, that entire production will be sold within the year and there will be no finished goods inventory