Needing help with page 9 (Section 3.33 - Cost of Capital Guide) Must be done on the Commonwealth Bank of Australia for 2017.

any significant help would be much appreciated :) Happy to pay more for detailed answers

Curtin University FNCE3000 Corporate Finance 2017 1.0 Overview Table 1.1 - Assessment Schedule Task Participants Mid semester test Individual Value (%) 20 Date due Week 4 Week 11 Start week 5 Exam week Case study Individual 35 Final exam Closed book 45 The aim of these assessments is to assist you to: gain a deeper understanding of corporate finance concepts; appreciate current issues discussed/faced in the industry; and apply your knowledge to investigate real companies. Through these exercises, you will gain a better understanding of how corporate finance concepts can be applied in the real world. This is an excellent opportunity for those who wish to pursue a career as a financial officer/manager. For those who are taking this unit as an elective, it provides the basic foundation and tools needed to investigate the financial health of a company and assist in the decision to purchase its shares for investment. 1.1 Communication If you have any queries, please try to approach your tutors first, lecturers second and unit coordinator last; Written communication is preferred; When sending emails to the unit coordinator, please use this format in your subject field: CF, , , ,.E.g. CF307, Smith, John, 123456A, Bentley. The purpose of the email is written on the first line in the main body of the email. You may not receive a prompt reply if you do not follow this format. Page 1 of 13 1.2 Assessment submission 1.3 The case study assessment is to be submitted on Turnitin; no exceptions. It must be professionally typed; no handwritten submissions; Your work must be assessable through Turnitin. Scanned graphics will not be marked; Only your final submission will be marked. Subsequent email attachments after the assessment due date will not be accepted; Your assessment filename must be in the following format: , , , . E.g. Smith, John, 123456A, Bentley.docx. Assessments without this filename format will automatically receive a 2 marks penalty; Assessment extensions must be requested via the extension form accompanied with a medical certificate within 1 week of the assessment due date. Requests after this period will not be accepted; When you are submitting your extension requests, you must submit your work completed to date. This is to show evidence that you have started doing your assignment and have followed the recommended start times as described in this document. We will accept it in any format; regardless of how incomplete your work is. This will enable us to give a better assessment of your case; Please save your work often. You can consider services like icloud, Google drive, Dropbox, Sugarsync, etc. Most providers allow you to control the frequency of the automatic syncing. We recommend that you sync on every time your documents saves and change your settings on your Microsoft word to auto save every 5 mins. The student advisers and tutors are able to give some guidance on this if you need assistance. A hard drive/computer failure does not warrant an extension; No pre-marking will be done for your assessments; Please also retain your electronic copy until the final exam finishes for further reference. Plagiarism (including self-plagiarism) is a serious offence. All work above 20% similarity index will be referred to the student disciplinary panel for investigation; The investigation may take up to two month to finalise. If it is not finalised prior to the release of the results, you will receive a F-IN grade; If your work is submitted to the student disciplinary panel, you will be notified directly by the student advisers via your official Curtin Oasis account; You will be given an opportunity to provide an explanation to the disciplinary panel. Your unit coordinator will not be involved in the process and will not be able to provide you with any assistance in this matter. Interfering with the process will delay the outcome of the investigation; Please refer to Curtin's plagiarism guide and utilize the checklist provided below: o http://academicintegrity.curtin.edu.au/local/docs/StudentPlagiarismGuide.pdf o http://academicintegrity.curtin.edu.au/local/docs/StudentChecklist.pdf Page 2 of 13 1.4 Exam information 1.5 Format of the exams: o All chapters after the MST would be covered. Expect at least 1 question from each of the modules o Answer all questions in the paper o 1 A4 sheet of paper (both sides) allowed, hand written. You will have to submit this together with your exam paper for submission; o Financial calculator allowed; o Structured (calculations) and theory (short essay) questions; o NO MCQ; How to prepare for the exams: o Read the textbook; o Review the learning outcomes for each chapter; o And attempt the questions at the back of each chapter of the textbook; o Practice the questions through Connect Attempt the mock exams after you have reviewed your unit materials: o Prepare your A4 cheat sheet before you start; o Do not look at the answers when you are attempting the mock exams; o Replicate the exam environment, i.e., no mobile phones, interruption, etc.; o Give yourself 1 hr and write the answers clearly; o As the mock exam is easier than the final exam, please try to aim for a distinction and above; No individual requests for exam tips would be entertained; Details of deferred exams (including the release of results) are provided by central administration. Your unit coordinator will not have any information of the dates; Deferred exams will be in the similar format as the final exam. However, as you have more time to prepare, you have to expect a harder paper. Textbooks The current textbook comes with an online package. You will benefit greatly from the additional resources and help you prepare for the exam; Older editions and other versions of the textbook may be used. However, there may be differences in the chapter and content structure; Your unit coordinator is unable to provide comments on other textbook editions. Page 3 of 13 2.0 Mid Semester Test (20%) Objective: To provide a check point to assess progress in the unit Skills acquired: discipline knowledge; thinking skills; This is a centrally organised 1 hour test. This is set on 26th of August 2017. Please check Blackboard frequently for any updates on scheduling of the venue. 2.1 Test coverage and details 2.2 The test will cover materials from the first 3 weeks; covering the following chapters: o Net Present Value and Other Investment Criteria (5) o Making Investment Decisions with the Net Present Value Rule (6) o Project Analysis (10) o Introduction to Risk and Return (7) o Portfolio Theory and the Capital Asset Pricing Model (8) o Risk and the Cost of Capital (9) It is a closed book test and formula sheets are not provided The test comprises of 20 questions; a mixture of multiple choice (MCQ) and fill-in the blanks. How to prepare for the mid semester test Read the relevant chapters in the textbook; Review the questions at the back of each chapter; Practice the MCQs available on blackboard Practice the questions through Connect (provided by the textbook) Page 4 of 13 3.0 Case study (35%) Objective: To prepare an analyst report on a public listed dividend paying company. Skills acquired: discipline knowledge; thinking skills; learning how to learn Specifically, conduct research on a company and report on key areas of shareholder analysis, risk-return analysis, cost of capital and financial statement analysis. 3.1 Submission instructions This assignment is due on Monday, 9th of October at 10am. This is an individual assignment. You have to commence work on your assignment from 28th of August and make considerable progress every week. The presentation of the case study should be in 1.5 lines spacing and 12pt font. It should not be more than 5,000 in words. The word count excludes tables, diagrams, charts, footnotes and references. Your document must be typed and submitted through Turnitin on the Blackboard by the due date. No email copies will be accepted. Your submission on Turnitin must be done using the following document FILENAME format: , , , . This refers to the actual document that you are working on, not the Turnitin submission title. Assessments without this filename format will automatically receive a 2 marks penalty. For example: SmithJ, 12345A, Bentley.doc Page 5 of 13 3.2 Case study details You are to select a public listed dividend paying company from the country of your study location (e.g. Australia for the Bentley campus) and conduct a detailed analysis on it. You may not select the following companies as they will be used in the lecture: Domino's Pizza JBHiFi The purpose of this assignment is to use your acquired knowledge from this unit to investigate the financial strength of a public listed company. Your research should cover the areas of: shareholder analysis; risk-return analysis; cost of capital; and financial statement analysis In each of the areas, you are to report your findings using the questions provided below as a guide. If the information is not from the company's annual report, you will have to provide details on 1. where you sourced the information; and 2. comment on how you have verified its reliability. The report must be written completely by you. You are not to purchase or reproduce commercial stock reports. There are four parts to the assignment. 3.21 Shareholder analysis (20%) - Who are the owners of the company and the implication to the choice of methods used to calculate the cost of return. 3.22 Risk-return analysis (20%) - Analyse the return received over the market for the apparent risks identified in the company. 3.23 Cost of capital (40%) - Calculate the cost of capital using various methods 3.24 Financial statement analysis (20%) - Determine the future of the company by analysing the performance of the company Page 6 of 13 3.3 Additional guidelines 3.31 You are preparing an analyst report for a client. Do not merely answers the questions in the case study It should be written professionally in sentences and paragraphs; not in bullet point form The questions 3.21 - 3.24 serve as a guide and are not to be repeated in your report Where possible, calculations must be shown and assumptions must be clearly stated. Use of an appendix is recommended; however, there must be clear reference made to the main body Where possible, use figures from the annual report; this is the most accurate source of information. Do not use calculated figures from the websites (for example ROE) Do not include definitions or theories from textbooks. This includes definitions of marginal investors, nominees, etc It is preferable that you reference your work using footnotes. This will help the marker to identify your source without referring to the back of your report. Please refer to the following document for additional help on footnotes: http://writing.wisc.edu/Handbook/PDF/chicago_turabian_uwmadison_writingcenter_j une2013.pdf Shareholder analysis guide (Bentley campus example) Choose an Australian company listed on the stock exchange Download the annual report from www.asx.com.au or the company's website. Please use the latest available annual report. If the latest annual report is not available for the company, please select another company. Figures from last year's annual report will not be accepted Read the summary of the business o What type of investor would invest in this company? Describe what type of returns they are looking for; capital growth or dividends? Read the chairman's/director's message to the shareholders o To whom is the message directed towards; institutional investors or \"mom and dad\" investors? Locate the top 20 shareholdings table in the annual report o Identify who the major shareholders are Nominees and banks are assumed to be marginal investors. You do not need to investigate them You should focus on identifying the non-marginal investors o Present a table showing the percentage of marginal vs non-marginal investors. You may need to make some assumptions of the shareholders not captured in the top 20 list o What type of investment decisions do you expect from the majority of the shareholders that you have identified? What is the implication of your analysis on the percentage of marginal investors? Page 7 of 13 3.32 Risk-return analysis guide Read the risk disclosure section in the annual report o From your understanding of the business describe the top three risks that investors should be mindful of and how will these risks will change in the future o You have to show evidence of these risks. This can be done via relevant newspaper articles, correlation with identified variables, trend analysis, and comparison with competitors, etc. o Reproduction of the risks stated in the annual report will not be acceptable. The total return to the shareholder is the capital growth plus the dividend received. o Use start and ending share price for the financial year as stated in the annual report to determine the one year change in share price of the stock. Use the closing price o Use the dividend paid for the financial year as stated in the annual report. If the share is franked, you will have to gross it up to account for franking credits. If the stock pays dividends in foreign currency, you will have to convert that home currency using the exchange rate of the date of dividend payment o Most Australian companies pay twice a year: interim and final dividend. o Some companies may pay a special dividend. This should be included in calculating your total one year return o The dates used should match the dates of the annual report o DO NOT select a company that does not pay dividends You can use the All Ordinaries (AORD) or any suitable sector index as a proxy for the market. Make sure the date selected for your start and end date correspond to the one you used to calculate your return for the stock. Your market return cannot be negative o A SML is not needed Review the summary of capital projects undertaken by the company in the annual report. Comment on the market's reaction/assessment of the projects that have been announced Page 8 of 13 3.33 Cost of capital guide Use figures from the annual report to calculate the company's cost of equity. o CAPM (you will have to either calculate or source for the beta of the company. You can try www.morningstar.com.au or www.reuters.com. o You can use the 10 year Australian government bond for the risk-free rate. o You cannot have a negative Rm Changing the time period of all your proxies used in CAPM would be the easiest. However, you may have to end up calculating the beta This is described in 'Resource - How to estimate beta.pdf' found on blackboard Another approach for you is to choose a different proxy. Here is a list of all various indices: http://www.asx.com.au/asx/statistics/indexInfo.do If you are still unable to get a suitable Rm, you will have to take a historical average. Investigate the market returns over the last 5 years and make a reasonable estimation o Dividend growth model (DGM). Refer the chapter 'The value of common Stocks' of the textbook for formulas and example All information needed to calculate Rd using the DGM can be found in the annual report Do not include any special dividends as it is a once-off occurrence o Select between CAPM and DGM method. Which one do you feel is more accurate/appropriate and why? Use this to calculate the WACC. Business loans rates vary with the terms of the contract. However, you can use the public available information as an estimation. o Read the annual report to find the breakdown of the loans and the providers. o Identify the long term liabilities. This is usually found in the balance sheet. Read the notes and fine print. Investigate if the loans are secured/unsecured, fixed/variable or straight/hybrid. If you are unable to determine the actual breakdown of fixed and variable rates assume it to be 100% variable. o List the various loans in your report and rank them in order (low to high interest rate) o Companies sometimes detail their lending institution or provide the interest rates if they are fixed o Go to the lending institution's website and locate the interest rate. If the lending institution is not mentioned, you will have to select a major bank o Do not use the interest expense from the profit and loss statement to work out the interest rate o If you have complex loans like foreign loans or notes, you will have to establish a base rate and add a margin on top of the rate. Provide some form of evidence/research to support your assumptions What does your calculated cost of capital tell you about the type of future projects that the company can consider? How does knowing the cost of debt and capital help the financial managers in deciding the optimum capital structure? Page 9 of 13 3.34 Financial statement analysis guide Calculate financial ratios of the company to analyse its performance measures. Performance measures include; market value added, market-to-book ratio, EVA, ROC, ROE, and ROA You should cover at least 3 ratios; one of them must be an analysis of the return on assets using the Du Pont System Ensure that you show all calculations and footnote the page number of the annual report where you obtained the figures Do not reproduce pages/sections of the annual report. Compare your ratios with a competitor taking note of its: o Size (market capitalisation) o Age o Sector/market/industry o Scope of operations If there are not comparable competitors, you may have to select a few closely related ones to perform your comparison The DatAnalysis Morningstar database from the Curtin library (online) is an available resource that you can use to obtain the ratios of competitors. Calculations of competitors' ratios are not required Analyse and comment on the ratios of your company against the benchmarks Calculations of ratios without analysis and comment will receive a null grade for this section Page 10 of 13 3.4 Marking rubrics Below expectations (0 - 49%) Meets expectations (50 - 69%) Exceeds expectations (70 - 100%) Shareholders - reproduced substantial sections of annual report, - went beyond simple description of the investor of the - showed evidence of planning and effort, reading and analysis websites, commercial reports selected company understanding 20% - revealed little understanding of the scope of the case - attempted to analyse the investor's profile and - showed evidence of deeper level research and currency study motivation of response - made no attempt to analyse the company's annual - made assumptions that show the level of investigation - provided detail analysis and description of the typical report taken investor of the company - showed little evidence of analysis of the chairman's - showed evidence of analysis of the chairman's message - explored and discuss in depth the investor's profile and message in the annual report in the annual report motivation - contained irrelevant material - showed some evidence of application of the unit's - showed clear evidence of analysis of the chairman's concepts message in the annual report - contained no irrelevant content - showed clear evidence of application of the unit's - explained clearly why the analysis is justified with clear concepts and explore extensions reference to the annual report - provided clear assessment of the impact of marginal investors in the context of the chosen company - explained clearly with aid of diagrams and charts why the analysis is justified with clear reference to the annual report Risk-return - reproduced substantial sections of annual report, - clear and succinct summary of the company's risks - clear and succinct summary of the company's risks with analysis websites, commercial reports - showed deep understanding of the implications of the evidence of additional research beyond the information 20% - revealed little understanding of the implications of the risks provided in the annual report risks - provided clear linkage of the risks to future returns of the - showed deep understanding of the implications of the - made no attempt to link risks to future returns of the company risks with detailed explanation company - correct usage and application of formulas - provided clear linkage of the risks to future returns of the - wrong usage and application of formulas - included tax consideration; eg. franking credits company using specific examples from the annual report - did not show full workings - included all dividend payments - correct usage and application of formulas - omitted tax consideration; eg. franking credits - showed strong evidence of research into the company's - included tax consideration; eg. franking credits - excluded some dividend payments investment projects - included all dividend payments - showed little evidence of research into the company's - provided a strong argument to link the performance to - showed strong evidence of research into the company's investment projects managerial abilities investment projects; providing diagrams or tables where - provided a weak argument to link the performance to - contained no irrelevant material appropriate Page 11 of 13 managerial abilities - provided a strong argument to link the performance to - contained irrelevant material managerial abilities - contained no irrelevant material Cost of - reproduced substantial sections of annual report, - demonstrated clear understanding of the task - demonstrated clear understanding of the task capital websites, commercial reports requirements requirements with evidence of critical thinking 40% - revealed little understanding of the task requirements - correct usage and application of formulas - correct usage and application of formulas - wrong usage and application of formulas - showed full workings - showed full workings - did not show full workings - clear assumptions provided to justify the usage of values - researched into various theories and methods in - no assumptions provided to justify the usage of values used for Rf and Rm ascertaining the cost of capital; with discussion on the use used for Rf and Rm - provided clear reasoning on the selection between and relevance of each method - did not provide clear reasoning on the selection between CAPM and DGM - clear assumptions provided to justify the usage of values CAPM and DGM - used majority of the numbers from the company's used for Rf and Rm; with commentary on how the data - used numbers from websites/research houses/analysts' annual report might be improved reports instead of the annual report - demonstrated strong evidence of research into the - provided clear reasoning on the selection between - showed little evidence of research into the company's company's borrowings and provided evidence of where CAPM and DGM and discussion on other methods borrowings and did not provide evidence of where the the rates were obtained - used majority of the numbers from the company's rates were obtained - provided a strong argument to link the WACC to annual report and comparing them with other sources - provided a weak argument to link the WACC to company projects/investments - paid particular attention to the date of the datasets and company projects/investments - contained no irrelevant material discussed the implications of any mismatch - demonstrated strong evidence of research into the - contained irrelevant material company's borrowings and provided evidence of where the rates were obtained; providing clear assumptions - provided a strong argument to link the WACC to company projects/investments - contained no irrelevant material FSA - incomplete workings of calculating the ratios - showed workings of calculating the ratios - provided all workings of calculating the ratios 20% - unable to clearly identify where the figures were - provided clear referencing - provided footnotes to reference the annual report obtained from the annual report - discussed the relevant performance ratios - gave clear explanation to the use of figures and - failed to discussed the relevant performance ratios - provided analysis of the performance of the company discussed other options considered - provided a weak analysis of the performance of the through the Du Pont System - choice of ratios to discussed showed evidence of company through the Du Pont System - showed evidence of research of the benchmarks used understanding the company and use of critical thinking - unclear explanation of the benchmarks used - provided detailed comments on the comparison to the - provided clear analysis of the performance of the Page 12 of 13 - provided comments on the comparison to the benchmarks company through the Du Pont System benchmarks - provided assumptions - showed evidence of research of the benchmarks used - made assumptions that reflected little thought or - contained no irrelevant material - comments on the comparison to the benchmarks reflection showed evidence of critical thinking and analysis - contained irrelevant material - clear assumptions provided to evidence understanding of the use of values from various sources - contained no irrelevant material Page 13 of 13