QUESTION 1 Freedom Foods (ASX: FNP) is an Australian producer off a wide array of health goods such as dairy and plant-based beverages and various nutritional products. In 2020, with an aim to pay senior and secured debt and bolster its weakened working capital, FNP raised $265,000,000 via as subordinated secured convertible notes issue at $ 1 apiece. Perich family, the largest shareholder of the group, contributed $200,000 through their sister company Arrovest Pty Ltd. In November 2020, revelations showed approximately $590,000,000 in inventory had to be written down and several years worth of accounts had to be restated. Extensive investigation also pointed to the prospect of fraud. In addition, FNP was also facing two class actions in Australia, and one filed in the USA. After revelation of several accounting irregularities, restatement of accounts, and write-downs, FNP went into a trading halt in June 2020 until 30 October 2020. Required (i) Using FNPs 2020 Annual Report, estimate the firms weighted average cost of capital (WACC) and discuss the limitations /reliability of your calculation. (Show your calculations) (10 marks) (ii) Why would FNP calculate its WACC, in what frequency, and how can FNP affect its WACC? (5 marks) (iii) What is the rate of return an investor should require from FNP ordinary shares? Is WACC a sound metric that finance managers can use for this purpose? Discuss (10 marks) (iv) Does adding further debt to the already highly leveraged business which is also in turmoil make sense to you? What would be the key factors that might have motivated the FNP management to raise debt via issuing subordinated secured convertible notes? (10 marks) (v) Discuss the potential implications of issuing subordinated secured convertible notes on the current FNP ordinary shareholders? (5 marks) (vi) Identify and discuss the feasibility, advantages, and disadvantages of two potential sources FNP management has most probably considered before deciding in favour of subordinated secured convertible notes. (10 marks)

QUESTION 2 BHP Group Limited is an Australian conglomerate that engages in the exploration, development, and processing of iron ore, coal, and copper. Iron ore prices have plunged from $220 per ton in 2021 to just over $100 per ton in December 2021. Iron ore exports are one of the fundamental components of the companys revenue. Yet, BHP has just announced their intention to increase their dividend for 2021. Required (i) What might have motivated BHP to increase their dividend? What are the implications of BHPs announcement for financial markets? (10 marks) (ii) BHP board approved the establishment of a Dividend Reinvestment Plan (DRP) for the final implementation for the final dividend in the 2018 financial year. What are some of the major reasons BHP may have wished to establish a DRP? What benefits, if there are any, would a DRP offer to ordinary shareholders? (10 marks) (iii) Based on the past years of dividend payment history, how would you describe the BHPs dividend policy? Is the current dividend policy justified? Why or why not? Discuss the factors which in your opinion underlie the dividend policy of the company. If you were to advise the management about the dividend policy for FY 2022, what would you recommend? (10 marks) (iv) Critically evaluate BHPs financial and non-financial risks including ESG (Environmental, Social and Governance) and the way BHP managed those risks in the past five years. (20 marks)