QUESTION 1:FINANCIAL STATEMENT ANALAYSIS

Using the annual reports of Sky City Entertainment Group Limited (SKC) for 2017 and 2018, answer the following questions.

SKC's annual reports can be obtained from the company website or company research database.

Go to: https://companyresearch-nzx-com.ezproxy.aut.ac.nz/deep_ar/newpage.php?default=SKC

1. Using the consolidated financial statements of Sky City Entertainment Group Limited (SKC) for the years 2017 and 2018, prepare common-size balance sheets and income statements.(8 marks)

2. Discuss THREE significant matters that have impacted the financial performance of SKC in the financial year ended in 2018.(6 marks)

3. Evaluate SKC's normalised net profit after tax, and recent progress on the company's strategic initiatives.(10 marks)

4. Discuss the role of corporate governance of SKC in creating value for the company.(4 marks)

5. Using the following ratios for 2017 and 2018 financial years, and other associated information available in the public domain, assess the financial health of SKC from the view of an investor.

a) Liquidity ratios b) Asset management efficiency ratios c) Profitability ratios d) Market ratios(12 marks)

Note: You must calculate and discuss at least THREE ratios under each of the above categories.

6. Assume you are a banker and evaluating a loan request from Sky City Entertainment Limited for $200 million. What would be your concerns in deciding on approval or denial of the loan request?

Note: Consider SKC's recent earnings announcements, its current projects (e.g., the convention center), and the company's recent credit rating by Standard and Poor. You may refer to the company's capital structure ratios for 2017 and 2018 in your explanation.(10 marks)

Question 2:Financial Management and Time Value of Money(30 Marks)

A. What role do securities markets play in bringing companies and investors together?(5 marks)

B. Christine Shepherd started working as an accountant after her graduation at AUT in 2015.Christine's annual salary is $75,000 which is likely to remain the same until she leaves the company. She started making contributions to her Kiwi Saver plan when she turned 23 on 1st January 2016, to which her employer matches dollar to dollar. She contributes 4% of her salary to Kiwi Saver and makes monthly payments.She is planning to buy a new car for $60,000 in two years from now, and she wants to save enough money to make a 25% deposit on the car and finance the balance. To her surprise, she was told that she is eligible to get a bonus at the end this year that she hopes will cover her car deposit in two years.Christine turns 27 next year, and so a wedding is also in her plans. Christine and her boyfriend, Ryan, have a set a wedding date two years from now because Ryan finishes an MBA in two years. Currently, Ryan works part-time for a construction company earning $36,000 a year.

Required:

a. Justify Christine's participation in the Kiwi Saver using the time value of money concepts by explaining how much she will accumulate in her Kiwi Saver when she retires at 65 if the average return on her savings is 6.12% per annum.(4 marks)

b. Calculate the amount of money that Christine needs to set aside from her bonus this year to cover the car deposit, assuming she can earn 5.25% p.a. interest on her savings. What if she earns 5.95% p.a. interest on her savings?(4 marks)

c. Assuming Christine and Ryan's wedding is in February 2021, calculate their monthly savings if their wedding expenses amount to $28,000, and if the interest on their savings is 5.25% per annum.(2 marks)

C. Christine and Ryan are planning to buy a residential property for $850,000 and wanted to take a 20-year loan for 80% of the property value. The interest rate is 4.25% per annum, and payments are required to be made annually at the end of each year. Christine can use $170,000 trust fund left to her as an inheritance by her late grandfather.

a. Calculate the annual mortgage payment on the loan(1 marks)

b. Construct a mortgage amortisation table showing loan balance at the beginning of each year, annual repayment amount, interest payments, the amortisation of the loan and the loan balance for each year.(10 marks)

c. What is effective annual rate (EAR)? Calculate the effective annual rate (EAR) for Christine and Ryan's mortgage if monthly mortgage payments are required. Is it different from the annual interest rate? Explain why or why not.(4 marks)

Question 3:Capital Budgeting and Investment appraisal(20 marks)

Bellamy NZ Limited is planning to purchase new undercarriage machinery for its construction unit. The company is considering the following four mutually exclusive alternatives. The required payback period is five and a half years. The financial data regarding the four machines is given below (ignore taxes).

Machinery Revenue Operational cost Depreciation Interest Cost of the machine Machinery Life

Volvo UC10 132000 62000 17500 25200 280000 16

Volvo UC50 125000 58000 20500 22500 240000 12

Volvo UC80 117000 53220 23200 20880 232000 10

Volvo UC100 94000 44200 24000 17700 196000 8

The construction department has requested the Chief Financial Officer (CFO) to evaluate the above investment opportunities using both payback period and internal rate of return methods. The CFO is seeking your help to calculate each machine's payback period and internal rate of return (IRR) to evaluate the options against Bellamy's benchmarks.

Required:

a. Calculate each machine's payback period and state which alternative should be accepted based on this criterion.(6 marks)

b. Calculate each machine's internal rate of return (IRR), and using a hurdle rate of 25% state which of the alternatives is acceptable by this criteria.(8 marks)

c. The CFO of Bellamy NZ Ltd thinks that IRR is a better method than the payback method for Investment appraisal? Explain why or why not.(6 marks)