FM 2020S1-Reflection on Market Values – Accounting & Finance Assignment Help

Assignment Task

Task 

Question 1.
You are considering an investment in two stocks, A and B. Suppose that you estimate ?A = 0.80 and ?B = 1.40. Further, you also estimate the following values, which you believe are a reliable guide for the future. All values are expressed in annual terms. The correlation between stocks A and B is 0.40.

• From the perspective of a well-diversified investor, is stock A or stock B riskier?
• Is the return data consistent with the CAPM?
• You decide to invest half your wealth in stock A and half in stock B.

1. What are the expected return and the Std. deviation of your portfolio?
2. What are the expected return and the Std. deviation of your portfolio if the correlation between stocks A and B is 1.0 instead of 0.4?

• Based on your calculation above, explain the benefit of diversification.

Q1 Notes:
1. For a high mark for this question, I would expect you to present your solution logically and clearly.  
2. Your response must be typed properly in Word document. You need to explain your approach, solution method, the input parameters and  how you did the calculation (e.g. the Excel functions you use) etc.
3. Your response should be concise.  There is no need to show your excel spreadsheet. Your response should be not be more than 

Question 2
You have just started working in the finance department of Sanderson and Ogilvy Limited. Your first task is to restate the long-term finance component of the following balance -sheet extract to reflect market values:
Bonds ($1000, 8% annual coupon, 30-year maturity):    $150 million
Ordinary shares (100 million issued):                              $100 million

Once you have completed this, you have to review the evaluation of a proposal for a major plant and equipment investment project. You have ascertained that the evaluation has been completed using estimates provided by the company’s operational staff of the projects’ incremental cash flows and the directive from the company’s managing director that 100% of the funds for this project will be provided by retained earnings. You remember from your job interview that John Sanderson, the company’s managing director, told you that ‘he knows everything about finance’ and that as retained earnings are a costless source of finance he can maximise the NPV of a project by funding all the initial investment with retained earnings.

• If the current yield on the company’s bonds is 7% p.a. and the current market price of its ordinary shares is $3.5, determine the current market-value weights of the company’s capital structure.
• Why do you need to calculate the market-value weights of the long-term debt and equity?
• Are retained earnings a costless of ordinary equity finance?
• Should the weighted average cost of capital be used to evaluate this project?
• The company is subject to a classical tax system at a marginal tax rate of 28%. Also, the company recently paid an ordinary dividend of 34 cents per share and future dividend amounts are expected to grow at an annual rate of 4%. Calculate the company’s after-tax weighted average cost of capital.

Notes:

1. For a high mark for this question, I would expect you to present your solution logically and clearly.  
2. Your response must be typed properly in Word document. You need to explain your solution method (e.g. annuity, perpetuity, time-line  etc ),  the input parameters and  how you did the calculation (e.g. the Excel functions you use).
3. Your response should be concise.  There is no need to show your excel spreadsheet.

Overall Notes: 
1. Submission file must be a  Word document (DOCX/DOC file only). 
2. It is important  that you focus on making your points. See  the marking rubric in CANVAS – do make sure you read it carefully.
3. Please use a NEW Word Document to type in your answers and do NOT include the questions in your answers to avoid a high Turnitin similarity rate. 

This FM 2020S1-Accounting & Finance Assignment has been solved by our Accounting & Finance Expert at TV Assignment Help. Our Assignment Writing Experts are efficient to provide a fresh solution to this question. We are serving more than 10000+ Students in Australia, UK & US by helping them to score HD in their academics. Our Experts are well trained to follow all marking rubrics & referencing Style. Be it a used or new solution, the quality of the work submitted by our assignment experts remains unhampered. 

You may continue to expect the same or even better quality with the used and new assignment solution files respectively. There’s one thing to be noticed that you could choose one between the two and acquire an HD either way. You could choose a new assignment solution file to get yourself an exclusive, plagiarism (with free Turn tin file), expert quality assignment or order an old solution file that was considered worthy of the highest distinction.