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Value: 20% Due date: 23-Aug-2016 Return date: 14-Sep-2016 Submission method options Alternative submission method Task You recently joined a small investment company in Sydney as an intern. As part of your first assignment you’ve been given an opportunity to invest $10,000 of a not so sophisticated investor to the following alternatives: • Capital Fashion Ltd bonds (apparel retailers), with a face value of $1,000 and a coupon interest rate of 8.75% are selling for $1,314 and mature in 12 years. • Agri Credit Ltd (financial services provider) preference shares are paying a dividend of $2.50 and selling for $25.50 • Southern Cross Electrical Ltd (electrical appliances manufacturer) ordinary shares are selling for $36.75. The shares recently paid a $1.32 dividend and the company’s earnings per share have increased from $1.49 to $3.06 in the past five years. The firm expects to grow at the same rate for the foreseeable future. Your client’s required rates of return for these investments are 6% for the bond, 7% for preference shares and 15% for the ordinary shares. Using the above information, answer the following questions: 1. Calculate the value of each investment based on the required rate of return. (6 marks). 2. Which investment would you recommend and why? Research on the current trends and future prospects on each of the industries and include a summary. (4 marks). 3. Assume Southern Cross Electricals’ Chief Finance Officer expects an earning downturn and a resulting decrease in growth of 3%. How does this affect your recommendation? (5 marks). 4. What required rates of return would make your recommendation indifferent to all three options? (5 marks). Rationale This assessment task covers topics 1 to 6 and has been designed to ensure that you are engaging with the subject content on a regular basis. This case study will provide an opportunity to apply the concepts in an authentic scenario that you may encounter in the workplace and also: · be able to demonstrate appropriate communication skills in the context of corporate finance. · be able to demonstrate specific technical competencies and skills in utilizing quantitative techniques in financial analysis. · be able to critically evaluate mainstream financial theory and concepts. Marking criteria Where necessary, state any assumptions you have made. Assignments should show all workings and students will be penalized for failing to do this. Use the following marking criteria as guidance: . High Distinction Distinction Credit Pass Fail Problem types/criteria (HD) (DI) (CR) (PS) (FL) . 85% to 100% 75% to 84% 65% to 74% 50% to 64% 0% to 49% Quantitative problems HD DI CR PS FL Recommendation applies principles of finance correctly to quantitative analysis. Types of quantitative analysis required are expected rate of return of ordinary shares, preference shares and bonds. Applies all correct principles and calculations, substantiated with workings or diagrams in order to arrive at the right answer. There are negligible errors in calculations. Applies correct principles and calculations, substantiated with workings or diagrams in order to arrive at the right answer, shows workings but contains minor errors in calculations. Applies most of the correct principles and calculations, substantiated with workings or diagrams in order to arrive at the right answer, shows workings but contains some minor errors. Applies understanding of most relevant principles, shows workings but contains some major errors. Frequent errors or unacceptable mistakes indicative of a lack of understanding of core principle(s). Conceptual problems HD DI CR PS FL Recommendation uses applies principles of finance correctly in discussing recommendation. Principles are applied in the appropriate manner to arrive at the correct answer. The use of relevant principles shows creativity and imagination. Discussion reflects excellent understanding of relevant principles, as evidenced by explicit use of financial theories and concepts. Discussion reflects on all relevant principles with some level of detail, minor errors in the application. Discussion reflects basic understanding, but not deep understanding of relevant principles. Minor errors in the application. Discussion reflects lack of basic understanding of relevant principles. Financial technology HD DI CR PS FL Recommendation uses appropriate financial technology to gather information and conduct financial analysis. Spreadsheet, data sources, and/or financial software used masterfully. The correct answers are derived using relevant technology, and the results are presented in a clear and professional manner. Spreadsheet, data sources, and/or financial software used competently. Mostly correct results are derived using relevant technology. Spreadsheet, data sources, and/or financial software used competently. Mostly correct results are derived using relevant technology, but there may be some minor errors. Spreadsheet, data sources, and/or financial software used competently. Mostly correct results are derived using relevant technology, but there may be some major errors. Spreadsheet, data sources, and/or financial software is misused or used inappropriately. Analyze business situations HD DI CR PS FL Analysis is sufficient to reach reasonable conclusions and recommendations as to which investment option is better value. Quantitative and qualitative analysis persuasively supports the recommendations and conclusions. Quantitative and qualitative analysis is clearly used to make specific and relevant conclusions and/or recommendations Quantitative and qualitative analysis is used to make reasonable conclusions and/or recommendations Quantitative and qualitative analysis is adequate to make reasonable conclusions and/or recommendations Quantitative and qualitative analysis too simplistic or convoluted. Financial research HD DI CR PS FL Use of literature/market research /evidence of reading. Has developed and justified own ideas based on a wide range of sources which have been thoroughly analysed, applied and discussed. Literature is presented with soundly based criticisms, in a descriptive way and indicates a good understanding of the literature. Literature is presented with some criticisms, in a descriptive way and indicates a few limitations of understanding. Literature is presented uncritically, in a descriptive way and indicates some limitations of understanding. No evidence of literature or irrelevant to the research question Presentation Please refer to the presentation requirements in Appendix 1. Requirements Assignments must be submitted through Turnitin. Please ensure you include your name and student ID in first page. Also include page number in the header or footer of every page of the assignment. Further details about submission are provided in Appendix 1. As per the CSU Referencing Policy, each assessment item must indicate the style of referencing required for each task. Students should be directed to a single Guide that supports the required referencing style for each assessment task. For those tasks requiring the use of APA, students should be directed to the CSU Referencing website at http://student.csu.edu.au/study/referencing-at-csu

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