TFIN202 Corporate Finance

TFIN202 Corporate Finance
Top Education Institute
Sydney City School of Business
Semester 2, 2017 Individual Assignment Page 1 of 4
Individual Assignment
TFIN202 Corporate Finance, Semester 2, 2017
Due Date: Thursday, 21 September 2017, before 11.59 pm (Sydney time)
Total mark -100 (weight is calculated out of 20%)
Refer to the handouts on Moodle on business report writing skills.
Word limit – 2,500 words
Font type – Times New Roman (size 12)
Paragraph spacing – 1.5
Assignments must be submitted on www.moodle.com.au using the Turnitin link.
Do not lodge by EMAIL nor at Academic Office
Retain a copy of your assignment paper
The assignment must be lodged on or before the due date.
Submit your assignment as one document, using PDF or Word format.
This assignment paper has three case studies. All case studies are compulsory.
Do not include the questions in your assignment. Only include the answers to the
questions
TFIN202 Corporate Finance
Top Education Institute
Sydney City School of Business
Semester 2, 2017 Individual Assignment Page 2 of 4
Case Study #1 (20 marks)
On your first day as an intern at Tri-Star Management Pty Ltd, the CEO asks you to analyse
the following information pertaining to two ordinary share investments, Tech.com and Sam’s
Grocery. You are told that a one-year Treasury note will have a rate of return of 5% over the
next year. Also, information from an investment advisory service lists the current beta for
Tech.com as 1.68 and for Sam’s Grocery as 0.52. You are provided a series of questions to
guide your analysis.
Economy Probability Estimated rate of return
Tech.com Sam’s Grocery ASX 200
Recession 30% -20% 5% -4%
Average 20% 15% 6% 11%
Expansion 35% 30% 8% 17%
Boom 15% 50% 10% 27%
1. Using the probabilistic approach, calculate the expected rate of return for Tech.com,
Sam’s Grocery and the ASX 200 Index.
2. Calculate the standard deviations of the estimated rates of return for Tech.com, Sam’s
Grocery and the ASX 200 Index.
3. Which is a better measure of risk for the ordinary shares of Tech.com and Sam’s
Grocery – the standard deviation you calculated in Question 2 or the beta?
4. Based on the beta provided, what is the expected rate of return for Tech.com and
Sam’s Grocery for the next year?
5. If you form a two-share portfolio by investing $30,000 in Tech.com and $70,000 in
Sam’s Grocery, what is the portfolio beta and expected rate of return?
6. If you form a two-share portfolio by investing $70,000 in Tech.com and $30,000 in
Sam’s Grocery, what is the portfolio beta and expected rate of return?
7. Which of these two-share portfolios do you prefer? Why?
TFIN202 Corporate Finance
Top Education Institute
Sydney City School of Business
Semester 2, 2017 Individual Assignment Page 3 of 4
Case Study #2 (35 marks)
Since graduation from college, you have worked at Precision Manufacturing Pty Ltd, as a
financial analyst. You have recently been promoted to the position of senior financial manager,
with responsibilities that include capital budgeting decisions and the raising of long-term
financing. Therefore, you decide to investigate the various alternatives for raising funds. Your
goal is to make sure that the benefits received from undertaking long-term projects are greater
than the costs of raising the long-term funds needed to finance those projects. With this goal in
mind, you decide to answer the following questions:
1. What should managers consider when making the decision whether to finance internally or
externally?
2. What services does an investment banker offer to businesses that choose to raise funds in
the capital market?
3. What are the benefits to the company of going public?
4. What are the drawbacks to the corporation of going public?
5. What returns can investors in the ordinary equity expect on the first day of trading if they
commit to purchase shares through the IPO issue? What factors may affect the relative
amount of these first-day returns?
6. Describe the following offers: (a) seasoned equity offer; (b) rights offer, and (c) private
placement. In what circumstances would a company use each of these offerings to raise
funds?
7. Discuss the implications of the various capital structure theories for optimal capital
structure including Trade-off Theory and Pecking Order Theory.
TFIN202 Corporate Finance
Top Education Institute
Sydney City School of Business
Semester 2, 2017 Individual Assignment Page 4 of 4
Case Study #3 (45 marks)
Casino.com Corporation is building a $25 million office building in Adelaide and is financing
the construction at an 80 % loan-to-value ratio, where the loan is in the amount of
$20,000,000. This loan has a ten-year maturity, calls for monthly payments, and is contracted
at an interest rate of 8%.
Using the above information, answer the following questions:
1. What is the monthly payment?
2. How much of the first payment is interest?
3. How much of the first payment is principal?
4. How much will Casino.com Corporation owe on this loan after making monthly
payments for three years (the amount owed immediately after the thirty-sixth
payment)?
5. Should this loan be refinanced after three years with a new seven-year 7 per cent loan,
if the cost to refinance is $250,000? To make this decision, calculate the new loan
payments and then the present value of the difference in the loan payments.
6. Returning to the original ten-year 8 per cent loan, how much is the loan payment if
these payments are scheduled for quarterly rather than monthly payments?
7. For this loan with quarterly payments, how much will Casino.com Corporation owe
on this loan after making quarterly payments for three years (the amount owed
immediately after the twelfth payment)?
8. What is the annual percentage rate on the original ten-year 8 % loan?
9. What is the effective annual rate (EAR) on the original ten-year 8 % loan?

find the cost of your paper