Answer-1

Information given in question is mentioned hereunder:

A. Essential Factors in finance of corporate

The Corporate Finance can be defined as a financial branch which controls the requirements of finance, base of capital and essential decisions which are in relation to corporation investment (Cloyne and Surico, 2018). The corporate finance plays an important role in profit maximization by formulating plans and implementing those plans. Some of the essential areas that are to be determined as company’s CFO are:

• Budgeting of Capital- Budgeting of capital is a process in which the company or organization determines its long term investments which are worthy of cash funding via the company’s structure of capitalization.
• Structure of Capital- The Structure of Capital is a combination of equity and debts for funding their operations & growth.
• Working Capital Management- The working capital management can be defined as a process through which the organization or company can ensure the efficiency of the company by keeping an eye on the current assets and liabilities and using them at its best

B. Equity of Owner

Equity of Owner shows the investment of owner in the business minus the withdrawals of the owner plus net income from the beginning of business (Ponomareva and Zheleznova, 2018).

From the given  x , the equity of owner can be calculated as-

Total business assets= Assets in use + Net Assets

                                      = AUD 7920 + AUD 17700

                                      = AUD 25620

Total business liabilities= Liabilities in use + Debts

                                          = AUD 4580 + AUD 5890

                                           = AUD 10470

Equity of owner = AUD 25620 – AUD 10470

                              = AUD 15150

Balance Sheet- the Risk Surfing is given below:

                                                                        Balance Sheet of Risk Surfing

C. (WC) Working Capital

The working capital of an organization or company shows the operating liquidity available in business or organization (Panda and Nanda, 2018). The working capital of an organization can be calculated using the formula given below:

Working Capital (WC) = Assets in use (Current) – Liabilities in use (Current)

Therefore, from the given information working capital is calculated as:

Working capital= AUD 7920 – AUD 4580

                            = AUD 3340

D. Return (ROA) on Asset

The Asset return can be defined as an indicator which represents profit of an organization with respect to total assets in an organization (Sujud and Hashem, 2017).

Given in the question: Equity Return= 30%

Return on (ROA) Asset = Business Income/ Total Asset

Equity Return = Business Income/ Equity

30%= Business Income/ AUD 15150

Business Income = 30% x AUD 15150

                               = AUD 4545

Asset Return = AUD 4545/ AUD 25620

                         = 17.75%

E. Price to (PE) Earnings

Earning of Price is defined as a represents the ratio between share price and earnings per share of the company (Pitaloka, 2017). The earning price can be calculated as:

Earning price = Market Price per share / Earnings per share

Firstly, earnings per share will be calculated using the formula given below:

Earnings per share = Available Net Income for owners / Number of O/S Shares

                                  = AUD 4545 / 2000 

                                  = AUD 2.2725

Earning Price = AUD 12 / AUD 2.2725

                         = 5.28

Answer-2

Savings of Molly as cash in hand is AUD 120000 and kept aside money for the education of here child is AUD 450000. There are two investments before her:

Investment A: Savings money to be invested in bank

Investment B: Allocating same amount of investments in ANZ bank in the month end therefore she will be able to get AUD 330000 at 15^th year beginning now.

A. Effective Interest Rate (Annual)

The Effective Interest Rate can be defined as an interest rate Restated from nominal rate of interest and represented as equivalent rate of interest in case if the compound interest is annually payable.

 Effective Interest Rate can be calculated using the formula given below:

Effective Interest Rate = {1 + (Nominal Rate of Interest / Number of period)} ^ Number of period – 1

Bank A

Number of Period = 2 (Half-Yearly) x 15 yrs. 

                                 = 30

Effective Interest rate = {1 + (.085/30)} ^ 30 – 1

                                        = 8.862%

Bank B

Number of Period = 4 (Quarter) x  15 years

                                 = 60

Effective Interest Rate = {1 + (0.0845/60)} ^ 60 – 1

                                        = 8.81%

From the above values calculated for Effective Interest Rate, it can be concluded that Molly should invest her savings amount in Bank X because it provides higher Effective Interest Rate than Bank Y

B. Future value of Money

If Molly decides to invest her savings amount in Bank Y, given below will be the amount she would receive after 15 years:

Predicted Values = Current Value x (1+Rateof Interest/Number of compound) ^ Number of periods

                               = AUD 120000 x (1+0.0212) ^ 60

                               = AUD 420645

C. Annual Rate of Interest

Rate of Interest = (Predicted Values/Current Values) ^ (1/ Number of Periods) -1 (ZVINGELIS, 2019)

Number of Periods = 10

Annual Rate of Interest = (AUD 450000/ AUD 120000) ^ 0.1 -1

                                           = 14.12%

D. Per Month Payment

Current value = Predicted Value/(1+Rate of Interest/Number of compound) ^ Number of Periods

Number of Compound = 12

Number of Periods = 15 x 12 = 180

Current Value = AUD 330000 / (1+0.07/12) ^ 180

                         = AUD 115839

Per Month Payment = AUD 115839/180

                                     = AUD 643.50

E. Expected Future Value

Predicted Value = (Current Value  x  (1+Rate of Interest) ^ n – 1) / (Rate of Interest)  x  (1+Rate of Interest)

                             = AUD 1200 x (1 + (0.07/12)) ^ 180 – 1 / (0.07/12) x  (1 + (7%/12))

                             = AUD 1200 x 316.9513 x 1.005833

                             = AUD 382560

F. Investment Payment

Value of Investment = AUD 12000/0.12

                                     = AUD 100000

Answer-3

An investment portfolio was established which involves the stock of X and Y.

A. Geometric Average (GAR) Return

The Geometric Average Return is a way which is used to calculate average return rate over investment which is compounded on various periods. Gar can be calculated using the formula given below:

Geometric Average Return = {(1+ 1^st Rate)  x  (1+ 2^nd Rate)  x  (1+ 3^rd Rate)  x  ….(1+ nth Rate)}^(1/n) – 1

The Return Rates given in the  x  are mentioned below:

Geometric Average Return = {(1+ 9.7%) x (1-6.2%) x (1+12.10%) x (1+11.50%) x (1+ 13.30%)} ^ (1/5) – 1

                                                = 7.82%

B. β Beta

According to the pricing model of Capital Asset,

Expected Return = (Beta x Premium Risk) + Risk Free Return 

Expected Return = 14.6%

Risk Free Return = 5.9%

Premium Risk = 5.8%

Placing the values in the above formula, we get:

Beta (β) = 1.5

C. Capital (CG) Gain

Total Invested Amount = AUD 1200

Stock Purchased = 200

Cost of each stock = AUD 1200/200 = AUD 6

Capital Profit on Investment = Dividend + Present Price of share - Purchase Cost of Share (Maleki and Ranjbar, 2017)

                                                   = AUD 75 + AUD 2 – AUD 6

                                                   = AUD 71 per share

Total Capital Profit = AUD 71  x  200 = AUD 14200

D. Portfolio

Details given in the  x  are mentioned below:

Expected Return of the Portfolio = Weight X  x  Expected Return X + Weight Y  x  Expected return Y

                                                            = 12.5 x 45% + 18.5 x 55%

                                                            = 15.8%

Variance of Portfolio = (Weight X)^2  x  (Standard Deviation X)^2 + (Weight Y)^2  x  (Standard Deviation Y)^2 + 2  x  Weight X  x  Weight Y  x  Covariance (X, Y)

Covariance (X, Y) = Correlation of Coefficient x Standard Deviation A x Standard Deviation BY

                               = 0.4 x 15% x 20%

                               = 0.012

Variance of Portfolio = (0.45) ^ 2 x (15%) ^ 2 + (0.55) ^ 2 x (20%) ^ 2 + 2 x 0.45 x 0.55 x 0.012

                                      = 0.02259625

Standard Deviation of Portfolio = Standard Deviation of Portfolio = (Variance of Portfolio) ^ (1/2)

                                                          = (0.022596) ^ (1/2)

                                                          = 15%

Answer-4

A. Current Bond Price

Rate of Coupon = 12%

Amount of Coupon = AUD 1000 x  12% = AUD 120

Maturity Time = 25 Years

YTM = 10  x  (1-30%) = 7%

Face Value = AUD 1000

Bond Value = Coupon Cost  x  (1-(1+Rate of Interest) ^ -Number of Period)/ Rate of Interest + Face Value (1+ I ) ^ -n

Bond Value = AUD 120 x  (1-(1+0.07)^-25)/7% + $1000(1+0.07)^-25

                     = AUD 1582.68

1. Equity Share Value

According to method dividend growth,

B. Equity share value = Dividend Expected/ (Rate of Return – Growth Rate)

                                 = AUD 7.50/ (0.09-0.03)

                                 = AUD 125

C. Preference Share Value

Dividend = 14% in essence, AUD 100 x 14% = AUD 14

Cost = Dividend/Rp

        = AUD 116.67 each share

D. Value of Company and Structure of Capital

Value of Firm

Structure of Capital

Answer-5

Information given in the  x  is mentioned below:

A. Index of Profitability

Index of Profitability = Current value of predicted cash flow/Project’s Initial Cost

Calculating Current Value of cash flows from Equipment A:

Index of Profitability of Equipment A = AUD 317809.53 / AUD 186000 = 1.708

Calculating Current Value of cash flows from Equipment B:

Index of Profitability of Equipment B = AUD 328104.83 / AUD 195000 = 1.68

From the above calculations, we can conclude that the organization should accept the Equipment B proposal because it gives higher index of profitability as compared to Equipment A.

B. Discounted Method of Payback

Calculating discounted period for the Equipment A:

There is presence of negative balance in the column of Primary Investment to recover which says that Primary investment can be recovered in 2^nd year.

Calculating specific period:

Discounted Period = 2 years + (AUD 35637.86 / AUD 65888.08)

                                  = 2.54 years

Calculating Discounted period for Equipment B:

There is presence of negative balance in the column of Primary Investment to recover which says that Primary investment can be recovered in 2^nd year.

Calculating specific period:

Discounted Period = 2 yrs. + (AUD 35637.86 / AUD 68269.57)

                                  = 2.49 yrs.

In case selected criteria of discounted periods is 2 annum, both the above proposals of investment are not fit.

Answer-6

A. Price of Ex-Dividend

The price of ex-dividend is defined as a rate which is set up by an entity for the sale of shares in market a day before the date of record (Dupuis, 2019).

The Price of ex-dividend is calculated as:

Price of Ex-Dividend = Current share price – Dividend * (1- rate of tax)

                                     = AUD 22- AUD 4.5

                                     = AUD 17.5

B. Pay-out of Dividend

The pay-out of dividend can be defined a s proportions of paid out earnings in form of dividends to the shareholders.

Net Gain = AUD 2575000

Succeeding year fund requirement = AUD 745000

Paid out dividend of company for present year = AUD 2575000 – AUD 745000

                                                                                     = AUD 1830000

Pay-Out of dividend = AUD 1830000/ AUD 2575000 = 71%

C. Equity Value

Total Dividend = Present year dividend + Current dividend value for succeeding year

                           = AUD 3500000 + AUD 8500000  x  (1/1.14)

                           = AUD 3500000 + AUD 7488987

                           = AUD 10988986.8

Company Value = Total Dividend /Rate Required 

                             = AUD 10988986 / 13.5%

                             = AUD 81399902.1

Cost of per share = AUD 81399902/2500000

                                = AUD 32.55