Finance Assignment
REQUIREMENTS-
Callimbah Inc. is a successful company that is involved in the business consultancy sector. Callimbah Inc. provides both accounting and business advisory services to small and medium sized enterprises. Since foundation 15 years ago sales have increased and Callimbah Inc. has become a market leader in their target market. To cater for an overseas expansion, Callimbah Inc. has decided to list on the Australian stock exchange (ASX) in an initial public offering.
Question 1 - In approximately 400 words discuss why Callimbah Inc. might consider listing on the ASX and explain how such a move will change the regulatory environment for Callimbah Inc. shareholders.
Question 2 - Part A: Announced in the initial public offering prospectus, Callimbah Inc. issued the most recent dividend at $2.32 for each ordinary share, with 9,000,000 shares on issue. Equity analysts at the time calculated a required rate of return for the company of 8.25% per annum and that the dividend will remain at this level in perpetuity.
Part B: A year has passed since the last dividend payment, with an additional 28,500,000 ordinary shares issued through the IPO. Analysts now estimate that the required rate of return has increased to 11.5% per annum. Because of new projects undertaken by Callimbah Inc., it is now forecast that the company will grow its dividend (in line with increased earnings) by 8% per annum indefinitely.
Required: Part A: Based on this information alone, calculate a 'fair' price for each Callimbah Inc. share.
Part B: Given this new information, has your estimated 'fair' price for a Callimbah Inc. share changed? If so, calculate the new price.
Question 3: Callimbah Inc. is now prepared to expand overseas, and the marketing team has identified Hong Kong as an ideal location to establish a regional office. The team has further identified that the most appropriate means of establishing an office is to purchase office space downtown. Despite the strength of the current market, the company does not have enough cash to purchase the building outright. The management team has decided to finance the acquisition through a mortgage issued by a finance company. The building is expected to cost AUD$33,500,000.
Required: Part A: The following mortgage quotes were obtained from the finance team:
|
Mortgagee
|
Stated Rate (per annum)
|
Compounding Frequency
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Payment Frequency
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Term (years)
|
|
ABC Finance
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15.97%
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Daily
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Monthly
|
30
|
|
Finance Australia
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15.99%
|
Daily
|
Monthly
|
30
|
|
Mortgages 'r' Us
|
16.00%
|
Fortnightly
|
Monthly
|
30
|
|
Good Finance
|
16.00%
|
Monthly
|
Monthly
|
30
|
Upon seeing the quotes, your business analyst suggests that "this one is easy, just pick the offer with the lowest rate". Is the analyst correct? Demonstrate which mortgagee offers the lowest cost by calculating the effective annual rate and monthly repayment for each offer. For calculation purposes there are 365 days, 26 fortnights and 12 months in any given year.
Part B: After looking at the rates offered by each finance company one of the senior managers asks you whether a mortgage is the only option to raising the necessary funds for the overseas expansion. Specifically, the senior manager asks you to provide in approximately 200 words two alternative sources of funds and asks you to describe the role of the financial institution in facilitating each of these transactions.
Question 4 - A number of years have passed since Callimbah Inc. floated on the ASX. Callimbah Inc. has current earnings per share of $0.90. The board of directors has approved a dividend payout ratio of 50%. As Callimbah Inc. receives part of its income from overseas the investor will receive a 80% partly franked dividend. The investor has a marginal tax rate of 48.5% and owns 19 000 shares in Callimbah Inc.
Required: Calculate the total tax payable/receivable by the investor.
Question 5 - As an analyst you have been given a spreadsheet of financial data for Callimbah Inc. and a major competitor over the last ten years (SEE THE EXCEL WORKSHEETS TITLED "CALLIMBAH 3" and "COMPETITOR 3"). In approximately 200 words, using only the information contained in the spreadsheets and the ratios that you have learnt in class provide a brief statement outlining the financial position of Callimbah Inc.