Financial Markets Assignment
Question 1 -
You are making a plan to buy a house after 10 years from today. You are looking for an investment package which will at least produce $750,000.00 at the end of 10th year. There are 2 companies in the market (Company X and Y). Both of the companies are offering you an investment package for your purpose. The details of both of the packages are given below:
Company X offers a package of two investment opportunities X1 and X2 together. If you accept you will have to make separate investments in X1 for 10 years and X2 for 4 years. The investment in X1 should start now, however the investment in X2 will start in 7th year from now. Both investment (X1 and X2) will mature at the same time at the end of 10th year. The details of X1 and X2 investment plans are as follows:
Investment X1: The required investment at present is $65,000.00 which will go through 4 following phases (phase 1 to 4) in next 10 years. At the end of phase 1, 2 and 3 the entire fund will automatically be rolled over to the next phase for re- investment. The investment will mature at the end of phase 4. The 4 phases are as follows:
Phase 1: During first 1 years the investment will earn 12% return p.a. as per simple interest method, then roll over to phase 2;
Phase 2: In the following 2 years the investment will earn 9% return p.a. compounding daily, then roll over to phase 3;
Phase 3: In the following 3 years the investment will earn 14% return p.a. compounding monthly, then roll over to phase 4;
Phase 4: The final 4 years of the investment will earn 4% return p.a. compounding quarterly. The investment matures at the end of phase 4.
Investment X2: This investment is spread over 4 years. It will commence in the 7th year of the 10 year investment plan, so the timing of this 4 years will match the last 4 years of the 10 years of investment plan of X1. X2 requires an investment of $4100.00 at the end of each fortnight for 4 years, which will earn 16% p.a. return compounding fortnightly.
Both investments in X1 and X2 will mature at the end of the 10th year. How much, in total, will you accumulate from both investment opportunities at the end of 10th year?
Company Y offers a package of two investment opportunities Y1 and Y2 together. You will have to make separate investments in Y1 for 10 years and Y2 for 3 years. The investment in Y1 should start now, however the investment in Y2 will start in 8th year from now. Both investment (Y1 and Y2) will mature at the same time at the end of 10th year. The details of Y1 and Y2 investment plans are as follows:
Investment Y1: The required investment at present is $27,800.00 which will go through 4 following phases (phase 1 to 4) in next 10 years. At the end of phase 1, 2 and 3 the entire fund will automatically be rolled over to the next phase for re- investment. The investment will mature at the end of phase 4. The 4 phases are as follows:
Phase 1: During first 3 years the investment will earn 12% return p.a. as compounding quarterly, then roll over to phase 2;
Phase 2: In the following 2 years the investment will earn 8% return p.a. simple interest rate method, then roll over to phase 3;
Phase 3: In the following 2 years the investment will earn 14% return p.a. compounding semi-annually, then roll over to phase 4;
Phase 4: The final 3 years of the investment will earn 9% return p.a. compounding annually. The investment matures at the end of phase 4.
Investment Y2: This investment is spread over 3 years. It will commence in the 8th year of the 10 year investment plan, so the timing of this 3 years will match the last 3 years of the 10 years of investment plan of A1. A2 requires an investment of $17,000.00 at the beginning of each month for 3 years, which will earn 6% p.a. return compounding monthly.
Both investments in Y1 and Y2 will mature at the end of the 10th year. How much, in total, will you accumulate from both investment opportunities at the end of 10th year?
Answer the following questions:
1. How much each of the package would accumulate at the end of 10th year? Show your calculations.
2. Which one of the packages would you accept for your purpose?
(Assume 1 year = 12 months = 52 weeks = 365 days).
Question 2 -
The balance sheet and income statement of Company Z are given below:
Balance Sheet -
|
Assets
|
2016
|
2015
|
2014
|
2013
|
2012
|
|
Cash & Equivalents
|
$336,818
|
$319,978
|
$313,578
|
$310,378
|
$303,978
|
|
Trade Accounts Receivable
|
$131,359
|
$124,791
|
$122,295
|
$121,047
|
$118,551
|
|
Inventory
|
$11,789
|
$11,199
|
$10,975
|
$10,863
|
$10,639
|
|
Other Current Assets
|
$114,518
|
$108,793
|
$106,617
|
$105,529
|
$103,353
|
|
Total Current Assets
|
$594,484
|
$564,761
|
$553,465
|
$547,817
|
$536,521
|
|
Long-Term Investments
|
$80,836
|
$76,795
|
$75,259
|
$74,491
|
$72,955
|
|
Net Fixed Assets
|
$390,709
|
$371,174
|
$363,750
|
$360,038
|
$352,614
|
|
Intangible Assets
|
$60,627
|
$57,596
|
$56,444
|
$55,868
|
$54,716
|
|
Other Non-Current Assets
|
$77,468
|
$73,595
|
$72,123
|
$71,387
|
$69,915
|
|
Total Assets
|
$1,204,124
|
$1,143,921
|
$1,121,041
|
$1,109,601
|
$1,086,721
|
|
Liabilities
|
|
|
|
|
|
|
Accounts Payable
|
$27,508
|
$26,133
|
$25,610
|
$25,349
|
$24,826
|
|
Notes Payable
|
$74,841
|
$71,099
|
$69,677
|
$68,966
|
$67,544
|
|
Accrued Liabilities
|
$363,763
|
$345,576
|
$338,664
|
$335,208
|
$328,296
|
|
Other taxes Payable
|
$10,105
|
$9,599
|
$9,407
|
$9,311
|
$9,119
|
|
Current Portion of Long-Term Debt
|
$87,573
|
$83,194
|
$81,530
|
$80,698
|
$79,034
|
|
Total Current Liabilities
|
$563,790
|
$535,602
|
$524,889
|
$519,532
|
$508,820
|
|
Long-Term Debt
|
$333,450
|
$316,778
|
$310,442
|
$276,236
|
$270,540
|
|
Other Long-Term Liabilities
|
$77,468
|
$73,595
|
$72,123
|
$71,387
|
$69,915
|
|
Total Long-Term Liabilities
|
$410,918
|
$390,373
|
$382,565
|
$347,623
|
$340,455
|
|
Total Liabilities
|
$974,708
|
$925,975
|
$907,454
|
$867,156
|
$849,275
|
|
Share capital
|
$190,000
|
$190,000
|
$190,000
|
$190,000
|
$190,000
|
|
Retained Earnings
|
$39,417
|
$27,947
|
$23,587
|
$52,446
|
$47,446
|
|
Total Equity
|
$229,417
|
$217,947
|
$213,587
|
$242,446
|
$237,446
|
|
Total Liabilities and Equity
|
$1,204,124
|
$1,143,921
|
$1,121,041
|
$1,109,601
|
$1,086,721
|
|
No of shares
|
50,000
|
50,000
|
50,000
|
50,000
|
50,000
|
Note: Corrected on 28/3/2017. There was error in the above two lines, I have now corrected them. Sorry for any inconvenience caused. Please make necessary corrections in your calculations and solutions.
Income Statement -
|
2016
|
2015
|
2014
|
2013
|
2012
|
|
Sales
|
$1,079,445
|
$982,295
|
$1,144,212
|
$982,491
|
$982,334
|
|
Cost of goods sold
|
$464,161
|
$481,325
|
$537,779
|
$628,795
|
$609,047
|
|
Gross Profit
|
$615,284
|
$500,970
|
$606,432
|
$353,697
|
$373,287
|
|
Operating Expenses
|
$485,750
|
$432,210
|
$446,243
|
$373,347
|
$383,110
|
|
Operating Profit
|
$129,533
|
$68,761
|
$160,190
|
-$19,650
|
-$9,823
|
|
Other Income
|
$205,095
|
$216,105
|
$205,958
|
$117,899
|
$127,703
|
|
Other Expenses
|
$116,040
|
$96,265
|
$80,667
|
$125,759
|
$121,809
|
|
Earnings Before Interest and Taxes
|
$218,588
|
$188,601
|
$285,481
|
-$27,510
|
-$3,929
|
|
Interest Expense
|
$82,184
|
$78,075
|
$76,513
|
$69,525
|
$68,091
|
|
Earnings Before Taxes
|
$136,404
|
$110,526
|
$208,968
|
-$97,034
|
-$72,020
|
|
Income Taxes@30%
|
$40,921
|
$33,158
|
$62,690
|
-$29,110
|
-$21,606
|
|
Net Income
|
$95,483
|
$77,368
|
$146,277
|
-$67,924
|
-$50,414
|
|
Additional Information
|
|
|
|
|
|
|
Owners Compensation
|
$213,730
|
$190,172
|
$196,347
|
$182,940
|
$187,724
|
|
Depreciation Expense
|
$97,677
|
$92,794
|
$90,938
|
$90,010
|
$88,154
|
|
Selling Expenses
|
$124,070
|
$128,658
|
$143,748
|
$168,077
|
$162,798
|
|
Lease Expenses
|
$4,857.50
|
$4,322.10
|
$4,462.43
|
$3,733.47
|
$3,831.10
|
Address the following issues in your answers:
Calculate the necessary ratios to analyse (interpret and explain) the performance of company Z over the 5 years period.
Minimum requirements: You should follow the seminar questions on ratio analysis and at least calculate all the ratios shown in the seminar.
Standard expectations: I would expect you to do research on ratio analysis and performance analysis and add additional ratios/graphs/charts/trend analysis/pie diagram/or any other (use all or some of them) to improve your analysis.
Question 3 -
Visit https://www.rba.gov.au/statistics/cash-rate/ to see the record of cash rate changes by RBA. Take the post GFC period (2008 to 2016) and identify the possible reasons for cutting Australian interest rate till today.
Address the following issues in your answers:
1. Identify the reasons for cutting interest rate on a continuous basis and keeping it at such low level.
2. Show your analysis/calculations to support your reasoning.
Attachment:- Sample.rar