Case Study 1
FACT SET
• Go to yahoofinance.com.au and obtain the closing adjusted price for Domino Pizza Enterprises Limited on the 30th June for each year from 2010 to 2015.
• Go to yahoofinance.com.au and obtain the dividends paid by Domino Pizza Enterprises Limited between 30th June 2010 and 30th June 2015.
• Go to yahoofinance.com.au and obtain the closing adjusted price for Retail Food Group Limited on the 30th June for each year from 2010 to 2015.
• Go to yahoofinance.com.au and obtain the dividends paid by Retail Food Group Limited between 30th June 2010 and 30th June 2015.
TASKS
1. Calculate the Holding Period Return for each company for each year from 30th June 2010 to 30th June 2015.
2. Estimate the Expected Return of each company based on your five-year historical sample of returns.
3. Estimate the risk of each company based on your five-year historical sample of returns.
4. Calculate the Total Return to Shareholders of each company over the five-year period from 30th June 2010 to 30th June 2015, using the following formula:
[P5 + D1 - 5/P0](1/5) -1
5. Compare and contrast the share price performance of each company.
Case Study 2
FACTS SET
• Jane Fleming is considering investing in a new cupcakes franchise business. Jane has provided you with the following data
o Market research suggests you can sell the cupcakes for an average price of $3 each.
o Under the franchise agreement she would have to pay a royalty payment equal to 8% of sales.
o She would also have to contribute 5% of sales towards the marketing costs of the franchisor.
o Cost of ingredientsper cupcake is $0.38
o Weekly rental $350, plus annual outgoings of $3,500.
o Wages: Shop assistant $16 per hour; baker $17 per hour
o Superannuation: 9.5% of wages
• Assume the shop assistant and the baker work for 8 hours per day, for 252 days of the year.
TASKS
1. What is the contribution margin?
2. How many cupcakes must Jane sell in a year in order to break even?
3. If you can sell all the cakes the baker can produce in an eight-hour shift (144 cupcakes) each day for 252 days of the year, what will be the annual pre-tax profit before tax?
4. If you increase your average selling price to $3.70, which has the effect of reducing the amount you are able to sell from 144 per day to 134 per day, what will be your annual pre-tax profit or loss?
5. If you reduce the selling price to $2.70 and employ an extra baker (producing at the same rate per 8-hour shift) in order to cater for the extra demand at the lower price, and if you wish to earn a pre-tax profit of $10,000 per annum, how many would you need to sell per year?
Case Study 3
FACTS SET
• Jane Fleming is considering investing in a new cupcakes franchise business. Jane has provided you with the following data on which to estimate the financial viability of the business using an NPV analysis.
o Jane decides to pursue a low price volume model, pricing the cakes at $2.70, at which she estimates she will be able to sell 70,000 cakes in the first year, 80,000 in the second year and 90,000 in the third year and subsequent years.
o Under the franchise agreement she would have to pay a royalty payment, or commission, equal to 8% of sales.
o She would also have to contribute 5% of sales towards the marketing costs of the franchisor.
o Cost of ingredientsper cupcake is $0.38
o Weekly rental $350, plus annual outgoings of $3,500.
o Wages: Shop assistant $16 per hour; baker $17 per hour
o Superannuation: 9.5% of wages
• Assume the single shop assistant and the two bakerseach work for 8 hours per day, for 252 days of the year.
• Assume no inflation in prices or wages.
• Assume a 30% tax rate.
• The initial investment in fittings and equipment is $200,000.
• You estimate the cost of capital to be 16%.
TASKS
1. Calculate the years to discounted payback of the initial investment.
2. Calculate the Net Present Value of the business, assuming the business is sold at the end of the third year for $150,000.
3. Calculate the Profitability Index, assuming the business is sold at the end of the third year for $150,000.
4. Based on the NPV you have calculated for the investment, would you recommend to Jane that the investment is financially viable?
5. Consider the risks of establishing a cupcake business as described in https://www.forbes.com/sites/allbusiness/2013/09/30/7-business-lessons-from-gourmet-cupcakes/. What advice might you offer Jane to modify her business plan to reduce its exposure to such risks?
Case Study 4
FACT SET
• Go to the Domino Pizza Enterprise Ltd website and obtain the Income Statement and Balance Sheet for the company for the 2014/15 financial year.
• Go to Retail Food Group Limited website and obtain the Income Statement and Balance Sheet for the company for the 2014/15 financial year.
TASKS
1. Based on the information contained in these statements calculate for each company:
a. The annual growth in Earnings per Share (Net Profit divided by the number of Ordinary Shares on Issue) over the five years to 30th June 2015.
b. The Net Profit Margin, Asset Turnover Ratio, Leverage Ratio and Return on Equity for the company for the 2014/15 financial year.
c. The Quick Ratio and the Net Debt to Equity Ratio as at the end of the 2014/15 financial year.
2. Compare and contrast the financial performance of the two companies over the past 5 years.
3. Use your analysis of the financial performance of the two companies over the past 5 years to explain any difference in the Total Return to Shareholders over the past 5 years, which you have calculated in Case Study 2.
Case Study 5
FACT SET
• Go to www.asx.com.au and look up the prices for Dominos Pizza Enterprise Limited (DMP.AU) and Retail Food Group Limited (RFG.AU) in the Search field at the top right of the screen.
TASKS
1. In Table 1, enter the date and last price of each stock, then calculate the market cap, current P/E, and current dividend yield for each stock based on the last price.
2. In Table 2, provide a definition explaining each data item.
3. Compare and contrast the current market value of each stock.
Table 1
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DMP
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RFG
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Date
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Last Price (AUD)
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Shares Outstanding (M)
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87m
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Market Cap (B AUD)
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Earnings Per Share (AUD) (TTM)
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$0.74
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Current P/E Ratio (TTM)
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Dividend (AUD) (TTM)
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$0.518
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Current Dividend Yield (%)
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Table 2
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Definition/Explanation
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Last Price (AUD)
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Shares Outstanding (M)
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Market Cap (B AUD)
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Earnings Per Share (AUD) (TTM)
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Current P/E Ratio (TTM)
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Dividend (AUD) (TTM)
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Current Dividend Yield (%)
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