Faculty of Law and Business
Peter Faber Business School
BAFN602 CORPORATE FINANCE
Face-to-face/Online/OUA
Semester 1, 2020
Assessment Three: Individual assignment
Assessment weight : 50%
Due date : 4 June 2020 23.59 hours AEST
Word limit : 3,000±10% words
Submission : Via Turnitin
For the integrity of this assessment, the relevant lecturer or NLIC may contact students to ask them explain their work and/or answer questions via Skype/Zoom or other means before the mark is finalised.
Aim of this assessment
This assessment consists of four questions each of which is designed to assess a learning outcome on a real business setting.
Question one is related to alleged unethical business practices of AMP Limited. Students are required to research and evaluate those practices from the point of view of prevailing codes of conduct and ethical rules, corporate objectives and common good.
Question two requires determination and critical analysis of Flight Centre’s weighted cost of capital and financial leverage and impact of capital raisings on their capital structure, risk profile and share value.
Question three is built on their prior knowledge of the company of their choice and extends it to comprehensive evaluation of associated systematic and unsystematic risks and examination of investment in their ordinary shares.
Question four requires students to research and critically evaluate vacuum cleaner manufacturer Dyson’s strategic decision to enter into the automotive market in 2017 and scrapping their plans within three years to completely scrap their automobile plans.
QUESTION 1 (LO1)
It is alleged that thousands of AMP customers have been charged for financial advice services they have never received. Furthermore, AMP admitted to the Financial Services Royal Commission that it misled the corporate regulator Australian Securities and Insurance Commission (ASIC) over AMPS’s practice of charging fees for no service. AMP also admitted to the Royal Commission that it knowingly charged $1,300,000 in premiums for life insurance to more than 4600 superannuation customers who were deceased. Australian Financial Review (AFR) (17th April 2018) reported that AMP had admitted to the Royal Commission that they had paid and received commissions which were prohibited under Future of Financial Advice which became effective on 4th April 2018. AFR further alleged that AMP provided incentives for commission-based sales for their financial planners. The Royal Commission also alleged that the Chair of AMP had interfered with a report by law firm Clayton Utz that was commissioned by AMP after self-reporting fee for no service breaches to ASIC. It is argued that AMP had misled ASSIC twenty times about the independence of the Clayton Utz report into AMP’s fee for no service scandal. Royal Commission further referred AMP to the Australian Prudential Regulatory Authority for not acting in superannuation members’ best interest.
Required:
A. Analyse the underlying reasons behind the alleged unethical practices perpetrated by AMP. Identify and evaluate the relevant ethical codes of conduct and ethical principles breached. Critically analyse the role of AMP’s management in alleged unethical and unlawful practices
B. As a public company what is AMP’s goal and how alleged unethical business practices (some of which detailed above) aligned with the goal?
C. Should AMP have aimed to generate common good in their operations? Why or why not? Discuss.
QUESTION 2 (LO2)
In April 2020, Flight Centre has secured a total of $700 million through a mix of capital raising and new debt facilities to bolster its balance sheet and liquidity position.
A. Compute debt-to-equity, financial leverage (net debt/market capitalisation of equity, earnings per share, return on equity for years 2015-2019. Comment on the likely causes of significant changes in calculated metrics. How does Flight Centre compare to the industry? Comment.
B. Calculate the weighted average cost of capital (WACC) of Flight Centre for fiscal year 2019. Why might Flight Centre want to determine their WACC?
C. Identify and analyse the key issues facing Flight Centre in seeking new capital and evaluate the impact of capital raisings on its capital structure, risk profile and per-share price.
D. In the light of measures obtained in a above, write a report on the strengths and weaknesses of Flight Centre’s capital structure in the period 2015-2019.
QUESTION 3 (LO3)
For this question choose one of the following two companies: Funtastic Limited (ASX Code: FUN), Sigma Healthcare Limited (ASX Code: SIG) or Treasure Wine Estate (ASX Code; TWE).
In Assessment Two you calculated the beta coefficient for market risk.
A. Compare your result to beta you will find on finance.yahoo.com or Reuters.com. Are they similar? Why might they be different? Discuss.
B. Within the Capital Asset Pricing Model what should cause beta for the company of your choice (Funtastic or Sigma) to change? Would financial leverage cause a change? Explain.
C. In Assessment Two you identified unsystematic risks for the company of your choosing. How would you revise the unsystematic risks as of today? Suppose you have $100,000 cash for investment. In consideration of risks and returns involved, why or why not would you invest in Funtastic/Sigma shares?
QUESTION 4 (LO 4)
Dyson is a prominent manufacturer of vacuum cleaners which was founded in 1978. In 2016, I launched an ambition with a projected cost of Pounds Sterling 2 billion to design and manufacture an electric car in the U.K and develop battery technology. Sir James Dyson said the company had developed a fantastic electric car. In 2018, the company decided to relocate the electric car manufacturing venture to Singapore with the first cars to be rolled in 2021. Then in October 2019, Dyson announced that the electric car they developed was not commercially viable and therefore they decided to shut down their automotive division.
If you were one of the decision makers employed by Dyson describe how would you decide to launch the project and make it a success. In your discussion, you are expected to include all steps from the generation of idea to start operations in the UK and subsequently in Singapore. Carry out an analysis that looks into economic, political factors, competition, cash flow projections, costs which are included and excluded (giving relevant examples). From capital budgeting point of view, research and comment on what went wrong in Dyson’s strategic shift and how you would approach differently.
The assignment must be submitted in a report format which contains table of contents, introduction, body of the report with each question answered separately and conclusion.
MARKING GUIDE
# Question Max marks
1 A. Misdeeds (4)
B. Goals (2)
C. Common good (4) 10
2 A. Debt-to-equity, Financial leverage (4)
B. WACC (4)
C. New capital, capital structure (3)
D. Strengths and weaknesses (3) 14
3 A. Beta (2)
B. Change in beta and financial leverage (4)
C. Unsystematic risks and investment in stock (6) 12
4 Economic (2)
Political (2)
Market /competitor analysis (2)
Hurdles (2)
Cash flows and financial analysis (6)
Porter’s Five Forces/ PEST analysis/SWOT 14
TOTAL 50
Lodgement of assignment
Students should submit their assessment via Turnitin no later than 23.59 AEST on 4 June 2020. Submission deadline is strictly enforced.
Assignment should:
be typed using one-and-a half (1.5) spacing left justified. use Ariel or Times New Roman font size 12. display a one-inch margin on all sides.
Cover page is attached at the front of the assignment. The cover page can be downloaded from the following link: https://students.acu.edu.au/home/panels/administration/forms/assessment_and_ assignment_forms
appropriately cite original work, author(s) etc. Citation and referencing must conform to Harvard referencing format both in the body of the paper and its attached reference section. Harvard referencing guide can be found in the Assessments section on the BAFN602 LEO page.
Assignments must be submitted with an ACU cover sheet which can be downloaded from the following link. It is imperative that the cover sheet is signed off by the student who submitted the work.
https://students.acu.edu.au/administration_and_enrolment/forms/assessment_and_a ssignment forms
Students must submit assignments electronically via Turnitin. The software used for checking originality compares works submitted by students with published material from a variety of sources including the Internet. A Turnitin score of 10% or greater will be considered cause for concern.
Due dates will be strictly adhered to. However, in the case of exceptional circumstances, students may apply for extension in the following manner. In accordance with the ACU Assessment Procedures (para 3).
You may seek extension of submission date for an assessment task prior to the due date by submitting the Application for Extension of time for an Assignment (EX) form.
https://www.acu.edu.au/__data/assets/pdf_file/0011/126668/EX__Application_for_Ext_of_Time_for_Submission_of_Assessment.pdf
You may seek up to five working days after the relevant due date by submitting the Special Consideration form.
https://www.acu.edu.au/__data/assets/pdf_file/0010/48493/SC_Application_for_Spe cial_Consideration_20170615.pdf
Assessment tasks submitted after the due or extended date will incur, for each whole or part of a calendar day that the work is overdue, a 5% penalty of the maximum marks available for that assessment task up to a maximum of 15%. Assessment tasks received more than three calendar days after the due or extended date will not be allocated a mark.
Rubric: Assessment Three – Individual Assignment
Below Expectations
Meets Expectations
Exceeds Expectations
ILOs Criteria Level 1 (NN) Level 2 (PA) Level 3 (CR) Level 4 (DI) Level 5 (HD)
LO1 Understand the goals, approaches and ethical issues related to financial management practices and the role of financing in generating common Shows little to no understanding of ethical issues related to financial management practices and the role of financing in creating common good.
Shows a basic understanding of ethical issues related to financial management practices and the role of financing in creating common good.
Shows a good understanding
of ethical issues related to financial management practices and the role of financing in creating common good.
Shows a sophisticated understanding of ethical issues related to financial management practices and the role of financing in creating common good.
Shows an excellent understanding of ethical issues related to financial management practices and the role of financing in creating common good.
LO2 Analyse the issues involved in raising debt and equity capital for the firm in terms of their impact on the firm’s financial structure and risk Shows little to no understanding of the issues involved in raising debt and equity capital for the firm in terms of their impact on the firm’s financial structure and risk. Shows a basic understanding of the issues involved in raising debt and equity capital for the firm in terms of their impact on the firm’s financial structure and risk.
Shows a good understanding of the issues involved in raising debt and equity capital for the firm in terms of their impact on the firm’s financial structure and risk. Shows a sophisticated understanding of the issues involved in raising debt and equity capital for the firm in terms of their impact on the firm’s financial structure and risk. Shows an excellent understanding of the issues involved in raising debt and equity capital for the firm in terms of their impact on the firm’s financial structure and risk.
LO3 Apply risk and return relationships to the valuation of financial assets Shows little to no understanding of the risk and return relationships to the valuation of financial assets.
Shows a basic understanding of the risk and return relationships to the valuation of financial assets.
Shows a good understanding of the risk and return relationships to the valuation of financial assets.
Shows a sophisticated understanding of the risk and return relationships to the valuation of financial assets.
Shows an excellent understanding of the risk and return relationships to the valuation of financial assets.
LO4 Apply capital budgeting techniques to assess the financial benefits and costs of competing investment projects Shows little to no understanding of the capital budgeting and their application in business. Shows a basic understanding of the capital budgeting techniques their application in business. Shows a good understanding of capital budgeting techniques
and their application in business. Shows a sophisticated understanding of the capital budgeting techniques and their applications in business. Shows an excellent understanding of the capital budgeting techniques and
their application in business.
7
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