Stott’s Colleges
252 Lygon Street, Carlton
Cricos code 00197D
ACC302 CORPORATE FINANCE
SEMESTER 3, 2016
Deadline: 13 February 2017, Monday, 6:00 p.m.
TOTAL MARKS: 30 MARKS
Group members:
a) Name: _________________________Student no: _____________
b) Name: _________________________Student no: _____________
c) Name: _________________________Student no: _____________
d) Name: _________________________Student no: _____________
e) Name: _________________________Student no: _____________
Instructions to Candidates:
1. Candidates are to answer all cases provided.
2. This paper is marked out of 20 marks and also comprises 20% of total assessment for the subject.
Instructions: Your response to the case should be in a form of a memo with the corresponding workings to support your recommendation
Case 1 (10 marks)
Mr. de Ville, the owner of Tasman Ian de Ville Holdings Ltd. (TIDH) has asked you to evaluate five investment projects. TIDH has a $10,000,000 investment budget, an investment hurdle rate of 11.0 %, and the owner has a requirement that all investments have a Payback Period (PBP) of under 3.5 years. Also, Project 2 brings the offices and warehouse up to the current fire code and the listed savings are the “facilitation payments” (i.e. bribes) that will no longer need to be made to inspectors to avoid the office being shut-down.
Year end Project 1 Project 2 Project 3 Project 4 Project 5
01 -$830,000 -$200,000 -$850,000 -$5,000,000 -$350,000
02 100,000 350,000 800,000 350,000
03 100,000 500,000 800,000 350,000
04 100,000 700,000 800,000 350,000
05 800,000 -2,650,000
06-30 1,000,000 800,000 350,000
Please review the above listed projects by providing NPV, IRR, PBP, B/Cratio and do not forget social legitimacy needs and select the ones that should be brought to the attention of the owner for investment consideration.
Case 2 (10 marks)
Background:
Mr Chad Cheatem has read about the riskreturn trade-off and portfolio theory. Based on his readings, Mr Cheatem is suggesting that DCH can help its clients make a lot of money by DCH investing in a large portfolio of highly risky projects and selling shares in that portfolio to the DCH clients.
Required:
Mr Dewey has asked you to research the riskreturn trade-off and portfolio theory on the internet and to provide a 1½ page evaluation of the viability of Mr. Cheatem’s proposal.
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