FIN303
Financial Management
Assignment 1 - Individual Assignment / TMA01
July 2014 Presentation
Individual Assignment
This assignment is worth 25% of the final mark for FIN303 Financial Management.
The cut-off date for this assignment is 29 September 2014, 2359hrs.
In this assignment, you are expected to:
• Compute and interpret financial ratios
• Evaluate investment proposals
• Apply knowledge to decide appropriate financing plan and dividend policy
• Demonstrate the essential knowledge and interpersonal skills to work effectively in a team
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Singapore Post Limited (SingPost) is the national postal service provider in Singapore offering trusted communications through domestic and international postal services as well as end-to-end integrated mail solutions covering secure data printing, letter-shopping, delivery and mailroom management, among others.
As the trusted communications service provider for more than 150 years, SingPost today goes beyond physical postal communications to offer secure digital communications solutions as part of integrated solutions to its customers.
After studying SingPost annual report for the financial year ended 31 March 2013, you noted that its historical dividend payout was a follows:
In late-May 2014, SingPost announced that a unit of Chinese e-commerce giant Alibaba Group Holdings Ltd bought a minority stake (of about 10% in the enlarged capital) for $312.5 million to help set up an international e-commerce logistics business. Many analysts expect considerable strategic advantages and anticipate dividends to grow as follows:
• FY13/14 = 6.50 cents per share
• FY14/15 = 6.75 cents per share • FY15/16 = 7.00 cents per share
• Dividends to grow at 1.00% per annum thereafter
Based on your research, you noted that the market risk premium for Singapore equity market is 5.00% and the current yield to maturity of the 20-year Singapore Government Securities is 3.05%. Also, you noted from Reuters terminal that SingPost has a beta of 0.3 and is currently trading at $1.65. The 1-year historical price chart is shown below:
You are considering whether to invest in SingPost shares only or diversify your investment portfolio by including the SPDR STI ETF, an exchange traded fund that tracks the STI Index. You have extracted the following historical data from Yahoo Finance:
Year Ended SPDR STI
SingPost ($)
31 Dec ETF ($)
2008 0.80 1.83
2009 1.01 2.89
2010 1.18 3.19
2011 0.94 2.65
2012 1.15 3.23
2013 1.35 3.13
Alternatively, you are contemplating to invest in the Singapore Government Securities instead of SingPost. In particular, you noted that the 10-year government bond bears a coupon of 2.75% (paid semi-annual) and has a face value of $100. The required rate of return for this risk-free investment is 3.00%.
Question 1
Calculate SingPost cost of equity by applying the Capital Asset Pricing Model (CAPM).
(10 marks)
Question 2
(a) Calculate the value of SingPost share assuming it continues to maintain its historical dividend payout.
(10 marks)
(b) Re-compute the value of SingPost share assuming dividends will grow in line with the analysts’ estimates as a result from its strategic alliance with Alibaba.
(20 marks)
Question 3
Based on your computations above and comparing it with the traded price, assess whether the Singapore equity market is efficient.
(15 marks)
Question 4
Calculate the average return and standard deviation for (i) SingPost, (ii) SPDR STI ETF and (iii) a portfolio consisting 50% of SingPost and 50% SPDR STI ETF.
(30 marks)
Question 5
SingPost has a beta of 0.3 and a standard deviation, which you have computed earlier. Examine the significance of both measures of risk.
(10 marks)
Question 6
Calculate the price that you should be paying for each 10-year government bond today.
(5 marks)
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