Assignment: Report 2
Due: 2023-10-13
FINM2001 2023 Semester 2
Overview
This assignment is to apply the concepts and theories in the corporate finance class and perform
critical analysis for a company you picked using real market and financial data.
You are expected to submit two individual reports during the semester. This is the second one
(See deadlines below).
The Task
From a list of the S&P/ASX 300 index member companies (see the Excel spreadsheet attached),
pick a company (your company) and answer the following questions. To support your analysis,
you could obtain information about these public firms from the following (non-exclusive)
sources.
1. Australian securities exchange: https://www.asx.com.au/
2. Yahoo finance: https://au.finance.yahoo.com/
3. Google finance: https://www.google.com/finance
4. Company website, including annual reports disclosed.
If you use any data in the analysis, you should keep a copy of these data for verification
purposes. However, you do not need to attach the data in your submission. Whenever possible,
please relate your discussion to the specific situation of your firm – a general statement may
not be sufficient. This is an essential requirement of the assignment. The format of your answer
should be structured -- take the answer as a very short essay: there is a key point to start with,
followed by some supporting evidence or arguments. You should keep you answer brief, but
to the point.
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Report 2 (total 25 marks)
Assume that you have an apprenticeship in the office of the Chief Financial Officer (CFO) in
your company. Your CFO asks you to estimate the cost of capital for a project which has a 5-
year horizon.

1. (15 marks) Weighted average cost of capital (WACC)
a. (10 marks) First, you are asked to compute the cost of equity capital, which is the
expected rate of return of investors that provide equity capital for your company.
i. (2 mark) Find beta coefficient on internet (from Yahoo Finance, for
example).
ii. (4 marks) The “All Ordinaries Index” is Australia's premier market
indicator. The index represents the 500 largest companies listed on the ASX.
The historical monthly frequency data of this indicator is available in “index
return.xls” in the wattle assessment section. What is the average return of
the index? Define the index value at month t as P(t). Then, the monthly
return in month t is (P(t)-P(t-1))/P(t-1). Compute this for each month and
take the average over the five-year period. Clearly state which price series
you have used and how you computed the returns, as there are closing and
opening prices. You may need to express this return in annualised rate for
later use.
iii. (2 marks) Assuming an annual risk-free rate of 2%, compute the market risk
premium. This is an estimate of the market risk premium using average
historical rates, which you can assume to prevail in the future. Compute your
equity cost of capital. Express the cost in annualised rate.
iv. (2 marks) Considering the current economic and business conditions after
the pandemic, discuss how you can further improve your estimation of the
cost of equity capital.
b. (5 marks) Calculate weighted average cost of capital (WACC)
i. (2 marks) Compute the weighted average cost of capital (WACC). The base
corporate tax rate in Australia is 25%
(https://www.ato.gov.au/Rates/Company-tax/). You have assumed that the
company is sound and safe (i.e., risk free) in computing the WACC.
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ii. (2 marks) In the calculation you have just done, it is assumed that the
company borrowing is risk free. In realty, this may not be the case. Find
relevant information such as the credit rating and use those information to
discuss the credit risk of your firm.
2. (10 marks) Other corporate policy
a. (5 marks) Describe the payout policy of your firm in the most recent year. Report
such as payout ratio, total amount of payout, etc. In what form did the firm payout
cash (i.e., cash dividend or repurchase)? Is the firm sending any signal to the market
with its payout policy? If there is no payout, discuss the possible reasons.
b. (5 marks) In the last 5 years, has the firm be involved in any merger and acquisition
deals? If it has, please describe the deal and explain the motivation of the transaction.
What the performance of the deal? Measure the deal performance using stock return
or financial statement information. If it has not any history of M&A deals, identify
a firm (public or private) that could be a potential target for a takeover.
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Housekeeping issues
1. This assignment will be handled and marked by your tutor. Before the submission, it is
important for you to join one of the tutorial groups. If there is issue related to joining
groups, please email the RSFAS office at enquiries.rsfas@anu.edu.au.
2. Format: your submission should be a single MS Word file that follows the requirements
below:
a. Font: Times New Roman, size 12pts; Single line spacing; 2.54 cm margin to
each side (A4 size)
b. Page limit: two and half pages. (everything included)
c. Due date: 17:00 13 Oct 2023(AEST)
d. The file name is “uXXXXX your name tutorial group course code”, for example,
“u123456 Le Zhang Tut01 FINM2001”.
3. Support and consultations: if you need any clarification during the writing of your
assignment, please contact your tutor. Their contact information is available on the
wattle website. Your tutors could provide clarification of the questions, if there is any
confusion. However, given this is part of the assessment, they could not write the
assignment for you in any way.
4. Submission: this assignment must be completed individually and submit using Turnitin
in the wattle website. The submission deadline is 17:00 13 Oct 2023(AEST). You are
strongly encouraged not to submit at the last minute to avoid potential crash of
the wattle site.
5. Late submission: If an assessment task is not submitted by the due date, a mark of 0
will be awarded. Given that enough time has been provided to handle electronic
submission, reasons such as computer crash or loss of USB would not be accepted for
extension.