BACHELOR OF ARTS (HONS) ACCOUNTING-FINANCE COURSEWORK

BACHELOR OF ARTS (HONS) ACCOUNTING & FINANCECOURSEWORKYear 2016 Quarter SubjectWeightage INVESTMENT DECISION40%Submission Date September 20167/11/2016 RegulationsA. Late Submission A 10% deduction per day of total coursework marks (excluding weekends andpublic holidays).Late submission between 5 to 10 days, results in a 50% deduction of totalcoursework marks.Late submission past 10 days results in an automatic 0% for coursework and thestudent will be barred from the final examination. B. DeliverablesStudents must submit all materials supporting their coursework listed in the deliverablesection. The coursework must be entirely your own work. Please make sure that you areaware of the rules concerning plagiarism. If you are unclear about them, pleaseconsult your program coordinator/lecturer.Plagiarism is presenting somebody else’s work as your own. It includes: copyinginformation directly from the Web or books without referencing the material; submittingjoint coursework as an individual effort; copying another student’s coursework; stealingcoursework from another student and submitting it as your own. Suspected plagiarismwill be investigated and if found to have occurred will be dealt with according to theprocedures set down by the university/college. The coursework should exhibit formal research skills i.e. with a table of content,proper citations, references, and appendixes. The coursework write up must be able to demonstrate critical analysis andapplication of both theory and practical issues to the company that you have selected. Student may include additional relevant data/information apart from the proposedguidelines in conjunction to your research. Additional marks will be awarded for suchattempt. Your coursework should not be more than 2000 words.1 BACHELOR OF ARTS (HONS) ACCOUNTING & FINANCECOURSEWORK You should bind your coursework with the coursework cover as the 1st page. All written reports MUST be submitted for similarity checks to Turnitin You should attach a softcopy of the assignment in a CD together withthe assignment. QUESTIONSQuestion 1 (10 marks)For each of the investments shown in the following table, calculate the rate of returnearned over the unspecified time period.InvestmentABCDE Cash Flow duringperiod-$80015,0007,000801,500 Beginning-ofperiod value$1,100120,00045,00060012,500 End-of-periodvalue$100118,00048,00050012,400 Question 2 (10 marks)a) Scotto Manufacturing is a mature firm in the machine tool component industry. Thefirm’s most recent common stock dividend was $2.40/share. Because of its maturity aswell as its stable sales and earnings, the firm’s management feels that dividends willremain at the current level for the foreseeable future.i) If the required return is 12%, what will be the value of Scotto’s common stock ?(1 mark) ii) If the firm’s risk as perceived by market participants suddenly increases, causingthe required return to rise to 20%, what will be the common stock value ?(1 mark) iii) Judging on the basis of your findings in i) and ii), what impact does risk have onvalue ? Explain.(1 mark) b) Kelsey Drums Inc. is a well-established supplier of fine percussion instruments toorchestras all over the United States. The company’s class A common stock has paid adividend of $5.00/share per year for the last 15 years. Management expects to continue topay at that amount for the foreseeable future. Sally Talbot purchased 100 shares of Kelsey2 BACHELOR OF ARTS (HONS) ACCOUNTING & FINANCECOURSEWORKclass A common 10 years ago at a time when the required rate of return for the stock was16%. She wants to sell her shares today. The current required rate of return for the stockis 12%. How much capital gain or loss will Sally have on her shares ?(3 marks)c) Jones Design wishes to estimate the value of its outstanding preferred stock. Thepreferred issue has an $80 par value and pays an annual dividend of $6.40/share. Similarrisk preferred stocks are currently earning a 9.3% annual rate of return.i) What is the market value of the outstanding preferred stock ? (2 marks) ii) If an investor purchases the preferred stock at the value calculated in i), how muchdoes she gain or lose per share if she sells the stock when the required return on similarrisk preferred stocks has risen to 10.5% ? Explain.(2 marks)CASE STUDY (20 marks)CSM Corporation has a bond issue outstanding at the end of 2012. The bond has 15 yearsremaining to maturity and carries a coupon interest of 6%. Interest on the bond iscompounded on a semiannual basis. The par value of the CSM bond is $1,000 and it iscurrently selling for $874.42.a) Create a spreadsheet to solve for the yield-to-maturity (YTM). (6 marks) b) Create a spreadsheet to solve for the price of the bond if the YTM is 2% higher.(6 marks) c) Create a spreadsheet to solve for the price of the bond if the YTM is 2% lower.(6 marks) d) What can you summarise about the relationship between the price of the bond,the par value, the YTM and the coupon rate ?(2marks) Adapted from Gitman, L.J. and Zutter, C.J. (2012), Principles of Managerial Finance, 13thEdition, Pearson Education Limited. 3 BACHELOR OF ARTS (HONS) ACCOUNTING & FINANCECOURSEWORK 4

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