20 Jun Assessment Task Tutorial QuestionsUnit Code: HI50
Assessment Task Tutorial QuestionsUnit Code: HI5002Unit Name: Finance for BusinessAssignment: Tutorial Questions 1Due: 11:30pm 22nd May 2020Weighting: 25%Total Assignment Marks: 50 marksPurpose: This assignment is designed to assess your level of knowledge of the key topics covered inthis unitUnit Learning Outcomes Assessed: 1, 2, 3Description: Each week students were provided with three tutorial questions of varying degrees ofdifficulty. These tutorial questions are available in the Tutorial Folder for each week on Blackboard.The Interactive Tutorials are designed to assist students with the process, skills and knowledge toanswer the provided tutorial questions. Your task is to answer a selection of tutorial questions forweeks 1 to 5 inclusive and submit these answers in a single document.The questions to be answered are;Week 1What are the five basis principles of finance? Briefly explain them (no more than 250 words). (10marks)Week 2Little Book LTD has total assets of $860,000. There are 75,000 shares of stock outstanding, total bookvalue of $750,000 with a market value of $12 a share. The firm has a profit margin of 6.5% and a totalasset turnover of 1.5.Required:a) Calculate the company’s EPS? (6 marks)b) What is the market to- book ratio? (4 marks)Week 3Fifteen years ago, you deposited $12,500 into an investment fund. Five years ago, you added anadditional $20,000 to that account. You earned 8%, compounded semi-annually, for the first ten years,and 6.5%, compounded annually, for the last five years.Required:a) What is the effective annual interest rate (EAR) you would get for your investment in the first 10years? (2 marks)b) How much money do you have in your account today? (4 marks)c) If you wish to have $85,000 now, how much should you have invested 15 years ago? (4 marks)Week 4Giant Equipment Ltd. is considering two projects to invest next year. Both projects have the samestart-up costs. Project A will produce annual cash flows of $42,000 at the beginning of each year foreight years. Project B will produce cash flows of $48,000 at the end of each year for seven years. Thecompany requires a 12% return.Required:a) Which project should the company select and why? (5 marks)b) Which project should the company select if the interest rate is 14% at the cash flows in Project Bis also at the beginning of each year? (5 marks)Week 5Rachel is a financial investor who actively buys and sells in the securities market. Now she has aportfolio of all blue chips, including: $13,500 of Share A, $7,600 of Share B, $14,700 of Share C, and$5,500 of Share D.Required:a) Compute the weights of the assets in Rachel’s portfolio? (2 marks)b) If Rachel’s portfolio has provided her with returns of 9.7%, 12.4%, -5.5% and 17.2% over the pastfour years, respectively. Calculate the geometric average return of the portfolio for this period. (2marks)c) Assume that expected return of the stock A in Rachel’s portfolio is 13.6% this year. The riskpremium on the stocks of the same industry are 4.8%, betas of these stocks is 1.5 and the inflationrate was 2.7%. Calculate the risk-free rate of return using Capital Market Asset Pricing Model(CAPM). (2 marks)d) Following is forecast for economic situation and Rachel’s portfolio returns next year, calculate theexpected return, variance and standard deviation of the portfolio. (4 marks)State of economy Probability Rate of returnsMild Recession 0.35 5%Growth 0.45 15%Strong Growth 0.20 30%Submission Directions:The assignment has to be submitted via Blackboard. Each student will be permitted onesubmission to Blackboard only. Each student needs to ensure that the document submittedis the correct one.Academic IntegrityAcademic honesty is highly valued at Holmes Institute. Students must always submit workthat represents their original words or ideas. If any words or ideas used in a class posting orassignment submission do not represent the student’s original words or ideas, the studentmust cite all relevant sources and make clear the extent to which such sources were used.Written assignments that include material similar to course reading materials or othersources should include a citation including source, author, and page number.In addition, written assignments that are similar or identical to those of another student inthe class is also a violation of the Holmes Institute’s Academic Conduct and Integrity Policy.The consequence for a violation of this policy can incur a range of penalties varying from a50% penalty through to suspension of enrolment. The penalty would be dependent on theextent of academic misconduct and the student’s history of academic misconduct issues.All assessments will be automatically submitted to SafeAssign to assess their originality.Further Information:For further information and additional learning resources, students should refer to their DiscussionBoard for the unit.
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