MAF203 Financial Management Assignment Sample

Subject Code : MAF203
University : Deakin University My Assignment Services is not sponsored or endorsed by this college or university.
Subject Name : Accounting and Finance

Business Finance - Part A

Calculation of the portfolio expected return and risk for various combinations

Returns:

CSL	Return	TLS	Return	RIO	Return	WES	Return	AJXO	Return
3.51	-0.08725	275.76	-0.02761	100.4	0.035483	41.4	-0.02316	6,684.10	-0.02393
3.83	0.101596	283.48	0.101847	96.9	0.06414	42.37	0.063579	6,846.00	0.027035
3.46	-0.00576	256.03	0.091299	90.88	-0.0195	39.76	-0.00101	6,663.40	-0.00373
3.48	-0.06669	233.69	-0.03026	92.67	0.056492	39.8	0.017744	6,688.30	0.012654
3.72	-0.05746	240.87	0.047832	87.58	-0.1116	39.1	-0.0023	6,604.20	-0.03107
3.94	0.03093	229.62	0.065788	97.92	-0.04795	39.19	0.080468	6,812.60	0.02886
3.82	0.053776	215	0.045241	102.73	0.033858	36.16	-0.02431	6,618.80	0.034101
3.62	0.068598	205.49	0.034256	99.31	0.050387	37.05	0.028472	6,396.90	0.011224
3.38	0.017911	198.57	0.01845	94.43	-0.03619	36.01	0.038499	6,325.50	0.023158
3.32	0.058932	194.94	0.006072	97.91	0.05371	34.65	0.04335	6,180.70	0.001895
3.13	0.016103	193.76	-0.00494	92.79	0.099522	33.18	0.058329	6,169.00	0.050585
3.08	0.088193	194.72	0.050342	84	0.103774	31.3	-0.00032	5,864.70	0.037933
2.82	-0.02797	185.16	0.042813	75.72	0.032755	31.31	0.020001	5,646.40	-0.00368
2.9	-0.06022	177.4	-0.05803	73.28	-0.04169	30.69	-0.08162	5,667.20	-0.02837
3.08	-0.03509	188	-0.06741	76.4	-0.03042	33.3	-0.06707	5,830.30	-0.06271
3.19	0.028619	201.11	-0.12246	78.76	0.079514	35.61	-0.03151	6,207.60	-0.01787
3.1	0.098218	227.31	0.145093	72.74	-0.11002	36.75	-0.29703	6,319.50	0.006238
2.81	0.081527	196.61	0.020503	81.2	-0.02721	49.46	0.002024	6,280.20	0.013724
2.59	-0.06719	192.62	0.035779	83.44	0.005649	49.36	0.08011	6,194.60	0.029937
2.77	-0.13803	185.85	0.087026	82.97	0.038204	45.56	0.040081	6,011.90	0.004869
3.18	0.012658	170.36	0.091525	79.86	0.093934	43.77	0.05181	5,982.70	0.038039
3.14	-0.06474	155.46	-0.0484	72.7	-0.11008	41.56	0.00555	5,759.40	-0.04358
3.35	-0.08027	163.17	0.108313	81.16	0.054567	41.33	-0.05827	6,015.96	-0.00361
3.63	0.01108	146.42	0.035594	76.85	0.013625	43.81	-0.01383	6,037.70	-0.00453
3.59	0.054377	141.3	-0.01433	75.81	0.066255	44.42	0.01132	6,065.10	0.015821
3.4	-0.04035	143.34	0.031249	70.95	0.021368	43.92	0.049473	5,969.90	0.010254
3.54	0.014225	138.93	0.036429	69.45	0.042954	41.8	0.011308	5,909.00	0.039244
3.49	-0.05029	133.96	0.041457	66.53	-0.0195	41.33	-0.03073	5,681.60	-0.00577
3.67	-0.1108	128.52	0.019803	67.84	0.030684	42.62	0.045359	5,714.50	-0.00107
4.1	-0.04763	126	-0.09119	65.79	0.039057	40.73	0.01509	5,720.60	-0.00016
4.3	-0.02299	138.03	0.065413	63.27	0.007297	40.12	-0.06232	5,721.50	-0.00054
4.4	0.041769	129.29	-0.0249	62.81	0.038463	42.7	-0.007	5,724.60	-0.03426
4.22	-0.09918	132.55	0.05601	60.44	-0.00033	43	-0.04702	5,924.10	0.010043
4.66	-0.03376	125.33	0.061453	60.46	-0.02499	45.07	0.05355	5,864.90	0.026381
4.82	-0.03666	117.86	0.048324	61.99	-0.07293	42.72	0.059309	5,712.20	0.016112
5	-0.0198	112.3	0.111912	66.68	0.107229	40.26	-0.04564	5,620.90	-0.00796
5.1	0.009852	100.41	0.024294	59.9	0.036553	42.14	0.00858	5,665.80	0.040577
5.05	0.013958	98	-0.02529	57.75	0.063812	41.78	0.018602	5,440.50	0.02283
4.98	-0.03938	100.51	-0.06257	54.18	0.048596	41.01	-0.07264	5,317.70	-0.02198
5.18	-0.01533	107	-0.01023	51.61	0.080883	44.1	0.038368	5,435.90	0.000534
5.26	-0.09254	108.1	-0.08763	47.6	-0.04035	42.44	-0.01148	5,433.00	-0.02354
5.77	0.037074	118	0.05058	49.56	0.085472	42.93	0.068195	5,562.40	0.060969
5.56	-0.00538	112.18	-0.03141	45.5	0.017963	40.1	-0.01313	5,233.40	-0.02737
5.59	0.042015	115.76	0.095846	44.69	-0.1428	40.63	-0.05133	5,378.60	0.023781
5.36	0.005613	105.18	0.036206	51.55	0.188588	42.77	0.031349	5,252.20	0.032785
5.33	0.015123	101.44	-0.01254	42.69	0.05811	41.45	0.058621	5,082.80	0.040533
5.25	-0.06988	102.72	-0.01238	40.28	0.028966	39.09	-0.07584	4,880.90	-0.02521
5.63	#DIV/0!	104	#DIV/0!	39.13	#DIV/0!	42.17	#DIV/0!	5,005.50	#DIV/0!

	CSL	TLS	RIO	WES	AXJO
Expected return	-1.01%	2.07%	2.00%	-0.04%	0.62%
Standard Deviation	5.79%	5.87%	6.50%	6.26%	2.67%
Variance	0.336%	0.345%	0.422%	0.392%	0.071%

Portfolio	CSL TLS	TLS RIO	RIO WES
Expected return	0.53%	2.04%	0.98%
Correlation Coefficient	0.216	-0.092	-0.283
Standard Deviation	0.21%	0.09%	0.15%
Risk Adjusted Return	2.59	23.66	6.74

Determination of the recommended combination to minimize the portfolio risk

Historical monthly rates of return for the market index

The rate of return (or ROR) is referred as the loss or gain on an investment over a specific period of time. In other words, ROR represents profit (or loss) against the cost of investment. It is typically as percentage. When the ROR results in a positive value, then a profit has been generated and when ROR becomes negative, the investor has incurred a loss on the investment (Sukono et al. 2018).

For investment in share market, the rate of return is calculated using following formula:

Historical average rate of return and standard deviation of returns

Average Return: it tells investors about how a particular security, portfolio of securities or an index performed in the past.

Standard Deviation: or SD is a popular statistical tool which is represented by the letter 'σ'. It is used to measure the amount of dispersion or variation of a set of data values relative to its mean (or average). It helps in interpreting the reliability of the set of data.

A smaller standard deviation indicates observation points are lying closer to the mean value, and there will be higher reliability. On the other hand, a larger standard deviation indicates that observation points are spread far from the mean value and the reliability will be low (Singhal, Choudhary and Biswal 2019).

Calculation: Standard deviation is square root of variance and variance is calculated by calculating the variation between the observation points relative to their mean.

Where:

=The mean (average) of the set of observations
x_i= i^thobservation value
n= number of points of observations in the set of observations

As per the calculations shown in the above portion, the most appropriate combination for the required purposes to minimize the portfolio risk and maximize returns is of Telstra Ltd and RIO Tinto Ltd. The comparison is shown in the following table:-

Portfolio	CSL TLS	TLS RIO	RIO WES
Expected return	0.53%	2.04%	0.98%
Correlation Coefficient	0.216	-0.092	-0.283
Standard Deviation	0.21%	0.09%	0.15%
Risk Adjusted Return	2.59	23.66	6.74
Sharpe Ratio	-0.390	16.526	2.521

As it can be clearly seen in the above table that TLS and RIO has the highest average of risk adjusted return of 23.66 times.

Comparison of recommendation in 2b and 1

The recommendation in 1 was CSL ltd and Telstra Ltd, the recommendation was typically based on the fundamentals of the companies and the industries in which it works.
The recommended combination in 2b was Telstra Ltd and RIO Tinto Ltd is based on the risk adjusted rates of returns, as this combination has the highest rate.

Calculation of the optimal weight of the two assets recommended

The recommended combination in 2b was Telstra Ltd and RIO Tinto Ltd. The portfolio has the expected return and minimum standard deviation. In order to determine the optimal portfolio

Part B - Capital Budgeting

Given:

First Year
Sales (units)	50000
Annual sales Growth	0%

Price per bearing	22
Price rise per year	0%

Variable cost (VC) for 8 years	350,000
Variable cost (VC) for year 9 & 10	360,000

Fixed cost (thousands)	250,000
Annual growth	0%

Project Life (Years)	10


Plant	2,000,000
Equipment cost	700,000
WC requirement	300,000
Total Initial Investment	3,000,000

Depreciation using SLM	10%
Dep for Plant	200,000
Dep for Equip	70,000
Total Depreciation	270,000

Salvage Value
Plant	800,000
Equip	100,000
Total Salvage	900,000

Tax Rate	30%

Required rate of return	7%

Solution

Preparation of cash flow statement and computation of the NPV and IRR of the proposed project

After Tax Cash Flow
Particulars	Years
Particulars	1	2	3	4	5	6	7	8	9	10
Unit Sales	50000	50000	50000	50000	50000	50000	50000	50000	50000	50000
Sales Price	22	22	22	22	22	22	22	22	22	22
Total Sales	1,100,000	1,100,000	1,100,000	1,100,000	1,100,000	1,100,000	1,100,000	1,100,000	1,100,000	1,100,000

VC	350,000	350,000	350,000	350,000	350,000	350,000	350,000	350,000	360,000	360,000
Contribution	750,000	750,000	750,000	750,000	750,000	750,000	750,000	750,000	740,000	740,000

Fixed Cost	250,000	250,000	250,000	250,000	250,000	250,000	250,000	250,000	250,000	250,000
EBITDA	500,000	500,000	500,000	500,000	500,000	500,000	500,000	500,000	490,000	490,000
Less: Depreciation	270,000	270,000	270,000	270,000	270,000	270,000	270,000	270,000	270,000	270,000

EBT	230,000	230,000	230,000	230,000	230,000	230,000	230,000	230,000	220,000	220,000
Less: Taxation	69,000	69,000	69,000	69,000	69,000	69,000	69,000	69,000	66,000	66,000

EAT	161,000	161,000	161,000	161,000	161,000	161,000	161,000	161,000	154,000	154,000
Add: Depreciation	270,000	270,000	270,000	270,000	270,000	270,000	270,000	270,000	270,000	270,000
Working Capital	-	-	-	-	300,000
Salvage Value	-	-	-	-	900,000
CFAT	431,000	431,000	431,000	431,000	431,000	431,000	431,000	431,000	424,000	1,624,000

The expenditure will be capitalized along with the cost of the plant and equipment.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help