Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Corporate Finance Expert

Assignment -

This assignment is designed to test students on Topic (Investment Appraisal) and on Topic (Dividend Policy).

For Question 1, students are expected to appraise the attractiveness and risk of a capital asset proposal. The emphasis is on deriving the relevant cash flows so as to make a reasoned recommendation

For Question 2, students are required to assess if corporations' dividend policy reflect Lintner (1956) theory on dividend practice, and if these policies affect share prices after the dividend announcements.

Question 1 - ABC plc has a new product ready for production and sale. Fixed costs of production (excluding depreciation) are expected to be £200,000 a year. This figure is made up of £160,000 additional fixed costs and £40,000 fixed costs relating to the existing business which will be apportioned to the new product. The company estimates that the product will sell 150,000 units a year over the next five years. The sale price will be £5 per unit and variable costs are estimated to be £3 per unit.

In order to produce the product, machinery priced at £520,000 is needed and immediately payable. The estimated salvage value of this machinery in five years' time is £100,000. The business calculates depreciation on a straight-line basis. ABC plc has invested £200,000 to date in researching on the new product, and borrowed the research cost at a cost of 7 percent per annum. The machinery cost will be borrowed at a cost of 8 percent per annum.

The business has a cost of capital of 12 per cent. Ignore taxation.

Required:

a. Calculate the net present value of the product, with explanation on the working.

b. Undertake sensitivity analysis to show by how much the following factors would have to change before the product ceased to be worthwhile:

i. The discount rate.

Use the method of interpolation with r values of 12% and 20%.

ii. The initial outlay on machinery. .

iii. The residual value of the machinery.

Question 2 - Evaluate if BP plc and Royal Dutch Shell plc:

a. Followed Lintner (1956) stylized facts on dividend policy from 2014 to 2017.

b. Dividend announcements influenced share prices of the two companies.

Reference: Lintner, J. (1956): "Distribution of Incomes of Corporations among Dividends, Retained Earnings, and Taxes," American Economic Review, 46, 97-113.

Question 2's word count requirement is 1200 to 1,800. Students are to state the word count and their names clearly on the first page of the report. References: minimum 8.

Corporate Finance, Finance

  • Category:- Corporate Finance
  • Reference No.:- M93127168
  • Price:- $25

Priced at Now at $25, Verified Solution

Have any Question? 


Related Questions in Corporate Finance

Assignment -topic - recent years have seen rapid

Assignment - Topic - Recent years have seen rapid development in Australia's housing market. The effect of high housing prices on Australian families is enormous. Despite those challenges, you would like to buy 3-bedroom ...

Questions -q1 global auto wants to choose the better of two

Questions - Q1. Global Auto wants to choose the better of two mutually exclusive projects for expanding the firm's production capacity. The relevant cash flows for the projects are shown in the following table. The firm' ...

Assignment -the main objective of this assignment is to

Assignment - The main objective of this assignment is to emphasis the importance of consideration time value of money in financial management decisions. It will cover time value of money, investment valuation and firms' ...

Investment management assignment -in this assignment you

Investment Management Assignment - In this assignment you will be computing bond prices, modified durations and holding period returns. You will also implementing a hedging strategy for a stream of liabilities. Data Desc ...

Assignment -task this is an individual assignment in which

Assignment - Task: This is an individual assignment in which you are required to form a business and answer some accounting related questions. Assessment Criteria: This task will generally be assessed in terms of the fol ...

Bank financial management assignment -the question - the

BANK FINANCIAL MANAGEMENT ASSIGNMENT - The Question - The Balance Sheet for Commercial Banking Company of Australia Limited (CBC) as at 28 February 2018 is shown below as Table 1. CBC is an Authorised Depository Institut ...

Question - assume that the average firm in your companys

Question - Assume that the average firm in your company's industry is expected to grow at aconstant rate of 6 percent and its dividend yield is 7 percent. Your company is about as risky as the average firm in the industr ...

Business finance case study assignment -instructions - you

BUSINESS FINANCE CASE STUDY ASSIGNMENT - Instructions - You must do Questions 1-5a, 8 and 10 on a spreadsheet. Eternal Youth Ltd (EY) is a New Zealand company which produces and sells cosmetics. Its financial year is 1 J ...

Business finance assignment -the main objective of this

BUSINESS FINANCE ASSIGNMENT - The main objective of this assignment is to emphasis the importance of consideration time value of money in financial management decisions. It will cover time value of money, investment valu ...

Q1 delta hedgingon sept 30th 2011 exxon mobil xom stock was

Q1 (Delta Hedging) On Sept 30th, 2011, Exxon Mobil (XOM) stock was traded at $72.63 while the December XOM put option with $75 exercise price is traded at $5.00 and the December XOM call option with $70 exercise price is ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As