TFIN501 Corporate Finance 代写
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TOP Education Institute TFIN501 Corporate Finance Summer Term, 2015-2016
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GROUP ASSIGNMENT
Due Date: 11 January 2016, 5 p.m. (Sydney time)
Total Mark: 20 points
General Rules and Requirements:
The report should be prepared in a group (each group should have a minimum of three or a
maximum of four students). Reports must be confined to 2,500 words. Your report must
include a title page, a table of contents (based on your report headings), an introduction, and a
body of the report, a conclusion and a list of references actually cited. Font type - Times New
Roman (size 12), paragraph spacing - 1.5. Assignments should be submitted via Turnitin on
www.moodle.com.au.
Case Study #1 (12 points)
Emu Electronics is an electronics manufacturer located in Box Hill, Victoria. The company's
managing director is Shelly Chan, who inherited the company from her father. The company
originally repaired radios and other household appliances when it was founded more than
fifty years ago. Over the years, the company has expanded, and it is now a reputable
manufacturer of various specialty electronic items. Robert McCanless, a recent MBA
graduate, has been hired by the company in the finance department.
One of the major revenue-producing items manufactured by Emu Electronics is a personal
digital assistant (PDA). Emu Electronics currently has one PDA model on the market and
sales have been excellent. The PDA is a unique item in that it comes in a variety of colours
and is pre-programmed to play Jimmy Barnes's music. However, as with any electronic item,
technology changes rapidly, and the current PDA has limited features in comparison with
newer models. Emu Electronics has spent $750 000 developing a prototype for a new PDA
that has all the features of the existing one, but adds new features, such as mobile phone
capability. The company has spent a further $200 000 for a marketing study to determine the
expected sales figures for the new PDA. Emu Electronics' production manager has produced
estimates of the costs associated with manufacture of the new PDA. Variable costs are
estimated at $97 per unit and fixed costs for the operation are expected to run at $3.4 million
per year. The estimated sales volume is 68 000 units in Year 1; 79 000 units in Year 2; 105
000 units in Year 3; 83 000 units in Year 4; and 64 000 units in the final year. The unit price
of the new PDA will be $275. The necessary manufacturing equipment can be purchased for
$20.5 million and will be depreciated for tax purposes over a seven-year life (straight-line to
zero). It is believed the value of the manufacturing equipment in five years' time will be $3.5
million.
Net working capital for the PDAs will be 20% of sales and will have to be purchased at the
beginning of the year for production to start. The cost of the raw materials is reflected in the
variable unit cost of $97. Changes in NWC will first occur at the beginning of Year 1 based
on the first year's sales. Emu Electronics has a 30% corporate tax rate and a 12% required
return.
TOP Education Institute TFIN501 Corporate Finance Summer Term, 2015-2016
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Shelly has asked Robert to prepare a report that answers the following questions:
QUESTIONS
1. What is the payback period of the project?
2. What is the profitability index of the project?
3. What is the IRR of the project?
4. What is the NPV of the project?
5. How sensitive is the NPV to changes in the price of the new PDA?
6. How sensitive is the NPV to changes in the quantity sold?
Case study #2 (8 points)
International Value Bank (IVB) Ltd has 10 million fully paid ordinary shares on issue and its
shares are listed on the Australian Securities Exchange (ASX). About 60 per cent of the
shares are held by Australian financial institutions and the closing price per shares on 15
October 2014 was $4. The company has a fully drawn $500 million bank loan facility, which
is due to be rolled over or repaid on 30 November 2014. IVB Ltd is close to breaching an
important covenant and its directors have resolved to raise equity to repay the loan on or
before the due date. The company’s last share issue occurred in 2011.
a) Assuming an issue price of $3.80 per share, what is the maximum amount IVB can
raise by making a share placement without the shareholder approval?
b) Advise the directors on the feasibility of raising the required funds by a traditional
renounceable or non-renounceable rights issue.
c) After receiving your advice, the directors are considering a combination of an
institutional placement followed immediately by an accelerated entitlement offer.
Does the maximum amount that can be raised by the placement remain the same as in
part a? Why, or why not? Review your answer to part b. How will your advice
change, given an accelerated offer structure is to be used?
d) Assume the company proceeds with an accelerated entitlement offer. From the
viewpoint of IVB’s shareholders, what is the main effect of making the offer
renounceable rather than non-renounceable? Will a renounceable offer necessarily
ensure that all shareholders are treated equally? Why or why not?
