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Corporate Finance Assignment

Corporate Finance Assignment

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Published by: Jason Loh on Dec 24, 2012
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MAF 302 Trimester 2, 2012
Assessment weight: 25%Instructions – Please read carefully
 
This assignment is to be attempted by a group of 3-4 students. Students do notnecessarily have to be in the same tutorial class,
BUT MUST BE FROM THE SAMECAMPUS.
 
The last date to form your group 15 August, 2012.
The group formation option onDSO will be shut down after this date.
 
 
Under special circumstances students will be allowed to attempt this assignmentindividually. However, students will need to obtain prior permission from the unitcoordinator of your campus/cohort and no special consideration will be given to anysingle effort in marking the assignment.
 
This assignment has 3 questions, you can assign of member for each problem to take leadand initiate the solution
.
It is important that group members contact each other regularlyand update about their progress.
The assignment will be marked for the group as awhole
, however if any group faces any problem among the members, they should comeand see their Lecturer. The Lecturer may then decide the level of individual contributionand mark for each student in the group.
 
All the members of the group are expected to individually attempt and then discuss allthe questions with the group. Allocation of questions to members at the very beginning(i.e., before attempting individually and before any discussion has been taken place) isstrongly discouraged. Only after a full discussion of all the questions and possibleanswers/solutions, should the members of the group divide the workload amongthemselves.
 
The unit guide states that the word limit for the assignment is 3000-3500 words but weare not too concerned if you cannot reach that limit.
Word limit is very insignificant inthis unit.
 
An electronic copy of the assignment (only one copy per group) has to be uploaded toD2L by
5pm 10 September 2012.
If you experience any problem in uploading the
Submission Due Date:Printed Copy: Monday 5 pm September 10, 2012D2L Co: Monda 5 m Setember 10 2012
 
document, please contact the D2L help line on 1800 721 720 or go to the website at:http://www.deakin.edu.au/its/servicedesk/. 
Don’t call your Lecturer.
 
 
A hard copy (i.e., printed copy) of the assignment (
only one copy per group
) must alsobe submitted by
5pm 10 September 2012
to the designated venues (Assignmentsubmission boxes in Faculty of Business & Law office in each campus).
 
Please note: The uploaded soft copy to D2L will be considered the official copy andthe time of upload to D2L will determine if the assignment was submitted on time.
 
Late assignments will be penalized at a rate of 2 marks per calendar day late. Forexample if your assignment scores 18 out of 20 but is 4 days late, the final result wouldbe 18 - (2 x 4) = 10 out of 20.
 
Both the electronic copy and the hard copy must be identical and should be prefaced by
one assignment cover sheet that contains the names and student ID numbers of allgroup members.
All group members should have signed the assignment cover sheet of the hard copy of the assignment.
It is extremely important for you to note that onlystudents whose names appear on the front page of the assignment will receiveassignment mark.
 
If Excel is used in the assignment, the Excel spreadsheet/results will have to beintegrated into the main assignment. Separate Excel spreadsheets will
not
be marked.
 
Contact a staff member if you have any further queries regarding the assignment.
 
 
 Question 1
You are expecting to graduate and start a full time job in January 2014. In an effort to secureyour retirement life, you have made a plan to save some money from your monthly salaryduring your working life and accumulate it in a bank account that pays 15% interestcompounding annually. You expect to live for another 20 years after you retire.After retirement you plan to shift the entire accumulated amount to a new bank, which agreesto pay you 18% interest compounding annually. You have estimated that your accumulatedsavings would be enough to fulfil your need to spend $3,500 at the beginning of each quarterduring your retired life of 20 years. You are expecting to retire in December 2044 and youwant to start spending $3,500 from the first quarter of 2045.How much do you need to save each month during your service period to be able to spend$3,500 per quarter during your retirement life?
[5 Marks]Question 2
Elgar Pharmaceutical Ltd is a very small size company which is considering a major capitalexpenditure of $400,000 to expand its business for the first time. There are two possiblescenarios that the expansion path may take:
Scenario-1:
The Pharmaceutical Company would run at full capacity; at the end of year onethe total business would be worth $700, 000.
Scenario-2:
There is a 30% probability that the company would face tough competition fromnew competitors in the market; the demand for its pharmaceutical product would drop and thebusiness would be worth only $340, 000 after one year.The company has decided to borrow its $400, 000 capital from a Melbourne bank at a 15%interest rate.(i). Calculate the NPV of the project and make a decision of whether to invest.(ii). The Elgar Ltd management do not expect the outcome of the project to be better thanthe normal expectation (as described by scenario 1 and 2 above), but they areconcerned that the project may face additional adverse situations. Therefore, theyhave asked you to conduct a sensitivity analysis for the NPV in the Pessimisticcondition, as described by the variables below:
Read the above instructions, before approaching the assignment problems

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