Question: Bega Cheese Ltd data (hypothetical except where noted) Bega Cheese (BGA) Loan payment per quarter $2,400.00 Operating revenue (in millions) 2 $2.07 Annual growth in
| Bega Cheese Ltd data (hypothetical except where noted) | |
| Bega Cheese (BGA) | |
| Loan payment per quarter | $2,400.00 |
| Operating revenue (in millions)2 | $2.07 |
| Annual growth in revenue | 15% |
| Property price | $3,500,000 |
| Investment X (p.a.) | 4.74% |
| (compounding frequency) | quarterly |
| Investment Y (p.a.) | 4.45% |
| (compounding frequency)1 | daily |
| Investment Z (p.a.) | 4.25% |
| (compounding frequency) | semi-annually |
| Part e. annual coupon rate | 5.00% |
| Part e. Current bond price | $1,217.25 |
| Part f. annual coupon rate | 7.00% |
| Part f. market required return | 5.95% |
| 1 Assume a 365-day year |
TVM and bond valuation questions (1 mark each, give answers to 2 decimal places): a. Bega Cheese (BGA) has decided to purchase a new asset necessary for a proposed expansion to its business. The company has decided to speak with their bank. The bank is offering a fixed rate of 2.55% APR, compounded quarterly. BGA is required to make payments quarterly as shown in the spreadsheet every quarter for 10 years. What amount will BGA be required to borrow? b. Refer to the spreadsheet for the annual operating revenue of BGA. Assume this revenue will grow continuously at the annual rate shown in the spreadsheet. What is your prediction for annual operating revenue for BGA in 5 years? c. BGA wishes to invest funds and has several options available to it. The investment options are X, Y and Z. All three of these options have equal risk. The interest rates (EAR) for these options are given in the spreadsheet. What is the EAR of the investment option BGA should choose? Assessment 2: Business Case Studies I ACCT6004 S3 2021 2 d. BGA is buying new property for the amount provided in the spreadsheet. To finance this, the BGA's bank has offered an amortised loan at 2.55% APR, quarterly compounding, with 30 years of quarterly payments. What quarterly payment will BGA have to make on this loan? Assume that the entire property cost is financed and that payments are made at the end of each period. e. BGA has an issue of $1000 par value annual coupon bonds with 11 years remaining until maturity. The annual coupon rate is given in the spreadsheet, along with the current price of the bonds. What is the yield to maturity on the bonds? f. BGA has an issue of $100 par value bonds that offers an annual coupon rate (located in the spreadsheet) paid semi-annually. The bonds have 8 years remaining until maturity. The market's required return on these bonds is provided in the spreadsheet. What is the amount of each coupon payment? 2. Risk and return estimates (4 marks): a. Use CAPM to estimate the expected return for the shares of: i) Bega Cheese Ltd; and ii) a hypothetical company called Flyaway with a beta of 1.20. To do this, use the yield to maturity of a 10-year Australian Government bond on 26 November 2021 as a proxy for the risk-free rate, assume the market risk premium is 3.50% and use the BGA's most recent 5-year beta. b. Using the data from part 2a, estimate portfolio expected return and beta, assuming a portfolio made up of Bega Cheese and Flyaway with 40% invested in Bega Cheese Ltd and 60% invested in Flyaway. 3. Risk and return analysis (15 marks): a. Interpret and discuss your risk and return measures from parts 2a and 2b
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