Page 1 of 7 Fin516 201830 Assessment 2 Value: 30% Due date: 17-April-2018 Submission method options: Turitin Task – Answer all questions. Question 1 45 marks Corning Limited, one of the leading glass producers, is currently evaluating a potential new product; a tough but light curved glass designed for unusually shaped tall buildings and office blocks. The new product would cost more than their usual commercial exterior glasses and in market research conducted by the company’s research department at a cost of $650,000 it was judged superior to various competing products. Monica Andrews, the Chief Financial Officer, must analyse this project, along with other potential investments, and then present her findings to the company’s executive committee. The project will require construction of a new plant that would have an annual capacity of 75,000 tons and will cost an estimated $18,500,000 to build. The estimated purchase cost of machinery is $13,500,000 but shipping costs to move the machinery to the plant would total $425,000 and the estimated installation charge is another $575,000.The land on which the plant will be built has been vacant since it was bought three years ago at a cost of $750,000, which has already been paid and expensed for tax purposes. The company expects its new plant to produce 65,000 tons of glass per year and the management of Corning anticipates they can sell the product at $350 per ton allowing the company to gain 10% market share in the first year of operation. Fixed costs are expected to average $12,500,000 annually while variable costs are estimated to be around $125 per ton. The plant and machinery will be depreciated to zero on a straight-line basis over ten years, with an estimated sale value of $1,000,000 after 10 years at the end of the project. Corning requires 11.5% return on the project. The company tax rate is 30%. Now assume that you are an assistant to Monica and she has asked you to analyse the project and then to present your findings to her. Therefore, a. Calculate the project’s incremental cash flow for each year and present in a tabular form. 15 marks b. Using the incremental cash flows calculate the project’s: i. Payback Period 1.5 marks ii. Net Present Value 5 marks iii. Profitability Index 2 marks iv. Discounted Payback Period 1.5 marks v. Internal Rate of Return using interpolation method 7 marks c. Identify and discuss any further information that you may requ ...

1. Page 1 of 7
Fin516 201830 Assessment 2
Value: 30%
Due date: 17-April-2018
Submission method options: Turitin
Task – Answer all questions.
Question 1
45 marks
Corning Limited, one of the leading glass producers, is
currently evaluating a potential new
product; a tough but light curved glass designed for unusually
shaped tall buildings and office
blocks. The new product would cost more than their usual
commercial exterior glasses and in
market research conducted by the company’s research
department at a cost of $650,000 it

2. was judged superior to various competing products. Monica
Andrews, the Chief Financial
Officer, must analyse this project, along with other potential
investments, and then present
her findings to the company’s executive committee.
The project will require construction of a new plant that would
have an annual capacity of
75,000 tons and will cost an estimated $18,500,000 to build.
The estimated purchase cost of
machinery is $13,500,000 but shipping costs to move the
machinery to the plant would total
$425,000 and the estimated installation charge is another
$575,000.The land on which the
plant will be built has been vacant since it was bought three
years ago at a cost of $750,000,
which has already been paid and expensed for tax purposes.
The company expects its new plant to produce 65,000 tons of
glass per year and the
management of Corning anticipates they can sell the product at
$350 per ton allowing the
company to gain 10% market share in the first year of
operation. Fixed costs are expected to

3. average $12,500,000 annually while variable costs are estimated
to be around $125 per ton.
The plant and machinery will be depreciated to zero on a
straight-line basis over ten years,
with an estimated sale value of $1,000,000 after 10 years at the
end of the project.
Corning requires 11.5% return on the project. The company tax
rate is 30%.
Now assume that you are an assistant to Monica and she has
asked you to analyse the project
and then to present your findings to her. Therefore,
a. Calculate the project’s incremental cash flow for each year
and present in a tabular form.
15 marks
b. Using the incremental cash flows calculate the project’s:
i. Payback Period
1.5 marks
ii. Net Present Value
5 marks
iii. Profitability Index
2 marks
iv. Discounted Payback Period
1.5 marks

4. v. Internal Rate of Return using interpolation method 7
marks
c. Identify and discuss any further information that you may
require to help make the
accept/reject decision about this project. (Maximum 500 words)
5 marks
Page 2 of 7
d. Combining all the information recommend if the project
should be undertaken or not and
explain your decision to Monica. (Maximum 300 words)
3 marks
e. Analyse the importance of capital budgeting for a
corporation. (Maximum 500 words) 5
marks
Please note if you use a spreadsheet you cannot submit a
spreadsheet via EASTS - neither can
you submit a spreadsheet as an embedded object in a Word
document. If you construct your
table in Excel then please simply copy and paste into Word.
You can set up your data in a

5. spreadsheet and use it check your answer but remember you still
have to show how the NPV,
etc. was derived. This does not mean giving the Excel
algorithm. It does have to show how
the solution was derived. So show how you have discounted the
cash flows.
Question 2
55 marks
You are considering investing in Australian shares and decide to
investigate the shares of two
Australian companies: Commonwealth Bank of Australia and
Altium Ltd.
For this question please note:
ce website at http://au.finance.yahoo.com/
for data.
pasted and submitted in a
Word document in EASTS. Make sure that you show all your
workings – for
example, do not simply put down the covariance but show how
it was obtained and
this does not mean giving the Excel algorithm. Please do not

6. give cell formulae, cell
references, etc, as the reader should be able to follow from a
table. Also please note
using excel formula such as =COVAR() is not acceptable.
a. Find the monthly opening and closing prices for the period 1
July 2016 – 30 June 2017
for Commonwealth Bank (CBA.AX), Altium Ltd (ALU.AX) and
the Market as proxied
by the All Ordinaries index (^AORD).
3 marks
b. Calculate monthly holding period returns (%) for the period 1
July 2016 – 30 June 2017
for CBA, ALU and Market. The monthly holding period return
is the percentage return
(%) you would receive if you bought an asset on the first day of
the month (opening
price) and sold it on the last day of the month (closing price).
(Use 'Close' rather than
'Adjusted Close' for the selling price and include any
dividends). Show the formula and
at least one sample calculation. 3
marks
c. Graph your results on one graph with returns on the y axis

7. and time on the x axis.
4 marks
d. Calculate the average monthly holding period return for
CBA, ALU and Market.
1.5 marks
e. For CBA, ALU and Market, calculate:
i. The annual holding period returns; and
1.5 marks
ii. The standard deviation of the monthly holding period returns
6 marks
f. Calculate the covariance of CBA, ALU, CBA & Market,
and ALU & Market over the
year.
6 marks
Page 3 of 7
g. You decide to invest in a portfolio of two assets, calculate
the expected portfolio return
and standard deviation if:

8. i. 20% of wealth is invested in CBA and 80% in ALU
5 marks
ii. 80% of wealth is invested in CBA and 20% in ALU
5 marks
h. Plot CBA, ALU and Market on a risk / return graph as well
as the two portfolios you
calculated in part g. (See Fig 11.2 of text for example of graph)
4 marks
i. Calculate the beta of both CBA and ALU.
2 marks
j. If average T bill rates in 2016-2017 was 2. 5% what would
be the expected return of
CBA and ALU according to CAPM?
4 marks
k. Construct the Security Market Line (SML) showing where
CBA, ALU and Market lie.
Identify if the shares are overvalued, undervalued or fairly
priced. 5 marks
l. Incorporating all the analysis explain which asset or
combination of assets would you
choose to invest in as a rational investor. (Maximum 500 words)

9. 5 marks
Rationale
This assignment covers Topics 1 - 7 and assesses your
competency towards all
four learning outcomes of this subject.
The feedback will assist you to determine where you may need
to revise your work.
Marking criteria
Please read the section ' Presentation' below after rubric.
Remember, you must reference accurately and failure to do so
will attract a penalty of up to
10% of available marks of the assignment. Also please note,
Assessment items should be
typed and handwritten, hand drawn assignments will not be
accepted.
Assignments should show all workings and students will be
penalised for failing to do

10. this. Please adhere to a convention of 4 decimal places for the
answer and approximations
without rounding for calculations prior to the answer. Where
necessary, state any
assumptions you have made.
You will be assessed on:
iques;
Page 4 of 7
Please see below marking rubric incorporating various types of
questions and criteria. In all
questions (and parts of questions) pay careful attention to what
type of question it is and

11. amount of mark allocated to each question (and parts of each
question).
This table below a guide to performance standard expected at
each level.
Page 5 of 7
Performance standards
Criteria
High Distinction(HD)
85% to 100%
Distinction (DI) 75%
to 84%
Credit (CR) 65% to
74%
Pass (PS) 50% to 64% Fail (FL) 0% to
49%
1.

12. Quantitative
questions
Applies correct principles
and calculations,
substantiated with
workings or diagrams in
order to arrive at the right
answer. There are
negligible errors/no errors
in calculations.
Applies correct
principles and
calculations,
substantiated with
workings or diagrams
in order to arrive at the
right answer, shows
workings but contains

13. few minor errors.
Applies correct
principles and
calculations,
substantiated with
workings or diagrams in
order to arrive at the
right answer, shows
workings but contains
some errors.
Applies basic
understanding of relevant
principles, shows
workings but contains
some major errors.
Frequent errors and
mistakes indicative of a
lack of understanding of

14. core principle(s). Failed
to show ALL workings.
Only showed excel
formula or calculator
key stokes.
2. Conceptual
Questions
Principles are applied in
the appropriate manner to
arrive at the correct
answer. The use of
relevant principles shows
creativity and imagination.
Focuses on key issues and
avoids or dismisses
tangential issues.
Quantitative and
qualitative analysis

15. persuasively supports the
convincing
recommendations and
conclusions, which are
strongly related to the
overall issues.
Discussion reflects
excellent understanding
of relevant principles.
Mainly focuses on key
issues. Quantitative and
qualitative analysis is
strong. Conclusions
and recommendations
are convincing and
related to the overall
issues.

16. Discussion reflects good
understanding of relevant
principles. Focuses on
key issues, but spends
some time on some
tangential issues.
Quantitative and
qualitative analysis is
good. Conclusions and
recommendations are
convincing, reasonably
well related to the overall
issues.
Discussion reflects basic
understanding, but not
deep understanding of
relevant principles.
Focuses on key issues but

17. spends too much time on
some tangential issues.
Quantitative and
qualitative analysis is
adequate to make
reasonable and believable
conclusions and/or
recommendations.
Discussion reflects lack
of basic understanding
of relevant principles.
Focuses on tangential
rather than key issues.
Quantitative and
qualitative analysis too
simplistic or convoluted.
Conclusions and
recommendations are

18. wrong or implausible.
Page 6 of 7
3.
Communicate
financial
analysis
Uses terms correctly.
Clearly and accurately
interprets findings and
communicates methods.
Contains no grammar and
spelling errors.
Makes negligible errors
in using terms,
interpreting findings,
and/or communicating

19. methods. Contains few
or no grammar and/or
spelling errors.
Makes a few minor
errors in using terms,
interpreting findings,
and/or communicating
methods. Contains few
grammar and spelling
errors.
Makes some minor errors
in using terms,
interpreting findings,
and/or communicating
methods. Contains a
number of grammar and
spelling errors.
Frequently misuses

20. terms, misinterprets
findings, and/or
miscommunicates
methods. Grammar and
spelling errors are
commonplace.
4. Financial
research
Has developed and
justified own ideas based
on a wide range of sources
which have been
thoroughly analysed,
applied and discussed.
Research is presented
with good criticisms, in
a descriptive way and

21. indicates good
understanding.
Research is presented
with some criticisms, in
a descriptive way and
indicates few limitations
of understanding.
Research is presented
uncritically, in a
descriptive way and
indicates some limitations
of understanding.
Incorrect research or no
evidence of research or
irrelevant research
Page 7 of 7

22. Assessment Presentation
The following points are a general guide for presenting
assessment items.
will not be accepted.
include their comments.
or Arial.
subject code and
assessment number.
our name and student number on
each page.
and an electronic copy.
checker, but remember that
this does not pick up all errors. You must still manually and
carefully edit your work.

23. Requirements
As per the CSU Referencing Policy, assessment should be fully
referenced and you must
reference accurately as failure to do so will attract a penalty of
up to 10% of available
marks of the assignment.
The Faculty of Business requires that students apply APA
(American Psychological
Association) referencing. If you are unsure of this style, please
go to CSU Referencing
website at http://student.csu.edu.au/study/referencing-at-csu