Assessment 2 Information

Subject Code: FIN203

Subject Name: Corporate Finance

Assessment Title: Individual Assignment

Assessment Type: Written Assignment and Excel Spreadsheet

Word Count: 2000 Words (+/-10%)

Weighting: 25 %

Total Marks: 70

Submission: Via Turnitin for written assignment, via excel link for excel

spreadsheet

Due Date: Friday (19:55pm AEST) Week 9

Assessment Instructions

• Complete this individual assignment (parts 1-3) by the due date above

• Please submit a word document of the written answers through the Turnitin “Written

Report” link and submit ONE excel spreadsheet you used in calculating answers

through “Excel Submission” link (you can use multiple sheets in your one file). Both of

these sections will be marked.

• The written part of your assignment will be put through Turnitin and any plagiarism will

be traced and penalised. Please refer to the policy

Assessment Description

Answer the questions below with reference to the following sources:

Complete all three parts of the written assignment below.

1. Company Perspective – Blackmores Group [40 marks]

Source 1: Blackmores Group Annual Report 2019

https://www.blackmores.com.au/about-us/investor-centre/annual-and-half-year-reports

(Financial Year 2019 → Annual Report → View Online → Download)

Source 2: Blackmores Group Governance & Board of Directors

https://www.blackmores.com.au/about-us/investor-centre/corporate-governance

Source 3: Blackmores Limited (BKL.AX) Yahoo Finance

https://au.finance.yahoo.com/quote/bkl.ax/

a) Consider the 2019 Annual Report of Blackmores Group. Briefly explain how Blackmores’

governance is organized. Do you notice any strategies in place to align manager and

shareholder interests at Blackmores based on the Annual Report? Provide one brief

example. (5 marks)

b) Calculate and discuss how Blackmores’ cash conversion cycle has changed from 2018 and

Page 2 Kaplan Business School Assessment Outline

2019. What is the cause of this change? Do we need any additional comparison data to

make our analysis more complete? (10 marks)

c) What is the Net Working Capital for Blackmores both in 2108 and 2019. What type of current

asset management strategy is the company pursuing? Explain why and what are the pros

and cons of this strategy. (4 marks)

d) Consider the Blackmores Group 2019 Annual Report. Identify three of the major risks

discussed. Are these risks systematic or unsystematic? Why? (3 marks)

e) You are trying to value Blackmores share today (End of 2019). Assume the current price of

the share in the stock market is $88.16 and that you would like to hold the investment for 5

years. Assume that the total dividend paid by Blackmores in the 2019 year were paid as a

lump sum (at once) today. You also estimate that for the next two years dividends will grow

respectively at 30%, 25% per year. After this (starting in time 3) you estimate dividends will

grow at a constant rate of 6% forever. Assume that today the Australian treasury notes 2.5%,

the market risk premium is 8% and the beta of Blackmores is 1.16. Based on this price would

you purchase the share? Why or why not? (10 marks)

f) Assume that the Blackmores Group would like to replace its bank loan facilities (2019) with

a new issuing of bonds. Assume that the issue will have a coupon rate of 1.5% with a 10

year maturity. Assume this are semi-annual coupon bonds and each have a face value of

$1.000 and the required rates of return for similar bonds in the market is 2.5%.What would

be the issuing price of these bonds? (8 marks)

2. Capital Budgeting – Blackmores Group [25 marks]

Answer the below questions in your word file and refer to your excel spreadsheet as a supporting

document. Upload your excel spreadsheet under “Excel Submissions”.

All amounts are in $AUD. Blackmores is evaluating to invest into a new manufacturing facility

in Asia. In order to mitigate the risk and assess the fit for purpose of this manufacturing plant

Blackmores asked “SGS Ltd.” to conduct a technical due diligence on the plant and advise on

the feasibility of this project. “SGS Ltd.” is asking $1 Million as a fixed fee for its consulting

services. The manufacturing plant has an initial outlay of dollars $500 million and will produce

150,000,000 tablets ready for sale starting at the end of year 1 until the end of year 5 and

250,000,000 tablets starting at the end of year 6 until the end of year 10. It will also incur working

capital expenses at the end of year 1 to 5 of $1 million (this working capital will not be

recovered). Assume that the average selling price of a single tablet is $1 over the ten years.

The operating costs of the project will be 35% of the revenues from year 1-10. The investment

will be depreciated on a straight-line basis over ten years to 0 book value. Blackmores has

estimated that the manufacturing plants can be sold at the end of year 10 for $10 million. The

tax rate is 30%. All cash flows are annual and are received at the end of the year. The weighted

average cost of capital for Blackmores is 10%.

a) Based on the above information calculate the FCFs of the project. (10 marks)

b) Calculate the NPV for the new manufacturing facility assuming that the cost of capital is

10% and 15%. Which discount rate should Blackmores use given that this project has a

higher risk than the overall risk of the company? (5 marks)

c) Blackmores would like to recover the investment within 5 years. What is the Discounted

Payback Period for the project (both at Cost of Capital of 10% and 15%)? (5 marks)

d) Based on your analysis a) to d) should Blackmore undertake this project? Justify your

answer with reference to theory. (5 marks)

3. Appropriate referencing, layout and research [5 marks]

Students need to reference sources appropriately, and a minimum of three references is required.

Students also need to ensure that the work is their own and conduct independent research.