...Executive summary 2 1. Analysis of macroeconomic and industry conditions affecting Virgin and Qantas in airline company industry. 2 2. Using Capital Asset Pricing Model to analysis two companies. 3 2.1 Risk-free interest rate 3 2.2 Market expected return 3 2.3 Beta 3 2.4 Expected return for two companies’ stocks using CAPM model 3 3. Comparative Equity Valuation – Qantas versus Virgin 4 4. Key financial ratios 5 4.1 Profitability Analysis 5 4.1.1Return on Asset (ROA) 5 4.2 Market price 5 4.2.1 Price-to-Earnings Ratio 5 4.3 Liquidity Analysis 6 4.3.1Current Ratio 6 4.4Debt and Long-term Solvency 6 4.4.1 Interest Coverage 6 4.4.2Leverage 6 4.5 overall analyses 6 5. An evaluation of firms’ strategic choices with the goal of creating shareholder value 7 6. Recommendation 7 Reference 8 Appendix 9 Executive summary Virgin and Qantas airline are two really important airlines in the aviation sector in Australia that listed on the Australian Securities Exchange. During our report, firstly, we analysis the Global and Australian macroeconomic environment, also including industry conditions affecting Virgin and Qantas in airline company industry. Secondly, a capital asset pricing model analysis is given for two companies’ stocks. Next part is the comparison of the Virgin and Qantas airline by the equity valuation. Then, there are some key financial ratios analysis of this two airline from the profitability analysis，market price，liquidity analysis and debt and long-term...
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...Capital expenditures and its financing 10 2.5 Important factors influencing the use of debt financing 10 2.5.1 Tax Advantage 10 2.5.2 Corporate Tax Rate 11 2.5.3 Credit rating 11 2.5.4 Interest rate 11 2.5.5 Company’s Industry 12 2.5.6 Company’s growth rate 12 2.5.7 Some other arguments about Harvey Norman 12 2.6 Evidence of financial distress 13 2.7 Optimal Capital Structure 14 3. Dividend Policy 15 3.1 HVN’s Dividend history 15 3.2 Competitors Dividend Analysis 16 3.2.1 David Jones Limited (DJS) 16 3.2.2 JB HI-FI Limited (JBH) 17 3.2.3 Comparison 17 3.3 Alternatives of Paying Dividends 18 3.4 Company’s Characteristics 19 3.5 Optimal Dividend Policy 19 4. Valuation 20 4.1 Methodology of valuation 20 4.2 Operating revenue estimation and Future free cash-flow 20 4.2.1 Performance of HVN: 20 4.2.2 Future prospects: 22 4.2.3 Operating Revenue Forecasting: 22 4.2.4 Free cash flow: 25 4.3 Weighted Average Cost of Capital (WACC) 25 4.3.1 Value of Debt and cost of debt: 25 4.3.2 Value of equity and cost of equity: 26 4.3.3 Weighted Average Cost of Capital (WACC): 27 4.4 Value of Harvey Norman Holding Ltd and estimated share price: 28 4.5 Sensitivity Analysis: 28 4.5.1 Operating revenue and share price: 29 4.5.2 Share price as a function of terminal FCF growth and WACC: 30 4.6 Share price assessment...
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...element in macroeconomic analysis especially in constructing monetary policy. The demand of money is the quantities of money that people willing and able to hold at alternative interest rates, ceteris paribus. There are several models of money demand used to explain why individuals and businesses hold money balances like cash and checkable deposits. Those models of money demand shows how do the behavior of individuals and businesses causes the fluctuations of money balances in the economy. According to the liquidity preference theory by economist, John Maynard Keynes, he determined that there are three primary motives that people holding money.The first motive is transaction motive which explained that people holding money and used it to buying things. In this motive, money demand depends on size of income, spending habit and slightly affected by interest rate. The second motive for holding money is for precautionary motive which means that people hold money in anticipation of wishing to make huge transactions in the future. People will keep money on hand just in case to overcome unforeseen emergency. The demand of money in order for precautionary motive is depend on size of income, nature of person and farsightedness. The last is speculative motive which people will like to keep money in the liquid form and invested in securities when the interest rate are rises thus it can be said that hold wealth as money to store value. This motive is relies on interest rate, income and expected...
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...Country Analysis for an Emerging Market: The Indian Example Haoran BI Country Analysis for an Emerging Market: The Indian Example Abstract: The Beta Country Risk Model, as described by Erb, Harvey and Viskanta (1996) and used by Andrade and Teles (2004) for Brazil, is used to estimate the country risk of India based on several macroeconomic indicators. Ordinary least squares regression is run on the white noise (unexpected component) of these variables to explain the variation in country risk to identify the most relevant of these variables. The study shows that the variation in country risk of India is highly correlated with changes in FDI flows, interest rates (monetary policy), exchange rates and the unemployment rate. The effect of political risk on overall country risk is also studied. Key words: country risk, country beta model, risk modeling 1. Introduction Globalization and increasing financial unification has led to a rapid growth of international lending, foreign direct and institutional investment. With this, economies across the globe are increasingly becoming interdependent and developments in one part of the world affect returns in another. Given this, country risk analysis provides insights into that part of the risk of an investment specific to a certain country. “Country Risk”, in general refers to the risk associated with those factors that determine or affect the ability and willingness of a sovereign state or borrower from a particular country...
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...Foreign Subsidiary Investment Plan Case: Multinational Capital Budgeting China & Australia Hypothetical Incorporated MBA AF 626 Fall 2011 International Financial Management Professor XX XX XX XX XX Table of Contents PART I – Analysis: Australia vs. China A. Country Analysis 1. Economic Environment 3 2. Social Environment 10 3. Political Environment 12 B. Industry Analysis 1. Aluminum Industry in Australia 17 2. Airline Industry in China 18 PART II-Capital Budget Analysis 1. Weighted Average Cost of Capital 19 2. Net Present Value 20 3. Scenario Analysis 21 PART III – Conclusion: Investment Decision 23 References 24 Appendixes 26 PART I – Analysis: Australia vs. China A. Country Analysis I. Economic Environment Australia Australia is a market oriented financial system which includes the world’s 13th largest economy and the 9th highest per capita Gross Domestic Product (GDP), with almost two consecutive decades of growth and the unemployment rate falling to a generational low. As a result of nearly three decades of structural and policy reforms, Australian’s economy has proven to be a competitive player in the increasingly integrated global markets. In terms of country risk, Australia’s favorable attitude towards private enterprise and its well-protected property...
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...Relationship between Interest Rate and Stock Price: Empirical Evidence from Developed and Developing Countries Md. Mahmudul Alam (Corresponding author) CRM, Marketing Division, Grameenphone Ltd 47 Shantinarar, Dhaka 1217, Bangladesh Tel: 880-1711-503-782 E-mail: rony000@gmail.com Md. Gazi Salah Uddin Department of Business Administration East West University 43, Mohakhali C/A, Dhaka 1212, Bangladesh E-mail: rimsust2002@yahoo.com Abstract Stock exchange and interest rate are two crucial factors of economic growth of a country. The impacts of interest rate on stock exchange provide important implications for monitory policy, risk management practices, financial securities valuation and government policy towards financial markets. This study seeks evidence supporting the existence of share market efficiency based on the monthly data from January 1988 to March 2003 and also shows empirical relationship between stock index and interest rate for fifteen developed and developing countries- Australia, Bangladesh, Canada, Chile, Colombia, Germany, Italy, Jamaica, Japan, Malaysia, Mexico, Philippine, S. Africa, Spain, and Venezuela. Stationarity of market return is tested and found none of this stock market follows random walk model, means not efficient in weak form. To investigate the reasons of market inefficiency, relationship between share price and interest rate, and changes of share price and changes of interest rate were determined through both time series and panel regressions. For all...
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...1.0 Introduction Conservatism is arguably one of the most prominent and prolonged characteristics in accounting practices (Basu, 1997). Over the centuries, many researchers have accomplished in-depth reports and thoughtful analysis regarding different focuses on conservatism. Literatures related are abundant and fruitful. In next section, this paper will firstly give a brief review on a number of related literatures. Follows that, some of the most significant motivations to adopt conservatism such as contracting demand, litigation pressure, agency problem, tax implication, regulation concern and political economy will be discussed in section three. For the purpose of construction, regression analysis, as the most commonly used research technique, are also analyzed in section four of this paper, which also includes a summary of the requirements in sample selection process. Meanwhile, another crucial aim of this paper is to introduce the empirical evidence of a positive relationship between information quality and conditional conservatism. In section five, this paper intends to explain the empirical findings of Iatridis (2011) that a high quality accounting information discloser will apply conditional conservatism but restrict unconditional conservatism. 2.0 Literature Review Researchers commonly characterize accounting conservatism as “asymmetric timeliness in recognition of accounting gains versus losses and systematic understatement of net assets” (Chi...
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...Risk Management Analysis for Air NZ Abstract Recent financial theories argued firms can increase their values through hedging by reducing taxable income, agency cost and the cost of financial distress. This report provides a qualitative and quantitative analysis of corporate risk management for the company Air New Zealand. We uses a time series OLS regression model. The fair value of derivatives is used as dependent variable to measure the extent of financial instrument usage. The result shows that the use of derivatives by Air NZ fails to add value to the company. FINA781 Report Page 1 1. Introduction Air New Zealand Limited is the national airline and flag carrier of New Zealand. Based in Auckland, New Zealand, the airline operates scheduled passenger flights to 56 destinations locally and internationally. Air New Zealand is a member of the Star Alliance global airline alliance, having joined in 1999. Air New Zealand originated in 1940 as Tasman Empire Airways Limited (TEAL), a flying boat company operating trans-Tasman flights between New Zealand and Australia. TEAL became wholly owned by the New Zealand government in 1965, whereupon it was renamed Air New Zealand. The airline was largely privatized in 1989, but returned to majority government ownership in 2001 after a failed tie up with Australian carrier Ansett Australia. As of 2008, Air New Zealand carries 11.7 million passengers annually. Do hedging create firm value has been a popular topic argued through...
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...annuities and perpetuities, etc.; Interest rates and bond valuation; Dividends and stock valuation and dividend policy; Capital budgeting: NPV, IRR, payback period, profitability index, etc.; Risk, return and security market line: beta estimation, CAPM; Cost of capital, financial leverage, capital structure, etc; Cash and liquidity, credit and inventory management; International corporate finance; Risk management and financial engineering; Options and option valuation; Mergers and acquisitions 2. Accounting for Financial Statements: Preparation of income statement, balance sheet and statement of cash flows: Accounting for specialized items: Property, Plant & Equipment, bad debts; provisions; financial instruments; leases; employee benefits; income taxes; revenues,; foreign currency transactions etc.;Accounting for mergers and consolidations; IFRS vs GAAP; Financial statement analysis 3. Cost and Management Accounting: Cost concepts; Job-order costing vs process costing;ABC Costing; Marginal costing vs absorption costing: CVP analysis; Relevant costs: special order, make or buy decisions; ROA, residual income and economic value added; Standard costing and variance analysis; EOQ and linear programming 4. Quantitative Methods and Business Mathematics: Algebra and logarithm; Series and progressions; Probability, confidence intervals and testing; Measures of central tendency and measures of dispersion; Simple and compound interest: compounding and discounting;Differentiation...
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...Greek macroeconomic Fundamentals over 2000-2009 to levels discrepant with other EU members. A shift in market expectations, from a scenario of credible commitment to future EU participation to a scenario of non-credible EU commitment without fiscal guarantees, respectively occurring in November 2009 and February/March 2010. The pricing by markets of a (previously nonexistent) default risk that follows the withdrawal of an implicit guarantee on Greek debt by other EMU countries (mainly Germany). Interestingly, our account of the 3 factors sparking and escalating the crisis also helps explain why prices on Greek government bonds have not recovered but continued to plummet following the announcement of the EU/IMF rescue plan. Our analysis suggests that the involvement of an external institution like the IMF in EU affairs will in all likelihood widen the market uncertainty over possible co-ordination failures between the EU and IMF policy makers and fail to stabilize market expectations on a credible resolution of the Greek crisis. LITERATURE REVIEW Some work has been done by Vanessa Rossi and Rodrigo Delegado Aguilera in their paper, “No Painless solution to Greece’s Debt Crisis”,...
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...Does Exchange Rate Exposure Matter? By Craig Doidge, John Griffin, and Rohan Williamson* Draft: May 8, 2002. Comments Welcome. _________________ Doidge is at the Ohio State University, Fisher College of Business, Columbus, OH 43210, email: doidge.4@osu.edu. Griffin is at Arizona State University, College of Business, Tempe, AZ 85287, email: john.griffin@asu.edu, and Williamson is at Georgetown University, McDonough School of Business, Washington, DC 20057, email: williarg@georgetown.edu. This paper replaces an earlier draft entitled, “An International Comparison of Exchange Rate Exposure.” We thank Yiorgos Allayannis, James Linck, Patrick Kelly, Spencer Martin, Felix Meschke, Clifford Smith, René Stulz, and participants at the International Finance Conference at the Georgia Institute of Technology, Cornell University, Georgetown University, and the Ohio State University for helpful comments and suggestions. We also thank Selim Topaloglu for research assistance. Williamson acknowledges research support from the Capital Markets Research center at Georgetown University. All errors are the responsibility of the authors. * Does Exchange Rate Exposure Matter? Abstract Previous literature finds mixed empirical support for a relation between exchange rate exposure and its theoretical determinants and that exposure is of negligible economic importance. To re-examine the nature and the economic significance of the exchange rate to firm value relation, we construct an international...
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...Curtin Business School Department of Finance and Banking Portfolio Management 301 Semester 1, 2013 - Assignment Instructions 1. This is a group assignment. Each group will consist of three students and each group will submit one joint report. 2. In doing this assignment, you are encouraged to refer to the lecture notes, text, the reading material in Blackboard and any other material that may assist you in understanding what you are doing in this assignment. Group members are expected to actively discuss and work among themselves but not refer to the work of any other groups. Any collusion of this form will be treated very seriously and penalised. 3. Please ensure that each member in a group makes an equal contribution to the assignment, as far as possible. Free riders should be reported to me and may be penalised. 4. You are expected to make this assignment an opportunity to develop you spreadsheet computational skills. Make use of Excel to do your calculations and charts/graphs. 5. Assignments must be presented in a professional and reader-friendly manner. The key results or summaries of your calculation and your comments must be shown in the body of the report. Make sure the formulas or methods used for your computations are clearly shown. The data collected and details of calculations can be shown as appendices to the report. The length of the report should not exceed 10 pages (Excluding the appendices). You should also follow the following typing...
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...JB Hi Fi Limited(JBH) | April 17 2011 | The following document is a complete valuation JBH based on DCF and Relative Valuation. All input justifications are provided and a final recommendation is presented. | | Business Summary JB Hi Fi (JBH) has experience unprecedented growth in the past few years in excess of 10% despite the Global Financial Crisis and weak consumer spending environments. JBH is likely to continue its strong growth (although below expectations) through a combination of recovering market conditions, a new era of smart products and with official interest rates likely to be placed on hold by the RBA until the end of 2011. (A) CHOICE OF MODELS ------------------------------------------------- 1. Discount Models Why FCFF Discount Model? DDM would not be a suitable model because JBH paid dividends which are significantly greater than or lower than FCFE to the firm between 2006 and 2010 thereby underestimating or overestimating the value of JBH (dividends less than 80% of FCFE or greater than 110% FCFE) . The debt to equity ratio has been volatile declining from 82.90% in 2003 to 23.73% in 2010 with a spike of 120.96% in 2006. Estimating future debt issues and repayments will prove to be difficult given that changes are expected because JBH has raised their senior debt facility by $105 million expiring by 2014 possibly to finance the roll out of up to 193 new stores by 2014 as well. The recent stock repurchases of $173 million and possible future...
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...against the Chinese Yuan (CNY) for the past 3 years. If we were to take a look on a half yearly basis, in the first half of 2011, the IDR was appreciating against the CNY. This could be due to high foreign investments worth USD 20 billion coming in to the country. Moreover, exports from the previous year also contributed to this appreciation by reaching a high of USD 203.62 billion which surpassed the official target of USD 200 billion (Wibisono, 2012). High foreign investments and high exports lead to high demand of local currency of which in turn appreciates the IDR. However, the second half of 2011 suggests that policymakers globally were expecting a recession, which lead Bank Indonesia to react by reducing the interest rates in order to indirectly reduce exchange rates in hopes of stimulating exports, domestic consumption and capital investments. This is shown in...
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...This group of employed individuals consists of 0.6% agriculture, 6.4% construction, 14.6% production, 78.4% services, and sees fifteen percent of the population living below the poverty line. Trade is vital to the British and this is reflected in that their exports and imports consumes 57% of the GDP. The country welcomes foreign investment, and has an average applied tariff rate of 1.5%. The state still holds some bank ownership, but the financial sector is strong. Trade is bustling for the UK, and they are involved with many free trade agreements including major economies such as those in Asia like China and Japan, Australia, North America, as well as within the European...
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