FIN B386F Financial Decision Making
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit
FIN B386F Financial Decision Making
Assignment
Due Date: 10 March 2023
Weighting: 15% of the course
Important note:
You must use word processing software (such as Microsoft Word) to prepare the assignment, and submit it via the Online Learning Environment (OLE). All assignments must be uploaded to the OLE by the due date.
Failure to upload the assignment in the required format to the OLE may result in the score of the assignment being adjusted to zero.
Question 1 (50 marks)
Critically analyse how a listed company in Hong Kong or mainland China manages its exposure to business and financial risk and examine the relationship between capital structure and stock price.
Students should conduct independent research or investigation on the above topic. Besides, theories and knowledge must be applied and explained to support the student’s arguments. Sources and references can be obtained from annual reports, regulatory filing, publicly available information, newspapers or magazines.
Suggested content
The analysis includes (but is not limited to) the following:
1. Introduction
2. Background of the listed company
3. Analysis of its business and financial risk
4. Examination of the relationship between capital structure and stock price
5. Recommendation
Please state the number of words used. The number of words should be less than or equal to 500. All information covered in this essay must consist of original effort from the student.
Question 2 (50 marks)
Anna is the financial manager for Beta Corporation. She has been asked to perform a lease-versus-purchase analysis on a new printing machine. The machine costs $360,000 and will be depreciated by the straight-line method with zero residual value over 5 years. Alternatively, the company can lease the machine with year-end payments of $95,000 over 5 years. The company’s tax rate is 35%, and its before-tax cost of borrowing is 10%.
Required:
(a) Given the above information, calculate the net advantage to leasing (NAL)
for Beta Corporation to obtain the new printing machine, assuming the company will use its own reserves rather than borrowing from the bank.
Which alternative would you recommend? Explain. (18 marks)
(b) Suppose only $300,000 purchase price of the machine is borrowed from
MU Bank. Should Beta Corporation change its buy or lease decision on
the printing machine? Discuss. (8 marks)
(c) Please comment on the remark, “Leasing is a zero sum game between the lessee and lessor” . (12 marks)
(d) Briefly discuss the reasons for firms to lease even if NALs are negative. (12 marks)
2023-03-07