Aol Case Study Finc6201020 Ld53

BACHELOR OF ACCOUNTING
SCHOOL OF ACCOUNTING
BINA NUSANTARA UNIVERSITY
JAKARTA
ASSESSMENT FORM
Course: FINC6201020 – Financial Management

Method of Assessment: Case Study
Semester/Academic Year: 2/2022-2023
Nama of Lecturer : Dr. Rahmat Siauwijaya SE., MM

Date : Saturday, 13rd May
Class : LC53
Topic : Interest Rates and Bond Valuation, Capital Structure, Stock
Valuation, Capital Budgeting Techniques
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Group Members
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Learning Outcomes
LO4 Analyze long term investment decision

LO5 Analyze long and short-term financial decision
Student Outcomes
SO2 Able to analyze performance reporting according to accounting principles as

the basic for planning, controlling and decision-making by entity
management to increase the effectiveness of organizational performance
Even Semester 2022

(AOL – Case Study)
Coursework information
Course Code FINC6201020
Course Title Financial Management
Course Coordinator Dr. Rahmat Siauwijaya S.E., M.M
Coursework format Microsoft Word
Coursework with Groups
Weighting 20%
Action to be taken if time limit is Assignment will not be marked if beyond
exceeded the time limit
Submission date 23.59, Saturday, 20rd May
Case Study 1 (25%)
CSM Corporation has a bond issue outstanding that has 15 years remaining to
maturity and carries a coupon rate of 6%. Interest on the bond is paid on a
semiannual basis. The par value of the CSM bond is $1,000, and it is currently
selling for $874.42.
TO DO
a. Create a spreadsheet similar to the Excel spreadsheet examples in the chapter

to solve for the yield to maturity.
b. Create a spreadsheet similar to the Excel spreadsheet examples in the chapter
to solve for the price of the bond if the yield to maturity is 2% higher.
c. Create a spreadsheet similar to the Excel spreadsheet examples in the chapter
to solve for the price of the bond if the yield to maturity is 2% lower.
d. What can you summarize about the relationship between the price of the bond,
the par value, the yield to maturity, and the coupon rate?
Case Study 2 (25%)
As the chief financial officer (CFO) of New Horizon Corporation, you are considering
a recapitalization plan that will shift New Horizon’s capital structure from all common
stock equity to 30% debt financing. New Horizon expects to generate $13.75 million
in annual net operating profit indefinitely. The current unlevered capital structure
consists of 2,200,000 shares of outstanding common stock and shareholders require
an 8% return on equity. Ignoring taxes, create a spreadsheet that answers the
following questions.
TO DO
a. Under the current capital structure, what is New Horizon’s firm value, EPS,
stock price, and ROE?
b. How much debt will New Horizon need to issue to achieve the proposed capital
structure and what will be the annual interest expense if the coupon rate for the
debt is 5.4%?
c. How many shares of common stock will be outstanding under the proposed
capital structure and what will be the new EPS and ROE?
d. What is New Horizon’s expected EPS and ROE under the current and
proposed capital structure if it’s NOP is as likely to be $6.875 million or $20.625
million as it is $13.75 million?
e. Graph the effect financial leverage has on the New Horizon’s EPS sensitivity to
changes in net operating profit for the current and proposed capital structures.
At what level of NOP is New Horizon’s EPS the same for both the current and
proposed capital structures?
Case Study 3 (25%)
You are interested in purchasing the common stock of Azure Corporation. The firm
recently paid a dividend of $3 per share. It expects its earnings—and hence its
dividends—to grow at a rate of 7% for the foreseeable future. Currently, similar-risk
stocks have required returns of 10%.
TO DO
a. Given the data above, calculate the value of this security. Use the constant
growth dividend model (Equation 7.4) to find the stock value.
b. One year later, your broker offers to sell you additional shares of Azure at $73.
The most recent dividend paid was $3.21, and the expected growth rate for
earnings remains at 7%. If you determine that the appropriate risk premium is
6.74% and you observe that the risk-free rate, RF, is currently 5.25%, what is
the firm’s current required return?
c. Applying Equation 7.4, determine the value of the stock using the new dividend
and required return from part b.
d. Given your calculation in part c, would you buy the additional shares from your
broker at $73 per share? Explain.
e. Given your calculation in part c, would you sell your old shares for $73?
Explain.
Case Study 4 (25%)
The Drillago Company is involved in searching for locations in which to drill for oil.
The firm’s current project requires an initial investment of $15 million and has an
estimated life of 10 years. The expected future cash inflows for the project appear in
the following table.
Year Cash inflows
1 $600,000
2 $1,000,000
3 $1,000,000
4 $2,000,000
5 $3,000,000
6 $3,500,000
7 $4,000,000
8 $6,000,000
9 $8,000,000
10 $12,000,000
The firm’s current cost of capital is 13%.
TO DO
Create a spreadsheet to answer the following questions.

a. Calculate the project’s net present value (NPV). Is the project acceptable under
the NPV technique? Explain.
b. Calculate the project’s internal rate of return (IRR). Is the project acceptable
under the IRR technique? Explain.
c. In this case, did the two methods produce the same results? Generally, is there
a preference between the NPV and IRR techniques? Explain.
d. Calculate the payback period for the project. If the firm usually accepts projects
that have payback periods between one and seven years, is this project
acceptable?

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BACHELOR OF ACCOUNTING

Course: FINC6201020 – Financial Management

Nama of Lecturer : Dr. Rahmat Siauwijaya SE., MM

LO4 Analyze long term investment decision

SO2 Able to analyze performance reporting according to accounting principles as

Even Semester 2022

Case Study 1 (25%)

a. Create a spreadsheet similar to the Excel spreadsheet examples in the chapter

Case Study 2 (25%)

Case Study 3 (25%)

Case Study 4 (25%)

The firm’s current cost of capital is 13%.

Create a spreadsheet to answer the following questions.

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