Assessment 2 Information
Subject Code: FINM4000
Subject Name: Finance
Assessment Title: Individual Assignment
Assessment Type: Written Assignment and Excel Spreadsheet
Video Length: 5 Minutes
Word Count:
1000 Words (+/-10%)
Weighting: 30 %
Total Marks: 60
Submission: Online (MyKBS)
Due Date: Friday (19:55pm AEST) Week 11
Assessment Instructions
• Complete this individual assignment (parts 1-3) by the due date above.
• Please submit written answers and final numbers 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. Please submit your video presentation through “Video” link.
• 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.
- Company Perspective – Kogan.com Ltd. [25 marks] https://www.kogan.com/au/
Page 2 Kaplan Business School Assessment Outline
Source 1: Annual Report 2020
https://www.kogancorporate.com/
Source 2: Kogan.com Ltd. (KGN.AX) Yahoo Finance
https://au.finance.yahoo.com/quote/KGN.AX/
a) Consider the 2020 Annual Report of Kogan.com Ltd. (KGN). Briefly illustrate how KGN’
governance is organized. Do you notice any strategies in place to align manager and
shareholder interests at KGN based on the Annual Report? Provide one example. (3 marks)
b) What is the Net Working Capital for KGN both in 2019 and 2020. What type of current asset
management strategy is the company pursuing? Explain why and what are the pros and
cons of this strategy. (3 marks)
c) Consider the KGN 2020 Annual Report. Identify two of the major risks discussed. Are these
risks systematic or unsystematic? Why? (2 marks)
d) You are trying to value KGN share today (End of 2020). Assume the current price of the
share in the stock market is $17.99. Assume that the total dividend paid by KGN in the 2020
year were paid as a lump sum (at once) today. You also estimate that for the next two years
dividends will grow respectively at 50% and 25% per year. After this (starting in time 3) you
estimate dividends will grow at a constant rate of 3.5% forever. Assume that today the
Australian 10Y Government bond has a yield of 1.15%, the market risk premium is 4.55%
and the beta of KGN is 0.72. Based on this price would you purchase the share? Why or
why not? (7 marks)
e) What was the market capitalization of KGN on the 29 January 2021, assuming that the total
number of share outstanding is the same as per the end of the 2020FY? (Use the closing
price on that day). (2 marks)
f) What type of source (non-current) is KGN primarily using to finance its operations? What
are the advantages and disadvantages of this source of financing? (3 marks)
g) Assume that KGN would like to replace its non-current “lease liabilities” (2020) with a new
issuing of bonds. Assume that the issue will have a coupon rate of 5% with a 15 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 4.5%. What would be the
issuing price of these bonds? How many bonds Kogan.com Ltd. will have to issue in order
to replace its non-current “lease liabilities”? (5 marks)
Page 3 Kaplan Business School Assessment Outline - Capital Budgeting – Kogan.com Ltd. [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. In order to satisfy the sharp increase in demand KGN is evaluating
investing in a “Mega Warehouse” project in Australia. KGN has already identified two existing
warehouses. In order to mitigate the risk and assess the fit for purpose of these facilities KGN
asked “Axiom Ltd.” to conduct a technical due diligence. “Axiom Ltd.” is asking $100,000 as a
fixed fee for its consulting services.
Project A has an initial outlay of dollars $150 million and Project B has an initial outlay of $85
million.
Project A will generate additional revenues of 45 million starting at the end of year 1 until the
end of year 10. It will also incur additional working capital expenses of $1million immediately,
this working capital will be recovered at the end of the project. Project B will generate additional
revenues of 25 million starting at the end of year 1 until the end of year 10. It will also incur
additional working capital expenses of $2million immediately, this working capital will be
recovered at the end of the project.
The operating costs of both projects will be 30% of the revenues from year 1-10. Both
investment will be depreciated on a straight-line basis over ten years to 0 book value. KGN has
estimated that the “Mega Warehouses” can be sold at the end of year 10 respectively for $125
million (Project A) and $100 million (Project B). 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 both projects
is 6%.
a) Calculate the FCFs to each project (10 marks)
b) What is the NPV for each project? (5 marks)
c) What is the Discounted Payback Period for each project? (2.5 marks)
d) What is the IRR for each project? (2.5 marks)
e) Assume that the risk of investing in these “Mega Warehouses” is higher than the overall risk
of the company, what would happen to the discount rate and consequently NPV of the two
projects? Why? (2 marks)
f) Suppose that KGN’ management payback rule is 7.5 years. Based on your analysis in b),
c) and d) which project should be chosen? Justify your answer with reference to theory.
What other factor might affect the final decision? (3 marks) - Video Presentation [10 marks]
Students are required to produce a video presentation regarding “Section 2” of this
assessment. The goal of the presentation is to explain the steps taken in order to estimate the
FCFs and other capital budgeting measures. Moreover, students are required to justify their
recommendation regarding the feasibility of this investment.
Page 4 Kaplan Business School Assessment Outline
Video Marking Rubric:
Section Criteria Marks Available
Presentation Skills
• The presentation is engaging, creative
and of professional standard.
• The presentation uses a financial
management language.
3
Analytical Skills
• The steps taken for the computation of
FCFs are clearly outlined.
• The computation of FCFs is justified
with reference to theory.
• Clear recommendations, regarding the
feasibility, backed by financial theory.
5
Practical Skills
• Presentation is concise and doesn’t
contain irrelevant information.
• Presentation doesn’t exceed 5 minutes.
2
Total Marks 10
Page 5 Kaplan Business School Assessment Outline
Important Study Information
Academic Integrity Policy
KBS values academic integrity. All students must understand the meaning and consequences
of cheating, plagiarism and other academic offences under the Academic Integrity and Conduct
Policy.
What is academic integrity and misconduct?
What are the penalties for academic misconduct?
What are the late penalties?
How can I appeal my grade?
Click here for answers to these questions:
http://www.kbs.edu.au/current-students/student-policies/.
Word Limits for Written Assessments
Submissions that exceed the word limit by more than 10% will cease to be marked from the point
at which that limit is exceeded.
Study Assistance
Students may seek study assistance from their local Academic Learning Advisor or refer to the
resources on the MyKBS Academic Success Centre page. Click here for this information.
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