NAB earns 4% on $2 billion of interest earning assets and pays 3% on $1.5 billion of interest liabilities. Non interest earnings asset is $2 billion. Calculate NAB's Interest Rate Margin.

Which home loan attributes would you choose if you wanted to benefit from falling interest rates and minimise loan repayments? Select all correct answers only. 

Property developer Lendlease issues 90-day bank bills that have a yield-to-maturity (YTM) of 3% p.a. that you as a potential buyer value at a price of $95,000. 

The latest analyst report comes out showing improvement in working capital for the remainder of the year. This is due to the ability of Lendlease to improve collections on accounts receivable.

Which of the following best describes how you would revalue the investment?

Monash Co has a cost of debt (Kd) of 7.5%. Which of the following would be a possible cost of equity for the company? (You may choose/circle multiple answers)

Financial Institutions

a) Explain why banks are the most heavily regulated industry in the country. (4 marks)

b) The economy is about to enter a recession that will see a significant increase in unemployment. Explain how APRA will likely change CAR and it's flow on impact on the cost of banking for the public and the objective of such a change. (8 marks)

Financial Regulation

Inflation is 1% and the Australian economy looks to entering a recession. Explain the likely action the RBA will take and flow on effects. 

Discuss in full, the change in financial regulation that will take place, how that transmits through the cost of capital to impact money supply and resulting impact on consumers.

(8 marks) 

Apply the specific theory of Foundations of Finance to answer the following questions only. Curriculum from any other unit, AI answers or internet answers are easily recognisable and will earn 0 marks.

This question number is CBsample. ENTER "CBsample" INTO CELL C2 OF THE CAPITAL BUDGETING WORKSHEET, after you have downloaded it. 

Part A (6 marks)

Amazon Australia is also currently considering investing in a new warehouse project which costs $500 million now. This is expected to start earning $80 million in the first year of the project, growing by 5% per annum. Variable costs are 25% of the annual revenue. Annual, fixed costs are $ 5 million per annum, starting at the same time as the variable costs. The warehouse project lasts for 10 years, after which it is sold for 3 times the final year's revenue. In the fifth year of the project, a one-off maintenance cost is required for 5% of the fifth year's revenue. 

Amazon Australia is financed 70% through debt which has a cost of 8% and shareholders expect a 12% return on their equity. Calculate the discount rate, NPV and IRR of this project.

Part B (6 marks)

Amazon Australia is also considering investing in a new fleet of 1,000 delivery drones, each costing $10,000 today. The drones are expected to save 20% of the variable operating cost each year per part A. The use of delivery drones leads to workers being made redundant now, costing the company two and a half times the first year's variable operating costs.  Calculate the discount rate, NPV and IRR of this project, using the project cash flows specified in this part only. Do not combine the cash flows from part A. Note: This is an independent project from part A.

Part C (4 marks)

As Amazon revised their cashflow estimation in part A, the warehouse project is now sold for three and a half time the final year's revenue. If Amazon increased debt financing to 80% and the return on equity increased to 16%, holding all else equal, re-calculate project NPV and IRR. There are no other changes to the capital budgeting estimates of the project. (Part B is unaffected by any changes here.). Holding all else equal, re-calculate project NPV and IRR.

Part D (4 marks)

What is the most appropriate recommendation regarding the projects before and after the cash flow updates?

If the credit rating of BHP worsened from BB+ to CC-, how would investor Yield to Maturity (YTM) on BHP bonds change and what would the consequent effects be on bond value and price?

The return of Monash Fund is 12% with a standard deviation of 3. The inflation rate is 1%. What is the real, risk-adjusted return of Monash Fund?

BHP finances 60% of capital through debt which has a cost of 7%. Shareholders expect a 12% return. What is the WACC of BHP?