Year 2 Integrated Business Functions (2025 Spring Term)

Module 6: Financing for Growth

Assignment 1 (Individual)

This is an INDIVIDUAL assignment.

This assignment is marked out of 100.  It is worth 20 marks of the total course scores (i.e., 600 marks).

INSTRUCTIONS:

Please read the instructions carefully before attempting the Assignment.

1.         Submission Due Date

● 28  February  2025  (Friday)  before  5:00  pm.  Please  submit  your  final  answers  by uploading them on OLE (electronic submission).

●   No extension of the submission due date will be allowed.

2. Assignment Submission

As a mechanism to maintain academic integrity, you are required to submit soft copies of your assignments, as explained below:

•       You should upload a soft copy of the assignment to the OLE of the course by 5 pm on the  submission due date. Files uploaded to the OLE  should be prepared in Microsoft Word. Please refer to the Quick  Start  Guide  for the  submission  of assignments to Turnitin. During submission, you will also need to declare whether and how you have used generative AI when completing the assignments.

• You do not have to submit a hard copy of your assignments. If circumstances arise making it necessary to adjust the arrangement, further announcement will be made as soon as possible.

•       10% of the marks awarded to the assignment will be deducted for each calendar day it is overdue until the soft copy ofthe assignment is submitted.

3. ANSWER ALL THE QUESTIONS

4. Plagiarism

All assignments will undergo plagiarism check.

Plagiarism involves copying from another source without acknowledgement. You should make sure all sources you used in the assignment are properly referenced, you also need to acknowledge on the OLE the ways you use Generative AI in the process of undertaking your assignments.

Even there is proper referencing, you should not make excessive use of the words composed by others.

Penalty will be applied if plagiarism is confirmed.

Sources of information and references must be stated in the format of APA Style. (7th edition) created by the American Psychological Association. Training on the format of stating source of information (reference) will be given to you prior to the submission due date.  You must follow strictly the format as stated below.  No marks will be given for the part(s) that is/are copied from the works of others without stating the source of reference. You should follow the guideline, “Academic writing: Acknowledging your sources” on the OLE to avoid plagiarism.

Question 1 (30 marks)

(a)     Describe the main components of personal financial statements which include the personal balance sheet and cash flow statement. Illustrate the main purposes of these personal financial statements in the context of personal financial planning.  (6 marks)

(b)    Follow the template and examples provided in Unit  1, Part 2 - "Money Management Skill" of the custom textbook, construct the personal balance sheet and monthly cash flow statement for Mr. Lee utilizing the information recorded as of March 31, 2025:             (12 marks)

Monthly take-home salary in March 2025 = $60,000

Assume the average salary tax rate for Mr. Lee is 12%

Cash on hand $3,000

$100,000 deposit in bank saving account, with annual interest rate of 1.8%

Self-occupancy property with market value of HK$5 million and outstanding mortgage of HK$3 million

Monthly mortgage payment $18,000

Management fee of property $1000

Mobile phone bill $200

Electricity and water bills $2000

A year 2022 BMW car with original purchase price of $300,000. The current market is depreciated by 20%. The automobile loan for this car is $160,000

Car-park monthly rent $3,000

Monthly auto-loan payment $5,000

Unpaid rates & government rent for property $2,500

Bank credit cards outstanding  balance  $50,000

Whole-Life Insurance monthly payment $3,000

Food and beverage $8,000

Buy new clothing $3,000

Jewelry purchased in Jan 2025 worth $50,000

Rolex Watch purchased in 2024 worth $60,000

Public transportation $500

Entertainment $2,500

Medical expense $1,000

Other expenses $2000

Balance of pension fund = HK$250,000

All the surplus is used for saving in this month

(c)    According to the formulae provided by P.47 of the custom textbook, calculate the following financial ratios for Mr. Lee and provide some analysis.

Debt Ratio

Current Ratio

Liquidity Ratio

Debt-Payment Ratio (include mortgage)

Debt-Payment Ratio (exclude mortgage)

Saving Ratio                                                                       (12 marks)

Question 2 (30 marks)

(a)     Visit the website of the Hong Kong Association of Banks (HKAB) to determine the HIBOR rates for 1 month and 12 months as of 8 January 2025. Please round the figures to one decimal place (i.e., A.B%) and use these numbers for the calculations in Questions 2(b) through 2(d).  (2 marks)

(b)     Susanna has taken out a personal loan of $300,000 from a bank. The interest rate is calculated as the 1-month HIBOR rate from 8 January 2025 plus 3%. The loan is to be repaid with monthly payments over three years, with the payments scheduled for the end of each month. Calculate the monthly payment amount for this loan.   (6 marks)

(c)     ABC Company has issued a 20-year bond with a coupon rate equal to the 12-month HIBOR (as of 8 January 2025) plus 1.2%. This bond has a face value of $1,000 and pays interest semiannually. If the yield to maturity (YTM) ofthis bond is 5%, what is its current price of the bond in dollars? (6 marks)

(d)    With respect to the 20-year bond issued by ABC Company referenced in Question 2(c), is it being sold at a premium or a discount? What can you deduce about the relationship between the coupon rate and the yield to maturity (YTM) for bonds sold at a premium? Explain why some bonds are sold above their par value at a premium, while others are sold below it at a discount.   (8 marks)

(e)     If you are the CFO of a company and responsible to issue a bond, how would you determine the suitable coupon rate for the bonds? Please also explain the difference between the coupon rate and the required return on a bond.   (8 marks)

Question 3 (40 marks)

(a)     Determine the amount of Tencent's (700.HK) dividend payment for the year 2023 by checking AAStocks or the announcement from HKEXnews released on 20 March 2024.    (5 marks)

(b)    Based on the dividend payment from Tencent in 2023 mentioned in Question 3(a), if you intend to invest in Tencent in 2024 with an expected return rate of 4% and anticipate a steady annual dividend growth of 3%, determine the current stock price by applying the dividend growth model formula.   (5 marks)

(c)     Another company has recently issued a dividend that is $0.1 higher than Tencent's dividend payment  mentioned in Question 3(a). This company plans to achieve a rapid dividend growth rate of 10%  over the next three years, after which the growth rate will stabilize at a steady 5%. Given a required  rate of return of 8%, determine the current share price using the dividend non-constant growth model. (10 marks)

(d)     Some companies listed on the HKEx do not pay dividends. What factors might lead a company to decide not to pay dividends? Why are some investors still willing to purchase shares of companies that do not offer dividends?   (10 marks)

(e)     Is it possible for a company distribute dividends even if it reports a negative net income for the year? What reasons might the company's directors have for choosing to pay dividends despite this negative net income?    (10 marks)