ACC00716 Finance - Business Case Study: Cochlear Limited - Assignment Help

A1 (A).

The bank will offer $655,635.16 to Cochlear for the installment contract.

A1 (B).

The current revenue of Cochlear is $1,363,700,000 after 5 years at the annual growth of 12.60% the revenue will grow up to $2,468,373,032.89. 

A1 (C).

The lowest effective annual rate will be chosen to acquire the funds. Option A has an EAR of 6.63%, Option B has an EAR of 6.66%, Option C having the lowest EAR of 6.62%.

A1 (D).

The Banks offer of an amortized loan at 3.8% Annual Rate which is to be compounding quarterly will result into an EAR of 3.854%, the monthly payment will be $8,336 and quarterly payments are $25,008.04

A1 (E).

The Yield to maturity is 6.069% for the coupon rate at 6.15% and the current price of $100.50

A1(F).

The coupon amount is $35 for the semi-annual payment; the required rate of return does not affect the coupon amount as it only reflects on the bond price.

A2 (A).

The expected return for the share for Cochlear is 4.90%, with the Australian Government bond as a proxy for a risk-free rate which is 1.9% dated 05/04/2019 with the market premium of 6% and a 5 year Beta of 0.5. The expected return for the share for the Hypothetical Company is 0.70% with the beta of -0.2 and rest of the factor is similar. 

A2(B).

The portfolio return for an equal weight of both the investment will be 2.8% with a portfolio beta of 0.15.

A3.

Cochlear is a public company traded as COH in the Australian Securities Exchange, ranked amongst the top 300 companies in Australia, its income heavily relies on Medical and Surgical Equipment in Australia, focusing on implantable hearing solutions (Cochlear Limited - Premium Company Report Australia 2018).  The Health Care equipment especially focusing on the hearing solutions manufacturer the market has shown a constant growth with the emerging technologies. Cochlear competes with international brands as there no local quality brands to compete with Siemens, Oticon, Sanova, and corporations like Resound. Cochlear recently announced the thinnest implant in the world the Nucleus Profile (Cochlear Analysis). The current market conditions are not volatile and the industry has a potential for growth due to this groundbreaking product announcement. The Australian Securities Exchange All Ordinaries Index has improved tremendously in the last 6 months (Investing Indices All Ordinaries) which shows the bullish trend in the market. For an investor the risk-return spectrum is to be understood, which is a value of a return from the investment and its relation to the risk on the investment, the risk spectrum firstly has risk free assets which are mainly government bonds or federal certificates. The x-axis represents the risk factor of an investment ranging from high to low, and the y-axis is the expected return from high to low. As we analyze the bottom left part which refers to low-risk, low-reward investment, as we move further along the curve the efficient frontier is the point where the risk is still low but returns are at the highest level or the expected returns are achieved given the defined risk compared to a low-risk low-return investment, moving further along the curve the center point of market portfolio represents an equal medium reward to a medium risk. The second optimal point for investment is at the efficient frontier where the high risk provides the highest return. Above and below the point of efficient frontier portfolios are sub-optimal due to the fact that they do not provide the same return for the level of risk taken (Efficient Frontier 2019).