Returns:
CSL |
Return |
TLS |
Return |
RIO |
Return |
WES |
Return |
AJXO |
Return |
3.51 |
-0.08725 |
275.76 |
-0.02761 |
100.4 |
0.035483 |
41.4 |
-0.02316 |
6,684.10 |
-0.02393 |
3.83 |
0.101596 |
283.48 |
0.101847 |
96.9 |
0.06414 |
42.37 |
0.063579 |
6,846.00 |
0.027035 |
3.46 |
-0.00576 |
256.03 |
0.091299 |
90.88 |
-0.0195 |
39.76 |
-0.00101 |
6,663.40 |
-0.00373 |
3.48 |
-0.06669 |
233.69 |
-0.03026 |
92.67 |
0.056492 |
39.8 |
0.017744 |
6,688.30 |
0.012654 |
3.72 |
-0.05746 |
240.87 |
0.047832 |
87.58 |
-0.1116 |
39.1 |
-0.0023 |
6,604.20 |
-0.03107 |
3.94 |
0.03093 |
229.62 |
0.065788 |
97.92 |
-0.04795 |
39.19 |
0.080468 |
6,812.60 |
0.02886 |
3.82 |
0.053776 |
215 |
0.045241 |
102.73 |
0.033858 |
36.16 |
-0.02431 |
6,618.80 |
0.034101 |
3.62 |
0.068598 |
205.49 |
0.034256 |
99.31 |
0.050387 |
37.05 |
0.028472 |
6,396.90 |
0.011224 |
3.38 |
0.017911 |
198.57 |
0.01845 |
94.43 |
-0.03619 |
36.01 |
0.038499 |
6,325.50 |
0.023158 |
3.32 |
0.058932 |
194.94 |
0.006072 |
97.91 |
0.05371 |
34.65 |
0.04335 |
6,180.70 |
0.001895 |
3.13 |
0.016103 |
193.76 |
-0.00494 |
92.79 |
0.099522 |
33.18 |
0.058329 |
6,169.00 |
0.050585 |
3.08 |
0.088193 |
194.72 |
0.050342 |
84 |
0.103774 |
31.3 |
-0.00032 |
5,864.70 |
0.037933 |
2.82 |
-0.02797 |
185.16 |
0.042813 |
75.72 |
0.032755 |
31.31 |
0.020001 |
5,646.40 |
-0.00368 |
2.9 |
-0.06022 |
177.4 |
-0.05803 |
73.28 |
-0.04169 |
30.69 |
-0.08162 |
5,667.20 |
-0.02837 |
3.08 |
-0.03509 |
188 |
-0.06741 |
76.4 |
-0.03042 |
33.3 |
-0.06707 |
5,830.30 |
-0.06271 |
3.19 |
0.028619 |
201.11 |
-0.12246 |
78.76 |
0.079514 |
35.61 |
-0.03151 |
6,207.60 |
-0.01787 |
3.1 |
0.098218 |
227.31 |
0.145093 |
72.74 |
-0.11002 |
36.75 |
-0.29703 |
6,319.50 |
0.006238 |
2.81 |
0.081527 |
196.61 |
0.020503 |
81.2 |
-0.02721 |
49.46 |
0.002024 |
6,280.20 |
0.013724 |
2.59 |
-0.06719 |
192.62 |
0.035779 |
83.44 |
0.005649 |
49.36 |
0.08011 |
6,194.60 |
0.029937 |
2.77 |
-0.13803 |
185.85 |
0.087026 |
82.97 |
0.038204 |
45.56 |
0.040081 |
6,011.90 |
0.004869 |
3.18 |
0.012658 |
170.36 |
0.091525 |
79.86 |
0.093934 |
43.77 |
0.05181 |
5,982.70 |
0.038039 |
3.14 |
-0.06474 |
155.46 |
-0.0484 |
72.7 |
-0.11008 |
41.56 |
0.00555 |
5,759.40 |
-0.04358 |
3.35 |
-0.08027 |
163.17 |
0.108313 |
81.16 |
0.054567 |
41.33 |
-0.05827 |
6,015.96 |
-0.00361 |
3.63 |
0.01108 |
146.42 |
0.035594 |
76.85 |
0.013625 |
43.81 |
-0.01383 |
6,037.70 |
-0.00453 |
3.59 |
0.054377 |
141.3 |
-0.01433 |
75.81 |
0.066255 |
44.42 |
0.01132 |
6,065.10 |
0.015821 |
3.4 |
-0.04035 |
143.34 |
0.031249 |
70.95 |
0.021368 |
43.92 |
0.049473 |
5,969.90 |
0.010254 |
3.54 |
0.014225 |
138.93 |
0.036429 |
69.45 |
0.042954 |
41.8 |
0.011308 |
5,909.00 |
0.039244 |
3.49 |
-0.05029 |
133.96 |
0.041457 |
66.53 |
-0.0195 |
41.33 |
-0.03073 |
5,681.60 |
-0.00577 |
3.67 |
-0.1108 |
128.52 |
0.019803 |
67.84 |
0.030684 |
42.62 |
0.045359 |
5,714.50 |
-0.00107 |
4.1 |
-0.04763 |
126 |
-0.09119 |
65.79 |
0.039057 |
40.73 |
0.01509 |
5,720.60 |
-0.00016 |
4.3 |
-0.02299 |
138.03 |
0.065413 |
63.27 |
0.007297 |
40.12 |
-0.06232 |
5,721.50 |
-0.00054 |
4.4 |
0.041769 |
129.29 |
-0.0249 |
62.81 |
0.038463 |
42.7 |
-0.007 |
5,724.60 |
-0.03426 |
4.22 |
-0.09918 |
132.55 |
0.05601 |
60.44 |
-0.00033 |
43 |
-0.04702 |
5,924.10 |
0.010043 |
4.66 |
-0.03376 |
125.33 |
0.061453 |
60.46 |
-0.02499 |
45.07 |
0.05355 |
5,864.90 |
0.026381 |
4.82 |
-0.03666 |
117.86 |
0.048324 |
61.99 |
-0.07293 |
42.72 |
0.059309 |
5,712.20 |
0.016112 |
5 |
-0.0198 |
112.3 |
0.111912 |
66.68 |
0.107229 |
40.26 |
-0.04564 |
5,620.90 |
-0.00796 |
5.1 |
0.009852 |
100.41 |
0.024294 |
59.9 |
0.036553 |
42.14 |
0.00858 |
5,665.80 |
0.040577 |
5.05 |
0.013958 |
98 |
-0.02529 |
57.75 |
0.063812 |
41.78 |
0.018602 |
5,440.50 |
0.02283 |
4.98 |
-0.03938 |
100.51 |
-0.06257 |
54.18 |
0.048596 |
41.01 |
-0.07264 |
5,317.70 |
-0.02198 |
5.18 |
-0.01533 |
107 |
-0.01023 |
51.61 |
0.080883 |
44.1 |
0.038368 |
5,435.90 |
0.000534 |
5.26 |
-0.09254 |
108.1 |
-0.08763 |
47.6 |
-0.04035 |
42.44 |
-0.01148 |
5,433.00 |
-0.02354 |
5.77 |
0.037074 |
118 |
0.05058 |
49.56 |
0.085472 |
42.93 |
0.068195 |
5,562.40 |
0.060969 |
5.56 |
-0.00538 |
112.18 |
-0.03141 |
45.5 |
0.017963 |
40.1 |
-0.01313 |
5,233.40 |
-0.02737 |
5.59 |
0.042015 |
115.76 |
0.095846 |
44.69 |
-0.1428 |
40.63 |
-0.05133 |
5,378.60 |
0.023781 |
5.36 |
0.005613 |
105.18 |
0.036206 |
51.55 |
0.188588 |
42.77 |
0.031349 |
5,252.20 |
0.032785 |
5.33 |
0.015123 |
101.44 |
-0.01254 |
42.69 |
0.05811 |
41.45 |
0.058621 |
5,082.80 |
0.040533 |
5.25 |
-0.06988 |
102.72 |
-0.01238 |
40.28 |
0.028966 |
39.09 |
-0.07584 |
4,880.90 |
-0.02521 |
5.63 |
#DIV/0! |
104 |
#DIV/0! |
39.13 |
#DIV/0! |
42.17 |
#DIV/0! |
5,005.50 |
#DIV/0! |
CSL |
TLS |
RIO |
WES |
AXJO |
|
Expected return |
-1.01% |
2.07% |
2.00% |
-0.04% |
0.62% |
Standard Deviation |
5.79% |
5.87% |
6.50% |
6.26% |
2.67% |
Variance |
0.336% |
0.345% |
0.422% |
0.392% |
0.071% |
Portfolio |
CSL TLS |
TLS RIO |
RIO WES |
Expected return |
0.53% |
2.04% |
0.98% |
Correlation Coefficient |
0.216 |
-0.092 |
-0.283 |
Standard Deviation |
0.21% |
0.09% |
0.15% |
Risk Adjusted Return |
2.59 |
23.66 |
6.74 |
Historical monthly rates of return for the market index
The rate of return (or ROR) is referred as the loss or gain on an investment over a specific period of time. In other words, ROR represents profit (or loss) against the cost of investment. It is typically as percentage. When the ROR results in a positive value, then a profit has been generated and when ROR becomes negative, the investor has incurred a loss on the investment (Sukono et al. 2018).
For investment in share market, the rate of return is calculated using following formula:
Historical average rate of return and standard deviation of returns
Average Return: it tells investors about how a particular security, portfolio of securities or an index performed in the past.
Standard Deviation: or SD is a popular statistical tool which is represented by the letter 'σ'. It is used to measure the amount of dispersion or variation of a set of data values relative to its mean (or average). It helps in interpreting the reliability of the set of data.
A smaller standard deviation indicates observation points are lying closer to the mean value, and there will be higher reliability. On the other hand, a larger standard deviation indicates that observation points are spread far from the mean value and the reliability will be low (Singhal, Choudhary and Biswal 2019).
Calculation: Standard deviation is square root of variance and variance is calculated by calculating the variation between the observation points relative to their mean.
Where:
As per the calculations shown in the above portion, the most appropriate combination for the required purposes to minimize the portfolio risk and maximize returns is of Telstra Ltd and RIO Tinto Ltd. The comparison is shown in the following table:-
Portfolio |
CSL TLS |
TLS RIO |
RIO WES |
Expected return |
0.53% |
2.04% |
0.98% |
Correlation Coefficient |
0.216 |
-0.092 |
-0.283 |
Standard Deviation |
0.21% |
0.09% |
0.15% |
Risk Adjusted Return |
2.59 |
23.66 |
6.74 |
Sharpe Ratio |
-0.390 |
16.526 |
2.521 |
As it can be clearly seen in the above table that TLS and RIO has the highest average of risk adjusted return of 23.66 times.
The recommended combination in 2b was Telstra Ltd and RIO Tinto Ltd. The portfolio has the expected return and minimum standard deviation. In order to determine the optimal portfolio
Given:
First Year |
|
Sales (units) |
50000 |
Annual sales Growth |
0% |
Price per bearing |
22 |
Price rise per year |
0% |
Variable cost (VC) for 8 years |
350,000 |
Variable cost (VC) for year 9 & 10 |
360,000 |
Fixed cost (thousands) |
250,000 |
Annual growth |
0% |
Project Life (Years) |
10 |
Plant |
2,000,000 |
Equipment cost |
700,000 |
WC requirement |
300,000 |
Total Initial Investment |
3,000,000 |
Depreciation using SLM |
10% |
Dep for Plant |
200,000 |
Dep for Equip |
70,000 |
Total Depreciation |
270,000 |
Salvage Value |
|
Plant |
800,000 |
Equip |
100,000 |
Total Salvage |
900,000 |
Tax Rate |
30% |
Required rate of return |
7% |
Solution
After Tax Cash Flow |
||||||||||
Particulars |
Years |
|||||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
|
Unit Sales |
50000 |
50000 |
50000 |
50000 |
50000 |
50000 |
50000 |
50000 |
50000 |
50000 |
Sales Price |
22 |
22 |
22 |
22 |
22 |
22 |
22 |
22 |
22 |
22 |
Total Sales |
1,100,000 |
1,100,000 |
1,100,000 |
1,100,000 |
1,100,000 |
1,100,000 |
1,100,000 |
1,100,000 |
1,100,000 |
1,100,000 |
VC |
350,000 |
350,000 |
350,000 |
350,000 |
350,000 |
350,000 |
350,000 |
350,000 |
360,000 |
360,000 |
Contribution |
750,000 |
750,000 |
750,000 |
750,000 |
750,000 |
750,000 |
750,000 |
750,000 |
740,000 |
740,000 |
Fixed Cost |
250,000 |
250,000 |
250,000 |
250,000 |
250,000 |
250,000 |
250,000 |
250,000 |
250,000 |
250,000 |
EBITDA |
500,000 |
500,000 |
500,000 |
500,000 |
500,000 |
500,000 |
500,000 |
500,000 |
490,000 |
490,000 |
Less: Depreciation |
270,000 |
270,000 |
270,000 |
270,000 |
270,000 |
270,000 |
270,000 |
270,000 |
270,000 |
270,000 |
EBT |
230,000 |
230,000 |
230,000 |
230,000 |
230,000 |
230,000 |
230,000 |
230,000 |
220,000 |
220,000 |
Less: Taxation |
69,000 |
69,000 |
69,000 |
69,000 |
69,000 |
69,000 |
69,000 |
69,000 |
66,000 |
66,000 |
EAT |
161,000 |
161,000 |
161,000 |
161,000 |
161,000 |
161,000 |
161,000 |
161,000 |
154,000 |
154,000 |
Add: Depreciation |
270,000 |
270,000 |
270,000 |
270,000 |
270,000 |
270,000 |
270,000 |
270,000 |
270,000 |
270,000 |
Working Capital |
- |
- |
- |
- |
300,000 |
|||||
Salvage Value |
- |
- |
- |
- |
900,000 |
|||||
CFAT |
431,000 |
431,000 |
431,000 |
431,000 |
431,000 |
431,000 |
431,000 |
431,000 |
424,000 |
1,624,000 |
The expenditure will be capitalized along with the cost of the plant and equipment.
Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help
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