Transforming Finance And Business Education -Myassignmenthelp.Com

Question: Discuss About The Transforming Finance And Business Education? Answer: Introduction In the words of Gitman, Juchau and Flanagan (2015), share price movement is the change in the price of an asset or security, particularly in the short-term. In accordance with the above graphs, it could be observed that the stock price of Amani Gold Limited is fluctuating over the years, while the All Ordinaries Index have maintained almost the identical share price over the same time span. Therefore, it could be observed that high volatility is inherent in the stock price of Amani Gold, while the All Ordinaries Index has lower volatility due to constancy in the stock price movement. On the other hand, the correlation between the chosen stock and the marketing index is obtained as -0.30. If the correlation of two variables is above 0.5, it is positively correlated and a correlation of above 0.8 is considered as strong (Lee, Sameen and Cowling 2015). In this case, the correlation is negative, which denotes that the rise in All Ordinaries Index would result in decline of the stock price of Amani Gold Limited and vice-versa. The most significant announcements that have influenced the share price of Amani Gold Limited are Kebigada and Giro Gold Project. The major concentration of the organisation has been the Giro Gold Project in Congo for delivering a maiden resource. This was released 2017 after the announcement of a Maiden Indicated and Inferred Mineral Resource of 45.62 million tonnes for 2.14 million ounces of gold for the Kebigada deposit (Spcagent.co 2018). This is because these projects have the potential of hosting numerous ounces of gold. This significant development in cross-border nation has direct impact on its share price, since it has failed to generate sufficient revenues from the projects undertaken. As a result, the share prices have fallen in the domestic market due to which the shareholders are provided with lower returns. In addition, the organisation has 47,500,000 unlisted options, which were issued previously as portion of the consideration for acquisition of the Giro Gold Project and these have expired on 31st December 2016. This has resulted in fall of share price of the organisation (McLean and Zhao 2014). Beta helps in measuring the volatility or systematic risk of a share or a portfolio compared to the overall market. This is used in the Capital Asset Pricing Model (CAPM) that computes expected asset return depending on beta and anticipated market returns (Scholes 2015). As obtained from the annual report of Amani Gold Limited, the computed beta of the organisation is obtained as 1.05. According to the provided information, the risk-free rate is 4%, while the market risk premium is 6%. Based on such information, the required rate of return for Amani Gold Limited is depicted in the following table: Computation of required rate of return:- Particulars Details Units Risk-free rate A 4% Market risk premium B 6% Beta C 1.05 Required rate of return/Cost of equity A+C*(B-A) 6.10% In the words of Serghiescu and V?idean (2014), conservative strategy could be defined as the procedure, in which the investors prefer to invest in stocks carrying lower amount of risk while providing timely returns. A market comprises of different types of investors and they are divided depending on their level of risk tolerance. According to this tolerance level, the nature of the investors could be ascertained regarding whether they are highly aggressive, moderately aggressive or they do not want to bear any risk. In case of conservative strategy, the investors are either moderately aggressive or they are risk-averse. This strategy restricts the investors to obtain greater returns; however, during crisis situations, it helps in avoiding losses. As the beta of Amani Gold Limited is above 1, it indicates higher risk and the profit level of the organisation has declined over the years. Hence, investing in the shares of the organisation could not be termed as conservative investment, a s the investors might incur huge losses in future. According to the annual report of Amani Gold Limited, it has been found out that the organisation has not presented any long-term loan in its balance sheet statement. Hence, it does not have any cost of debt. Thus, the weighted average cost of capital is computed as follows: Computation of weighted average cost of capital (WACC):- Particulars Details Units Total debt A $ 4,87,013 Total equity B $ 2,56,74,183 Total capital C=A+B $ 2,61,61,196 Percentage of debt D=A/C 1.86% Percentage of equity E=B/C 98.14% Cost of debt F 0% Cost of equity G 6.10% Tax rate H 30% WACC (G*E)+(F*D)*(1-H) 5.99% WACC is defined as the average of the minimal after-tax required rate of return that a firm needs to earn for all its stockholders. In order to calculate WACC, long-term borrowings, tax rate, common equity and preferred equity are taken into account. The public firms have various financing sources and WACC plays a crucial role in balancing the related costs of the different sources. If there is increase in WACC, the risk level of an organisation increases and vice-versa (Werner and Stoner 2015). An increased WACC denotes that the organisation needs to devise out a path to earn excess return that would help in combating with the increased level of risk. References: Gitman, L.J., Juchau, R. and Flanagan, J., 2015.Principles of managerial finance. Pearson Higher Education AU. Lee, N., Sameen, H. and Cowling, M., 2015. Access to finance for innovative SMEs since the financial crisis.Research policy,44(2), pp.370-380. McLean, R.D. and Zhao, M., 2014. The business cycle, investor sentiment, and costly external finance.The Journal of Finance,69(3), pp.1377-1409. Scholes, M.S., 2015.Taxes and business strategy. Prentice Hall. Serghiescu, L. and V?idean, V.L., 2014. Determinant factors of the capital structure of a firm-an empirical analysis.Procedia Economics and Finance,15, pp.1447-1457. Spcagent.co. (2018). [online] Available at: https://spcagent.co/nwr-amani//wp-content/uploads/sites/38/2017/09/ANL-1.pdf [Accessed 3 Feb. 2018]. Werner, F.M. and Stoner, J.A., 2015. Transforming finance and business education: Part of the problem.Journal of Management for Global Sustainability,3(1), pp.25-52.