Financial Management- Accounting Assignment- Research Project

Internal code- MAS701

Accounting Assignment - Research Project

Questions- The relevant financial information relating to Fortescue Metals Group Limited or the wider corporate sector is as follows: - Assume that this analysis is being undertaken at July 1st 2015 (the beginning of the 2016 financial year). - Fortescue Metals Group Limited is a part of the Materials Sector, based on the Global Industry Classification Standards (GICS) Sector Groupings. Fortescue Metals Group Limited’s beta coefficient is 0.89, compared to the beta coefficient for the overall Materials industry sector of 1.04. - The market risk premium is estimated as 3%. - The Australian dollar to US dollar (AUD/USD) exchange rate on July 1st 2015 was 0.7713. - Three month LIBOR rate on U.S. dollar was 0.2836% per year on July 1st 2015 - Fortescue Metals Group Limited has a corporate tax rate of 30%. The required tasks associated with this research project are, based on using the information within the annual report documentation and any other documentation or sources of information considered to be relevant, to identify and outline the following aspects of Fortescue Metals Group Limited’s financial management policy: 1) The nature of the firm’s working capital management policies. Focus in this determination should be on overall current asset investment and financing policies, rather than the company’s adoption of policies relating to specific current asset categories, such as inventories or receivables. 2) Determination of the cost of the various sources of costly (interest-bearing) financing used by the firm and, based on this information, Fortescue Metals Group Limited’s overall weighted average cost of capital (WACC). 3) The nature of the firm’s earnings distribution and dividend payout policies. This should include discussion of the type of dividend policy employed, whether the firm has an identifiable target dividend policy or payout ratio, changes in dividend payout amounts or patterns, and the consideration of taxation, dividend imputation and franking credit issues and wider elements associated with the firm’s overall earnings management and distribution practices. 4) The nature of the firm’s capital structure determination policy, including identification of specific policy adoption or usage if relevant, whether the firm appears to have target or optimal capital structure ratios, and the determinants of the firm’s capital structure choice. 5) Assuming the following information about different projects of the company, conduct a quantitative assessment of Fortescue Metals Group Limited’s capital budget and provide a recommendation of the optimal capital budget for the company for the 2016 financial year and an analytical justification for how the optimal capital budget should be funded and any implications of this for their current financial management policies in place.