Source 1: Annual Report 2020https://www.kogancorporate.com/Source 2: Kogan.com Ltd. (KGN.AX) Yahoo Financehttps://au.finance.yahoo.com/quote/KGN.AX/a) Consider the 2020 Annual Report of Kogan.com Ltd. (KGN). Briefly illustrate how KGN’governance is organized. Do you notice any strategies in place to align manager andshareholder interests at KGN based on the Annual Report? Provide one example. (3 marks)b) What is the Net Working Capital for KGN both in 2019 and 2020. What type of current assetmanagement strategy is the company pursuing? Explain why and what are the pros andcons of this strategy. (3 marks)c) Consider the KGN 2020 Annual Report. Identify two of the major risks discussed. Are theserisks systematic or unsystematic? Why? (2 marks)d) Michael Bain is one of your clients and he is interested in purchasing the ordinary shares ofKGN which is currently priced, in the stock market, at $17.99. Assume that the total dividendpaid by KGN in the 2020 year were paid as a lump sum (at once) today. You estimate thatdividends will grow at a constant rate of 3.5% forever. Assume that today the Australian 10YGovernment bond has a yield of 1.15%, the market risk premium is 4.55% and the beta ofKGN is 0.72. Based on this price would you advise your client to purchase the share? Whyor why not? (7 marks)e) What was the market capitalization of KGN on the 29 January 2021, assuming that the totalnumber of share outstanding is the same as per the end of the 2020FY? (Use the closingprice on that day). (2 marks)f) What type of source (non-current) is KGN primarily using to finance its operations? Whatare the advantages and disadvantages of this source of financing? (3 marks)g) Assume that KGN would like to replace its non-current “lease liabilities” (2020) with a newissuing of bonds. Assume that the issue will have a coupon rate of 5% with a 15 yearmaturity. Assume this are semi-annual coupon bonds and each have a face value of $1,000and the required rates of return for similar bonds in the market is 4.5%. What would be theissuing price of these bonds? How many bonds KGN will have to issue in order to replaceits non-current “lease liabilities”? (5 marks) 2. Capital Budgeting – Blackmores Group [25 marks] EXCELAnswer the below questions in your word file and refer to your excel spreadsheet as a supportingdocument. Upload your excel spreadsheet under “Excel Submissions”.All amounts are in $AUD. In order to satisfy the sharp increase in demand KGN is evaluatinginvesting in a “Mega Warehouse” project in Australia. KGN has already identified two existingwarehouses. In order to mitigate the risk and assess the fit for purpose of these facilities KGNasked “Axiom Ltd.” to conduct a technical due diligence. “Axiom Ltd.” is asking $100,000 as afixed fee for its consulting services.Project A has an initial outlay of dollars $150 million and Project B has an initial outlay of $85million.Project A will generate additional revenues of 45 million starting at the end of year 1 until theend of year 10. It will also incur additional working capital expenses of $1million immediately,this working capital will be recovered at the end of the project. Project B will generate additionalrevenues of 25 million starting at the end of year 1 until the end of year 10. It will also incuradditional working capital expenses of $2million immediately, this working capital will berecovered at the end of the project.The operating costs of both projects will be 30% of the revenues from year 1-10. Bothinvestment will be depreciated on a straight-line basis over ten years to 0 book value. KGN hasestimated that the “Mega Warehouses” can be sold at the end of year 10 respectively for $125million (Project A) and $100 million (Project B). The tax rate is 30%. All cash flows are annualand are received at the end of the year. The weighted average cost of capital for both projectsis 6%.a) Calculate the FCFs to each project (10 marks)b) What is the NPV for each project? (5 marks)c) What is the Discounted Payback Period for each project? (2.5 marks)d) What is the IRR for each project? (2.5 marks)e) Assume that the risk of investing in these “Mega Warehouses” is higher than the overall riskof the company, what would happen to the discount rate and consequently NPV of the twoprojects? Why? (2 marks)f) Suppose that KGN’ management payback rule is 7.5 years. Based on your analysis in b),c) and d) which project should be chosen? Justify your answer with reference to theory.What other factor might affect the final decision? (3 marks)

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