FIN203 Corporate Finance Assignment- KGN based on the Annual Report

Task:

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 and shareholder interests at KGN based on the Annual Report? Provide one example.

b) What is the Net Working Capital for KGN both in 2019 and 2020. What type of current asset management strategy is the company pursuing? Explain why and what are the pros and cons of this strategy.

c) Consider the KGN 2020 Annual Report. Identify two of the major risks discussed. Are these risks systematic or unsystematic? Why?

d) Michael Bain is one of your clients and he is interested in purchasing the ordinary shares of KGN which is currently priced, in the stock market, at $17.99. Assume that the total dividend paid by KGN in the 2020 year were paid as a lump sum (at once) today. You estimate that
dividends will grow at a constant rate of 3.5% forever. Assume that today the Australian 10Y Government bond has a yield of 1.15%, the market risk premium is 4.55% and the beta of KGN is 0.72. Based on this price would you advise your client to purchase the share? Why or why not?

e) What was the market capitalization of KGN on the 29 January 2021, assuming that the total number of share outstanding is the same as per the end of the 2020FY? (Use the closing price on that day).

f) What type of source (non-current) is KGN primarily using to finance its operations? What are the advantages and disadvantages of this source of financing? 

g) Assume that KGN would like to replace its non-current “lease liabilities” (2020) with a new issuing of bonds. Assume that the issue will have a coupon rate of 5% with a 15 year maturity. Assume this are semi-annual coupon bonds and each have a face value of $1,000 and the required rates of return for similar bonds in the market is 4.5%. What would be the issuing price of these bonds? How many bonds KGN will have to issue in order to replace its non-current “lease liabilities”?     

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