Australian Taxation System Assignment Help

Question

Question 1: This question relates to material covered in the Topics 1 to 3. This question addresses the 5th and 6th subject learning outcomes.

For the following numerical problems, detailed answers must be shown. This involves providing a brief description of the problems, formulae used, progressive and final answers to the questions. For assignments you are expected to show your workings using the appropriate formula.

1. Sandy expects to receive the following stream of cash flows from an investment over the next 5 years:

End of year	Cash flow ($)
1	400
2	800
3	500
4	400
5	300

If the relevant rate of interest is 9% per annum on this investment, how much should she pay for this investment opportunity?

2. Lee has taken out a loan of $100,000 with an interest rate of 10% per annum. The loan is to be paid off by 20 equal quarterly payments; the first payment is due today. How much will Lee’s quarterly payment be?.
3. Dianne won a lottery prize of $200,000. She invested the entire amount and expects a yearly return of 10% per annum compounded monthly on her investment. Dianne will receive 150 equal monthly payments with the first payment due to be paid to her in exactly 2 years. Find the size of the monthly payments that Dianne will receive.

Question 2: This question relates to material covered in the Topics 1 to 3. This question addresses the 5th and 6th subject learning outcomes.

Following is an example of a cash flow timeline developed using the Table Function within MS Word. Please use this example as a means to develop a similar timeline in your answer to the following question.

Example only:

Below are the expected cash flows and interest rates expected from an investment over the next ten years. Cash flows will occur at the end of the nominated years.

Cash Flows

• Using the Table function within MS Word, draw a time line showing the above cash flows and interest rates (following the example above)
• What will be the value of all these cash flows at each of the following times:

Time₁

•               Time₅
•                Time₁₀

Question 3 :) Australian Corporate Tax Cuts

This question relates to material covered in the Module 1 particularly the Australian taxation system and the dividend imputation. credits. This question addresses the 1st, 2nd, 3rd and 4th subject learning outcomes.

Students are expected to conduct their own research and develop their own opinions about the merits of this topic. There is no single correct answer and students will be marked on the depth of their research, the quality of their arguments (for and against), and their demonstrated understanding of the issues involved. In this complex area of financial policy .

Write an essay of between 600 and 1,000 words discussing the following topic. The Australian federal government plans to eventually lower the Australian corporate tax rate to 25%. The government believes that this will improve the economy and ultimately taxpayers by stimulating business investment and creating jobs. Internationally, many countries are lowering their corporate tax rates including, most recently, Donald Trump’s United States.

Is lowering the Australian corporate tax rate good policy? Discuss. Give particular consideration to the Australian dividend imputation system and how the Australian corporate tax rate impacts on Australian taxpayers.

There is a large number of resources available for students to access reflecting a variety of views on this topic. There are many items in the mainstream online media which canvas the Government’s view and also items that support the view of those opposing. However, students should research widely and not limit themselves to any particular source for their information. For example, community activist group Get Up! produced this humorous advertisement querying the value of providing such a large tax break to large multinational companies:

https://www.facebook.com/GetUpAustralia/videos/10154926758921455/?hc_ref=ARQcaLC4GaIaKB94Z_J_iQgnVS66WwEft6R_SnTxBjiOPrdWCxUI-zaTg3d-jyPKiJY&pnref=story.
Remember, there is no correct answer and individual students will be assessed on their demonstrated understanding of the issues and the depth and quality of their individual research.

Question 4:This question relates to material covered in Topics 1-5. This question addresses the 1st, 2nd and 3rd subject learning outcomes.

• Find the monthly holding period returns for 2016 for National Australia Bank (NAB), BHP Billiton (BHP) and the market (MKT) as proxied by the All Ordinaries index. The monthly holding period return is the return you would receive if you bought an asset on the first day of the month (opening price) and sold it on the last day of the month (closing price). Using Excel, graph your % return results on one graph with returns on the y axis and time on the x axis to enable comparison between options. (Use 'Close' rather than 'Adjusted Close' for the selling price.) Note: Opening price MUST equal previous month closing price
• For each investment, what is the average monthly holding period return?
• For each investment, what is the annual holding period return?
• . Calculate the standard deviation of the monthly rates of return for each share and the market
• Using Excel plot your results from (iii) and (iv) above with risk on the x axis and return on the y axis
• If the 10 year government bond rate is 2.95% and the long term return on the market is 6.5%, assuming the beta (?) for NAB is 1.23 and for BHP is 0.90, use the Capital Asset Pricing Model (CAPM) to find the expected returns for NAB and BHP
• Construct and graph the Security Market Line (SML) showing where NAB and BHP lie
• Based on your findings construct a portfolio made up of 30% CBA and 70% RIO. Calculate the estimated return and ? for this portfolio
• Based on your understanding of the CAPM and the SML, which of these asset(s) or portfolio(s) would you invest in and which would you not invest in. Explain your choice

Rationale
This assignment directly addresses some of the key learning outcomes for ACC515 including that on successful completion of the subject students will:

• be able to evaluate and explain the congruence of accounting, finance and treasury functions;
• be able to explain and critique the objectives of financial management in contemporary organisations;
• be able to critically evaluate mainstream financial theory and concepts;
• be able to discuss and evaluate ethical considerations in financial dealings;
• be able to demonstrate appropriate communication skills in the context of corporate finance; and
• be able to demonstrate specific technical competencies and skills in utilising quantitative techniques in financial analysis.

The requirements of this assignment cover up to and including Topic 5 of the Online Learning materials. The assignment is designed to develop your financial analysis and problem solving skills and develop your written communication skills. The questions require you to apply the knowledge and tools covered in the subject topics in order to demonstrate your understanding of the subject content. This first assignment has a heavy focus on fundamental financial mathematics which is a critical building block to develop your capacity to understand and resolve complex finance problems.

Answer

The holding period return, or HPR, is the total return from income and asset appreciation over a period of time expressed as a percentage. The holding period return formula is: HPR = ((Income + (end of period value - original value)) / original value) * 100.

Answer-1

1. Calculation of Investment opportunity-
   Sandy wants to invest in an investment opportunity. The predicted cash inflows from the said investment are given. The rate of interest is 9% per annum for the investment. For calculating the value of the investment required, the present values of the estimated cash inflows shall be calculated.

Year	Estimated Cash Inflow($)	Present Value Factor @ 9%	Present Value of Estimated Cash Inflow($)
1	400	0.917	366.80
2	800	0.842	673.60
3	500	0.772	386.00
4	400	0.708	283.20
5	300	0.650	195.00
		Present Value-	1904.60

This means that Sandy needs to invest $ 1904.60 at present so that he can get the estimated cash inflows for next five years.

2. Lee has taken a loan of $ 1,00,000 at an interest rate of 10% per annum. This loan has to be repaid in 20 quarterly instalments which is 5 years tenure. For finding out the quarterly payment, following steps shall be followed :
   • Total interest calculation- $ 1,00,000 * 10%* 5 years= $ 50,000
   • Interest calculation for 1st year= $ 1,00,000 * 10% = $ 10,000
   • iii. Add your interest rate to your principal then divide the total by total tenure and further by 4 quarters per year= $1,50,000/ 5 years/ 4 quarters= $ 7,500.
3. Calculated in separate sheet of Excel

Answer-2

• Timeline showing Cash Flows and interest rates :

%		8%		6%						7%
Year	0	1	2	3	4	5	6	7	8	9	10
CFi	$0	$0	$6,500	$1,500	$0	$0	$-2,500	$0	$0	$ 10,000	$0

• Calculation of Value of Cash Flows at the given times.
  For finding out cash flows value at present for later years, we shall use present value factors using the rate of interest given for the relevant years.

Formula to be used for Present Value = Future Cash Flow * [1/(1+interest rate)^{number of year}]

Time 1 (Year 1)
Present Value of Cash Flow at Year 2= $ 6500 * [1/(1+0.08)¹ ]= $ 6019.00
Present Value of Cash Flow at Year 3= $ 1500 * [1/(1+0.06)² ]= $ 1335.00
Present Value of Cash Flow at Year 6= $- 2500 * [1/(1+0.06)⁵ ]= $ -1867.50
Present Value of Cash Flow at Year 9= $ 10000 * [1/(1+0.07)⁸ ]= $ 5820.00

Time 5 (Year 5)
Value of Cash Flow Year 2= $ 6500 * [(1+0.08)³ ]= $ 8190.00
Value of Cash Flow Year 3= $ 1500 * [(1+0.06)² ]= $ 1686.00
Present Value of Cash Flow at Year 6= $- 2500 * [1/(1+0.06)¹ ]= $ -2357.50
Present Value of Cash Flow at Year 9= $ 10000 * [1/(1+0.07)⁴ ]= $ 7630.00

Time 10 (Year 10)
Value of Cash Flow Year 2= $ 6500 * [(1+0.08)⁸ ]= $ 12031.50
Value of Cash Flow Year 3= $ 1500 * [(1+0.06)⁷ ]= $ 2256.00
Value of Cash Flow Year 6= $- 2500 * [(1+0.06)⁴ ]= $ -3155.00
Value of Cash Flow Year 9= $ 10000 * [(1+0.07)¹ ]= $ 10700.00

Answer- 3
The Australian government is planning to lower the Australian Corporate Tax to 25%. The motive behind the reduction of corporate tax by the government is increasing business investment and creating jobs. The benefits of corporate tax reduction may be summed up in following points:

• Capital infusion may be increased as the companies will be left with more in hand funds when there will be less tax rate and thus less reduction from the earned profits. The companies which are currently paying a tax rate of 30% on the final net profit earned by the company will pay 5% lesser tax after tax rate deduction to 25%. This 5% of the gap in taxation amount will be further invested by the company either in the existing business or a new business venture. Although 5% seems a very small amount in case of big multinational companies, this can make substantial al amount. This will contribute towards the growth of the economy of the country.
• The shareholders will get to enjoy more dividend as there will be a lesser deduction from the final profits of the companies. The companies will either retain the amount left out from lower tax rate or will distribute the same to its investors. In the latter case, the investors will get benefitted. They may also invest the money in one or the other form thus contributing to the country’s economy (Brigham & Daves, 2014).
• More companies will get set up as a result of lower tax rates. The tax rate reduction will promote the set up of more companies as the companies shall have to pay lesser tax on their profits. A newly formed company struggles to meet out even its revenue expenditure. It will be a treat for such new ventures if the tax rates are also reduced (Bodie et. al, 2014).
• Foreign investors will get attracted and more foreign investment will get promoted because a reduced tax structure helps the newly incorporated companies to pay fewer taxes and keep invested the remaining funds in the business itself which they can use for other investing and financing opportunities (Carmichael & Graham, 2012).

Apart from benefits, the reduction of tax rates will result in lower contribution towards government revenues which will lead to a hit on the economy of the country. But this loss to the government revenue will get compensated through the above-said benefits (Ferris et. al, 2010).

In Australia and other few countries, a system known as Dividend imputation system is prevailing in which a portion of the tax paid by a company is distributed to the shareholders of the company in the form of tax credit that the company has already paid on the profits before distributing dividends (Deegan, 2011). This helps in reducing the taxes on dividends received by the company shareholders. Other countries such as New Zealand, Canada, Korea etc have also implemented this system.

The purpose of this system is to avoid double taxation of the profits of the company as once the profits of the company are taxed at the end of the company and then in the hands of the shareholders.

Every economy wants capital infusion from big corporate houses. So in order to attract big corporate, they need to be given incentives in form of subsidies, incentives, tax holidays and rate cuts like income tax, corporate tax or any other taxes. Countries like Japan, Germany, and India have resorted to reducing corporate taxes in order to invite corporate investments but in countries like Australia, where there is a concept of Dividend imputation, it shall not be a good idea because dividend tax paid is given as a credit against corporate taxes (Leo, 2011). Giving further rate cuts shall reduce the government’s revenue as there shall be reduced funds available with the government for public expenditure (Davies & Crawford, 2012). Hence rate cuts, on one hand, will invite corporate investments from global companies while on another hand it may also reduce government earnings in form of taxes.

So, the government should predict all the consequences of rate cuts as it shall have a direct impact on their spending. Also, the corporate sector may try to declare higher dividends to their shareholders because it will allow them tax credits against corporate taxes paid by them. Further, this will also enhance their corporate reputation and increase their share prices (Laux, 2014).

References
Bodie, Z., Kane, A. and Marcus, A. J. (2014) Investments. McGraw Hill

Brigham, E. and Daves, P. (2012) Intermediate Financial Management. USA: Cengage Learning.

Carmichael, D.R. and Graham, L. (2012) Accountants Handbook. Financial Accounting and General Topics, John Wiley & Sons.

Davies, T. and Crawford, I. (2012) Financial accounting. Harlow, England: Pearson.

Deegan, C. M. (2011) In Financial accounting theory. North Ryde, N.S.W: McGraw-Hill

Ferris, S.P., Noronha, G. & Unlu, E. (2010) The more, merrier: an international analysis of the frequency of dividend payment. Journal of Business Finance and Accounting. [online]. 37(1), pp. 148–70. Available from https://doi.org/10.1111/j.1468-5957.2009.02174.x [7 April 2018]

Laux, B. (2014) Discussion of The role of revenue recognition in performance reporting. Accounting and Business Research. [online]. 44(4), 380-382. Available from Leo, K. J. (2011). Company Accounting. Boston:McGraw Hill