Calculation Of Future Value And Annual Pension | Taxation In Australia | WOW And WES Stock Analysis
|
Calculation of present cash flow |
|||
|
Interest rate |
6% |
||
|
End of year |
Future Cash Flow |
P.V. factor |
Present cash flow |
|
1 |
$ 3,000 |
0.943 |
$ 3,180.000 |
|
2 |
$ 6,500 |
0.890 |
$ 7,303.400 |
|
3 |
$ 280 |
0.840 |
$ 333.484 |
|
4 |
$ 1,400 |
0.792 |
$ 1,767.468 |
|
5 |
$ 3,000 |
0.747 |
$ 4,014.677 |
|
6 |
$ – |
0.705 |
$ – |
|
7 |
$ 10,000 |
0.665 |
$ 15,036.303 |
|
Present cash flow |
$ 31,635.332 |
Part A:
Scott should pay $ 31,635.33 for this opportunity.
|
Loan amount |
1800000 |
|
Term (monthly) |
360 |
|
Nominal rate |
5% |
|
Monthly nominal rate |
0.004166667 |
|
EMI =[P x R x (1+R)^N]/[(1+R)^N-1] |
$9,662.79 |
The monthly repayment amount would be $ 9662.79.
|
Deposit amount |
1500 |
50000 |
|
|
Term (monthly) |
420 |
35 |
|
|
Nominal rate |
7% |
7% |
|
|
Monthly nominal rate |
0.005833333 |
||
|
Future value |
$2,701,581.90 |
$533,829.07 |
$3,235,410.98 |
The total value of the investment would be $ 3,235,410.98.
|
Future value at the age of 65 |
$3,235,410.98 |
|
Term (monthly) |
25 |
|
Nominal rate |
5% |
|
Amount after 25 years |
200000 |
|
Pension amount |
$229,560.36 |
|
Working Note: |
|
|
Amount after 25 years |
200,000.00 |
|
P. V. of the amount |
$59,060.55 |
|
Actual amt |
$3,235,411 |
After the retirement, the annual pension would be $ 229,560.36.
|
% |
Year 1 to 4 = 4.5% |
Year 5-6= 6% |
Year 7-10 = 7% |
|||||||
|
CFi |
2500 |
2500 |
2700 |
-1500 |
7000 |
10000 |
||||
|
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
|
% |
Year 1 to 4 = 4.5% |
Year 5-6= 6% |
Year 7-10 = 7% |
|||||||
|
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
|
|
P.V. of cash flow |
2392.34 |
0 |
2190.74 |
0 |
2017.6 |
-1057.44 |
0 |
0 |
3807.54 |
5083.49 |
|
Accumulated value |
$ 4583.09 |
$ 960.15 |
$ 8891.03 |
Total value = $ 14,434.27
Taxation is one of the major types which help a government to improve the income and manage the budget of the country. In Australian market, the taxation is required to be paid by the local state as well as federal government. There are various advantages of the taxation system for the people, society and the economy position still many companies and people do not pay the taxation because it affect their profitability position. Harding, Vu, Payne & Percival, (2009) has argued that Australian taxation system is quite better as the taxation system has been prepared by the Australian government after evaluating and examining all the internal and external factors of Australia. The Australian federal government has argued for higher taxation rate and due to it, the economical performance of the company has been down. However, the Campbell & Bond, (2017) has reported that the reduction in the taxation system would not help the Australian government to improve the economical position as the companies and people who were not paying the taxation earlier, would not pay it in future as well and because of it, the total income of the Australian government would also be lower.
If the Australian corporate taxation rate would be 25% than the total revenue of the company would be reduced. However, it has been argued by Bahl and Bird, (2008) that if the taxation rate would be lower than people will start paying more tax and the black money of the country would be reduced as well as it would help the Australian government to improve the taxation revenue. Though, Spilimbergo, Schindler & Symansky, (2009) has added further that people who are not paying taxation at the rate of 30% would not pay the tax even if the taxation rate would be lower. It has also been argued by them that the lower taxation rate would impact negatively on the economical system of the country which would affect the overall position of the company.
The Saad (2014) has argued that various countries are taking this step to manage the taxation revenue and the economical position of the company. But if the overall position of their taxation system is viewed than not much changes have occurred into the economical position as well as taxation system of the company. It explains that the changes into the country’s taxation system are way better option than changing into the taxation rate of the country. The Australian corporate tax rate is 30% in current market which is quite competitive in context with the other economies. The reduction of the rate by 25% would affect the overall level of the business in the Australian market as well as international market.
However, if the reduction is done in the Australian corporate taxation rate by 25% than also it is not possible for the company to make the changes into the other factors of the country. Such as, the reduction in the corporate taxation rate would affect the overall economical position. The improvement in the economical position could make the changes into the environment, social and employment rate of the company but for that position it is required for the Australian government to make various big decisions. That will only help the business to manage the overall performance in the business.
The Meng, Siriwardana & McNeill, (2013) has also argued that the changes into the corporate taxation rate would lower the overall economical performance as well as the taxation level of the business. the Australian government is suggested to that few different and new step to manage the taxation revenue and the economical position of the company. these would only help the business to improve the overall position of their taxation system which would directly affect the economical position as well as taxation system of the Australian market in positive manner (the conversation, 2018).
Thus it is concluded that the changes into the corporate taxation rate of Australian government must not be reduced by the government as it would lead to the government and the economical position towards the negative performance.
Calculation of monthly return:
|
Stock price |
Return |
|||||
|
Date |
WOW |
WES |
MKT |
WOW |
WES |
MKT |
|
31/08/2017 |
25.21 |
41.33 |
5744.9 |
|||
|
30/09/2017 |
25.88 |
41.8 |
5976.4 |
2.66% |
1.14% |
4.03% |
|
31/10/2017 |
26.91 |
43.92 |
6057.2 |
3.98% |
5.07% |
1.35% |
|
30/11/2017 |
27.3 |
44.42 |
6167.3 |
1.45% |
1.14% |
1.82% |
|
31/12/2017 |
26.95 |
43.81 |
6146.5 |
-1.28% |
-1.37% |
-0.34% |
|
31/01/2018 |
27.61 |
41.33 |
6117.3 |
2.45% |
-5.66% |
-0.48% |
|
28/02/2018 |
26.29 |
41.56 |
5868.9 |
-4.78% |
0.56% |
-4.06% |
|
31/03/2018 |
27.86 |
43.77 |
6071.6 |
5.97% |
5.32% |
3.45% |
|
30/04/2018 |
28.46 |
45.56 |
6123.5 |
2.15% |
4.09% |
0.85% |
|
31/05/2018 |
30.52 |
49.36 |
6289.7 |
7.24% |
8.34% |
2.71% |
|
30/06/2018 |
30.09 |
49.46 |
6366.2 |
-1.41% |
0.20% |
1.22% |
|
31/07/2018 |
28.8 |
51.49 |
6357.9 |
-4.29% |
4.10% |
-0.13% |
|
24/08/2018 |
28.8 |
51.49 |
6357.9 |
0.00% |
0.00% |
0.00% |
Calculation of average monthly holding period return:
|
Stock price |
Return |
|||||
|
Date |
WOW |
WES |
MKT |
WOW |
WES |
MKT |
|
Average monthly return |
1.18% |
1.91% |
0.87% |
Calculation of annual holding period return:
|
Stock price |
Return |
|||||
|
Date |
WOW |
WES |
MKT |
WOW |
WES |
MKT |
|
31/08/2017 |
25.21 |
41.33 |
5744.9 |
|||
|
30/09/2017 |
25.88 |
41.8 |
5976.4 |
2.66% |
1.14% |
4.03% |
|
31/10/2017 |
26.91 |
43.92 |
6057.2 |
3.98% |
5.07% |
1.35% |
|
30/11/2017 |
27.3 |
44.42 |
6167.3 |
1.45% |
1.14% |
1.82% |
|
31/12/2017 |
26.95 |
43.81 |
6146.5 |
-1.28% |
-1.37% |
-0.34% |
|
31/01/2018 |
27.61 |
41.33 |
6117.3 |
2.45% |
-5.66% |
-0.48% |
|
28/02/2018 |
26.29 |
41.56 |
5868.9 |
-4.78% |
0.56% |
-4.06% |
|
31/03/2018 |
27.86 |
43.77 |
6071.6 |
5.97% |
5.32% |
3.45% |
|
30/04/2018 |
28.46 |
45.56 |
6123.5 |
2.15% |
4.09% |
0.85% |
|
31/05/2018 |
30.52 |
49.36 |
6289.7 |
7.24% |
8.34% |
2.71% |
|
30/06/2018 |
30.09 |
49.46 |
6366.2 |
-1.41% |
0.20% |
1.22% |
|
31/07/2018 |
28.8 |
51.49 |
6357.9 |
-4.29% |
4.10% |
-0.13% |
|
24/08/2018 |
28.8 |
51.49 |
6357.9 |
0.00% |
0.00% |
0.00% |
|
Average monthly return |
1.18% |
1.91% |
0.87% |
|||
|
Annualized holding return |
15.09% |
25.49% |
10.95% |
Calculation of standard deviation:
|
Stock price |
Return |
||
|
WOW |
WES |
MKT |
|
|
Standard deviation |
0.029717 |
0.030026 |
0.020986 |
CAPM:
|
WOW |
|
|
Calculation of cost of equity (CAPM) |
|
|
Risk free rate (Bloomberg, 2018) |
2.00% |
|
RM |
5.75% |
|
Beta |
0.770 |
|
Required rate of return |
4.89% |
|
WES |
|
|
Calculation of cost of equity (CAPM) |
|
|
Risk free rate (Bloomberg, 2018) |
2.00% |
|
RM |
5.75% |
|
Beta |
0.810 |
|
Required rate of return |
5.04% |
Portfolio:
|
Particulars |
WOW |
WES |
|
|
Weight age |
A |
30% |
70% |
|
w1 |
w2 |
||
|
Beta |
B |
0.77 |
0.81 |
|
Portfolio Beta |
β1 |
β2 |
|
|
Portfolio Beta |
βp=(w1xβ1)+(w2xβ2) |
0.80 |
|
|
Market Risk Premium |
B |
5.75% |
|
|
Risk Free Rate |
C |
2.00% |
|
|
Portfolio Expected Return |
D=C + (βpxB) |
6.59% |
On the basis of the required rate of return and the portfolio of both the companies, it has been identified that the required rate of return of WES and WOW is 5.04% and 4.89% whereas the return of portfolio is 6.59%. It explains that the investment into the portfolio is more beneficial for the investors. However, the risk factor has also been considered and it has been found that the risk level of portfolio is also average and thus the investment into the portfolio is better option for the company.
References:
Bahl, R. W., & Bird, R. M. (2008). Tax policy in developing countries: Looking back—and forward. National Tax Journal, 5 (i), 279-301.
Campbell, H. F., & Bond, K. A. (2017). Effective marginal tax rates in Australia. Economic Analysis and Policy, 27(2), 151-158.
Harding, A., Vu, Q. N., Payne, A., & Percival, R. (2009). Trends in effective marginal tax rates in Australia from 1996–97 to 2006–07. Economic Record, 85(271), 449-461.
Meng, S., Siriwardana, M., & McNeill, J. (2013). The environmental and economic impact of the carbon tax in Australia. Environmental and Resource Economics, 54(3), 313-332.
Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 3 (ii), 109, 1069-1075.
Spilimbergo, M. A., Schindler, M. M., & Symansky, M. S. A. (2009). Fiscal multipliers (No. 2009-2011). Retrieved from: https://forschung.snb.ch/files/Sutter/IMF_FiscalMultipliers.pdf.
The conversation. (2018). F actCheck: is Australia’s corporate tax rate not competitive with the rest of the region?. Retrieved from: https://theconversation.com/factcheck-is-australias-corporate-tax-rate-not-competitive-with-the-rest-of-the-region-37226