Assessment 3: Case Study Analysis (50 marks)
Finance & Investment
Assessment 3: Case Study Analysis (50 marks)
Consider the following information about a company known as Logica Industrial Ltd. The Australian Stock Exchange (ASX) code for this company is LOG.
LOG is a publicly listed company that installs and services computer software systems in New South Wales and Victoria. It also provides goods to contractors who install its systems to end users. Logica first floated on the ASX in 2015. In 2023, the company recorded $101million in revenue and a net profit of $26 million. Logica has grown its business over the years via a combination of organic growth and several strategic takeovers. To facilitate this, the company has used a combination of debt and equity.
You are the Business Banker at Northpac Bank, with whom Logica currently conduct their banking and have been tasked with providing funding advice to the Financial Controller, who has sent you the following questions for a reply. Research the answers to their questions, providing the answers below each, IN YOUR OWN WORDS.
All answers must be in the students own words. Sourced materials should be referenced at conclusion of answers but significant paraphrasing or cutting and pasting of answers will result in half that questions marks being deducted.
Question 1 Short Term Funding 14 marks
LOG needs to borrow $700,000 for 90 days to fund the purchase of new stock. To do this, the company decides to issue Promissory Notes (P-notes).
In your own words, explain what a Promissory Note is including in your response:
what discount securities are and why they are tradeable; (4 marks)
what a P-note is and how a P-note differs from a Bill of Exchange; (4 marks)
what a credit rating is and why this is important for Logica when issuing P-notes (2 mark)
<Type answer here>
If the market yield at the time of LOG issuing the P-Note was 4.25% pa, what amount will LOG raise on the issue date? Include the correct formula in your answer. (4 marks)
<Type answer here>
Question 2 Trade Credit 7 marks
Logica utilises contractors to install its software to end users. To facilitate the provision of these goods, the company provides a standard trade finance facility to these contractors.
Explain how trade credit operates and how both Logica and the contractor would benefit from this type of facility. (4 marks)
<Type answer here>
Calculate the opportunity cost of an invoice that specifies the following conditions: 1.50/7, n/30. Include the correct formula as show all workings. (3 marks)
<Type answer here>
Question 3 Medium to Long Term Funding Decisions 16 marks
As well as using contractors for its software installations, LOG is establishing a division of permanently employed technicians who service the software once its installed. Logica wishes to provide corporate cars/vans to these technicians to enable them to travel to client premises and is seeking Northpacs advice as to how to fund this efficiently.
You recommend an option for Logica for them to use lease finance. Explain to the clients:
what a lease is and who the parties to a lease are and (4 marks)
distinguish between operating leases, finance leases and sale and lease-back leases. (6 marks)
<Type answer here>
Discuss 4 advantages of leasing. In your discussion also outline one alternative method Logica could use to fund the acquisition of the vehicles and how that alternative could operate. (6 marks)
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Question 4 Equity 5 marks
LOG is considering the implementation of a Dividend Reinvestment Scheme for its shareholders.
Explain to LOG how a Dividend Reinvestment Scheme would operate and how its introduction can assist Logica in raising additional equity funds. (3 marks)
<Type answer here>
Logica values its shareholders and asks you to explain how a Dividend Reinvestment Scheme would be of advantage to their shareholders. (2 marks)
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Question 5 Interest Rates and Economic Outlook 8 marks
The directors of LOG are happy to move forward with the issue of securities that you recommended earlier. They would like to know what your thoughts are about the economy in general and where interest rates might head.
Using the current yields researched in class with your teacher, input these into the Excel Spreadsheet provided in the Subject Moodle Assessment Tab to construct an appropriately labelled Yield Curve using these rates. (4 marks)
https://www.rba.gov.au/statistics/tables/#interest-rates
<Insert chart here>
Logica wish you to outline your views on how the Australian Economy is performing. Using the Yield Curve you constructed in a) explain what the current Yield Curve suggests about the economy and possible future interest rates, including a reference to the shape of the graph you have constructed. (4 marks)
<Type answer here>
Referencing
All answers must be in the students own words. Sourced materials should be referenced at conclusion of answers but significant paraphrasing or cutting and pasting of answers will result in half the questions marks being deducted.
END OF CASE STUDY QUESTIONS
