BAFI1012 Business Finance- behaviour trough financial incentives


This assignment will require your team to provide a report that should help a company decide on undertaking a new project. The assignment will cover the topics capital budgeting, risk and return, cost of capital, and more.

The results of your analyses will have to be presented in a business report to Origin’s executive management team.

▪ The report should provide clear advice on whether or not the company should go1 ahead with the projected power plant.

▪ The advice of your team should be (partly) based on your estimations of the NPV and the IRR of the proposed project under the two different possible scenarios.Remember, members of the executive management team often do not have a finance background, so your results will have to be supported by clear tables which show the calculation of the free cash flows; clear explanations of how the free cash flows were computed, and what choices were made in these computations, and why.

▪ The final advice of your team should also be (partly) based on your analyses of the financial risks involved with the project. Therefore, the report should include a number of additional analyses:

a) a discussion on the financial situation of Origin Energy, based on your analysis of the current financial statements of the company. This section will have to explain how the proposed project would affect the financial situation of the company.

b) a comprehensive discussion on recent insights in the energy market from (at least 3) reputable and credible business finance articles. This discussion should also include an estimate of the amount of systematic risk in stocks of energy companies, Which can be assessed by investigating Origin’s shares and those of two of its competitors in the energy market.

c) Finally, the report should include an informed discussion on carbon taxation (again based on research by at least 3 reputable sources). Explain to the management of the company through what channels the pricing of carbon emission could potentially change the behaviour of companies in the future. In this discussion, provide an example of a country where such a tax has been implemented and to what extend it is effective. Also, provide information on alternative forms of regulation that the Australian government could be implementing instead of a carbon tax, in order to prevent actions by businesses that are harmful for the climate. Are these alternative types of regulation affecting company behaviour trough financial incentives? Or through other means?

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