Description

Finance & Investment Case Study Assessment

70 marks

Weighting : 20%

Gazal Agricultural Ltd

Consider the following information about a company known as “Gazal Agricultural Ltd”.  The Australian Stock Exchange (ASX) code for this company is ‘GAZ’.

GAZ is a publicly listed company that that operates agricultural production, supply and commercial outlets in New South Wales and Victoria, as well as a newly opened subsidiary in New Zealand.  In 2019, the company recorded $50 million in revenue and a total net profit of $15 million. $10 million of this profit was taxed in Australia at the company tax rate of 30% and Gazal can provide ‘dividend imputation’ to Australian shareholders from the Australian tax it pays.   

On 24th July 2019, GAZ purchased a new building in outer Sydney NSW to house its headquarters in, paying $3 million dollars including costs.

You are providing advice to Gazal through the Commercial Division of Northpac Bank, with whom Gazal currently conduct their banking. You are to answer the following questions, and where references are used, ensure all work is appropriately referenced using Harvard Referencing system.

Question 1 – 15 marks 

GAZ’s share price currently trades around $3.20 and it has a market capitalisation of $152 million.  The volume of shares traded each day has been increasing steadily since GAZ listed in 2010.

a)      Define market capitalisation and calculate the number of shares on issue showing your calculation.                                                                                                                                      3 marks

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b)      Explain whether GAZ is traded on the primary or the secondary market and                        discuss the reason for why their shares are traded on this market.                                2 marks

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c)       Discuss 4 points about the efficient secondary market role of a stock exchange and its importance to GAZ.                                                                                                                               4 marks

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d)      Explain the primary market role of a stock exchange and discuss why the primary market role is important for business/economic growth.                                                               3 marks

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e)   Define liquidity in the share market (market liquidity) and discuss why liquidity in the share market is important both to shareholders and to the corporation (GAZ).                 3 marks

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Question 2 – 10 marks  

Assume you are an analyst discussing Gazals financials with a potential shareholder in GAZ. The shareholder has a marginal tax rate of 39% (including Medicare Levy) and on the amount they are prepared to invest, would be eligible to receive a fully franked dividend of $7,000 from Gazal Ltd at the next distribution date  

a)      Discuss how dividend imputation works, including in your answer –

·         what dividends, franked dividends and franking credits are, and

·         why future dividends might be only partly franked if Gazal’s New Zealand subsidiary begins to generate profits.                                                                                                                 5 marks

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b) Calculate the income tax payable by the shareholder showing all workings. Assume the Company tax rate is 30% and shareholder rate is 39%.                                                              5 marks

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