Investment in Analysis in Shares and Term Deposit - AMCOR Limited Company - Case Study Example

Investment in Analysis in Shares and Term Deposit Name Professor Institution Course Date Introduction The investor is to undertake a collection of different investment since there are uncertainties which can negatively affect the realization of future cash flows of his investment. The investor is to diversify his investment with the aim to reduce the business and financial risks which might affect his business when not looked at with serious attention (Frank and Alan, 2001). The aim of the report is to provide a comparative analysis over the last four years of Shares and term deposit markets in order to show which would provide the best return on fund invested. The effective annual rate can determine the best investments, so I will include the EAR for both investments so I can show the best alternative option. I have selected AMCOR limited company to analyze its shares over the last four years. The findings of the AMCOR shares analysis will be compared with the findings of the term deposit of Reserve Bank of Australia. The analysis is going to rely on finding the effective annual rate of both investments, and calculating the dividends of shares. I have assumed an initial investment of $500,000 with brokerage fees of 0.02% of share investments. $500,000 for term deposit investment is to be computed semi annually to find the end values which is to be used for evaluation purposes.The computed results is to support in the provision of the decision criteria of the best investment criteria which the investor is to finance to maximize the investment returns in both the long and short run.The investor is also to ascertain the investment which has the shortest pay back period where the business break even so that the future financial years realize good business returns. AMCOR limited shares: Table 1: The findings of the dividend received is computed by multiplying the dividend per share by the numbers of shares which the investor had purchased during the year.The yearly dividend is added to the cost of investment to find the amount used as capital in the subsequent year.The share prices of the shares is differenr because it fluctuates according to the goodwill or profitability of the company. Assumptions The assumptions which must be considered when computing the share price 4 years ago is that the dividend which the company has earned must be known by all the investors and it is expected to be constant over time. The required rate of return can be computed by the investor in certainty and all of the shareholders must have the same required rate of return. It should also be assumed that the company does not incur any transaction cost of any kind during the financial year in which the investment is being done. 1,012,706.3-500000 =$512706.3 Rate =512706.3/1012706.3 X 100 50.63% Effective annual rate =(1+0.2/4)4-1 =0.21551 X 100 21.551% Term Deposit Table 2: Date Term deposit interest rates ( 6 months ) % End Value ( principle + Interest rate ) $ Sep 2009 3.35 508,375 Mar 2010 3.45 596,069.68 Sep 2010 3.90 607,693.04 Mar 2011 5.40 624,100.75 Sep 2011 3.75 635,802.64 Mar 2012 4.45 649,948.76 Sep 2012 4.05 663,110.22 Mar 2013 3.85 675,875.09 It is computed by multiplying the interest rates by theinitial outlay.The interest attained is added together with theamount invested to be used as the next capital.It is done semi annually tofind the end values which is the total amountto be rerceived by the investor at the end of the investment period. 675875.09-500000 $175875.09 Cost of capital =26.022% Effective Annual rate =(1+0.26022/8)8-1 =33.8765% Practical Real Life Report for the Investment It is very important to invest in shares rather than in terndeposits to earn bank interest because the investor has the potential to ascertain the kind of shares which is best for him (Frank and Alan, 2001).In term deposit the bank dewtermines it own interest rate which is not in control of the investors investment plan. Investment in shares is very essential since the money used to purchase the shares is used as equity capital which is very important in job creation.Term deposi investment is just providing the bank with the opportunity to use the investors funds but in return being paid alower interest after the bank has dode business with the investors money. It is ideal to invest in shares because it is transferable and therefore the investor can sell or buy the number of shares at his own convenient time but in term deposit it is upon the investor to wait until the investment period expires is when he can have the opportunity to use his money from the investment. Therefore the investor have the opportunity to sell the shares when the prices are high and purchase them when the prices are low so that the best investment returns can be achieved. Investing in shares provide income to the investors inform of dividend at the end of the financial year. This type of investment increases the wealth of maximization goal of the investor because the investment has the ability to maximize the fair share of the shareholder by undertaking all the projects which cannot be done by individual shareholder. This allows the investor to realize high net present value which can be achieved by maximizing the net present value of the cash flow from the company. In terms of profitability the terms of deposit records higher effective annual rate which is 33.8765 which is slighjtly higher than that received in investment in shares . The Risk of Investing in Shares and Term Deposit The investment in shares also exposes the investor to different risks such as the existence of share price crash which cannot be predicted by the investors. The prices of shares sometimes fall considerably hence makes the investor to lose the value of his shares which results from loss of goodwill or collapse in business.This problem cannot be experienced interm deposit where the Bank in which the investor expects interest born all the risk on behalf of the investor. There is also erosion of ordinary shareholders when the business is being liquidated a scenario which is not available in term deposit type of investment. This makes the investor to lose because their investment capital in shares will not be refunded by the company but when the investor invest in term deposit he is expected to be paid all the amount since he is treated as a creditor not an ordinary shareholder.(Frank and Alan, 2001) It is also not obvious for the company to pay dividend each and every year and this makes the investor not to be sure of dividend income at the end of each financial year.But for the sake of term deposit the investor is very sure of getting an income inform of interest even if the bank realize huge losses during the financial year. Discussion The three main things which can be learnt from the assignment are that it is very important to diversify the investor’s investments because it reduces both the business and financial risks which the investor is likely to face. It is also very important to make investment decision not only based on the profitability but also on the viability of the investment since some businesses is very profitable but not viable enough to pay the investment cost at a stipulated time. In the assignment it is also learnt that investment projects which are more risky has the potential to yield higher returns when natured and managed well. Therefore investment in shares is more risky since there is share price crash loss of investment cost during liquidation and lack of surety of the dividend income which can discourage the investor and yet it is better than investment in property assets. The assignment is very effective in learning about the topic since it provides the risks and privileges which can be achieved when investing in these two investment plans. The changes that I can suggest in future semesters are that the computation should be based on the projected evaluation of the future benefits which can come before investing in the project but not that the evaluation is done after the investment. This also increases the risk which the investor can face when he enters the investment without projecting the potential benefits. I would suggest that the investigation should also be done on other types of investment such as service industry so as to ascertain the kind of investment which yields high return to the investor. Conclusion It is very important for the investor to invest in a project that tha has the highest returns.Therefore the business investment that is sustainable and is profitable for the investor is where he should focus on so that he maximizes his wealth appropriately.The investor is also to take a collection of investment to reduce the financial and business risks which he is likerly to face during the business operations.It is therefore upon the investor to make a good investment decision so that at the end of financial year he gets the best financial returns out of his investments in which he has financed. References Frank W and Alan S. Business finance, international Edition. London, Pitman Publishers, 2001 Comments: I want you here to comment on which investment from the above investments is the best and why? What were the risks of investing in each asset? And show how did u measure the risk. Reflections: Here I want u to Provide a 1-page discussion that deals with the following: a) What were the three main things that you learnt from the assignment? b) Comment on whether you felt that the assignment was an effective tool for  learning about shares and the property market. c) What changes can you suggest for future semesters? Are there other markets  you would like to have investigated or would you prefer to have written an  essay on a contemporary topic?  Conclusion: Write a very good conclusion here. Read More