Assignment 2 Answer Template – FINANCE 351
Note: do not change the formatting or structure of this template. Submit your assignment
as a PDF. Enter your answer in the appropriate places indicated by the square brackets: [].
Name: KINSHUK CHHABRA
ID: 828146650
QUESTION 1
Note: You should use the same formatting, layout and section headings as given in the template
below. The length of the memo (including headings) must be no more than 750 words.
Memorandum
DATE:
18/05/2023
TO:
Annemarie Winter
FROM:
Kinshuk Chhabra
SUBJECT: Review the Venus Ltd.’s method for estimating a Weighted Average Cost of
Capital (WACC)
1. WACC IN THE CONTEXT OF NPV
WACC is a financial tool used in the NPV analysis to measure the viability of an investment
or a project. The WACC represents the average rate of return that a venture should
generate to be feasible by meeting the requirements of equity holders while taking the
company’s financing cost into consideration. The proposed project’s cash flows are then
discounted using WACC as the discount rate through the NPV analysis. The result of which
demonstrates whether a project will be viable though the NPV being positive or negative.
The use of WACC in this analysis allows multiple projects or investment opportunities to be
compared uniformly by looking at the expect returns in relation to cost of capital.
2. REVIEW OF APPROACH
Venus’s approach to estimating cost of equity is valid as estimating the beta through
regression analysis of Venus' stock returns against the S&P/NZX 50 index returns over the
last five years quantifies the systematic risk.
3. OVERALL RECOMMENDATION
[Enter text.]
QUESTION 2
Note: Enter your response in the boxes below. The length of your response for each comment must
be no more than 100 words.
Response to Lisa’s comment (max 100 words):
1. Her comment relates to the shareholder capitalism side of the shareholder capitalism versus
stakeholder capitalism debate. Her comment shows that she believes that maximizing the value of
Venus for its shareholders is the staff’s primary goal.
2. I do agree with this comment as a company should keep their shareholder’s interests in mind as
they have a duty to them. But I believe that the staff should also consider the potential adverse
impacts caused to the other stakeholders if the shareholders are primarily focused on.
Response to Sanjay’s comment (max 100 words):
1. His comment relates to the stakeholder capitalism. His comment shows that he believes Venus
should be showing consideration to the local environment (a stakeholder) and believes that they
should use sustainable business practices to minimize their impact on the environment, even if it
costs the company more.
2. I agree with his comment since Venus should be considering the impact of their operations to the
local environment and have a long-term outlook to avoid future scrutiny from the public and/or the
government. This has the potential of saving additional cost of fixing the damage caused by their
environmental impact.
Response to Rory’s comment (max 100 words):
1. Rory’s comment relates to stakeholder capitalism (staff being the stakeholder) as he believes that
the staff are the biggest stakeholders and hence their diversity and multicultural mix should be
valued, emphasized, and reflected in the company.
2. I agree with his comment as doing what Rory believes would develop a healthy working
environment where the staff would feel welcome, which in turn will help boost the company’s
productivity and output while also uplifting their image in the market.
Response to Amy’s comment (max 100 words):
1. Amy’s comment relates to stakeholder capitalism as she believes that any company operating in
New Zealand should try to uphold the principles underpinned by the Treaty of Waitangi where
possible. The stakeholder here is the nation and their people.
2. I agree with her comment, as any company should respect the principles and values of the nation
or region that they are operating in. This is a matter of pure respect which should be upheld where
possible. Additionally, doing so will make the public in the region favor Venus more if the morals and
values they support are upheld.
Response to Maia’s comment (max 100 words):
1. Maia’s comment relates to stakeholder capitalism. She believes that since Venus is a large player in
the New Zealand energy sector, they have a responsibility to contribute to the local economy and
society to promote equality in both the social and economic sense. The stakeholder here is the local
community and economy.
2. I agree with her comment because, a company which is as large and has ample resources such as
Venus should contribute to the society and economy. This is because a small contribution of
resources and capital from them would have a large, positive impact.
QUESTION 3
Note: Enter your response in the boxes below. The length of your explanations for Part B and Part C
must be no more than 150 words each.
Part A: Indicate the best response (a, b, c or d):
a
Part B (max 150 words):
Both Harrison’s and her father’s actions are in violation of the CFA Standards of
Professional Conduct.
This is because Harrison herself breached the standards of Misrepresentation and Confidentiality by
releasing information of the expansion strategy Venus was planning which is non-public information.
This affected the value of Beat Energy. She also disclosed information of the meetings between Beat
Energy and Venus. She also breached the fair dealing standard under the duties to client section as
the disclosed non-public information led to her father’s hedge fund having an unfair advantage.
Harrison’s father breached the Material Non Public Information standard and fair dealing as he
possessed the non-public information of Venus and Beat Energy to gain an unfair advantage while
trading Beat Energy shares. He also is guilty of insider trading as he traded based on information that
was not public.
Part C (max 150 words):
There are many reasons as to why it will be beneficial for Venus energy to implement a code of ethics
for its employees even if there is a cost involved. This is because implementing a code of ethics will
reduce legal risks in situation where CFA standard are breached as Venus will most likely not be held
accountable as they had set our clear code of ethics which would be based on the CFA Standards.
It will also help to uplift the trust other companies and stakeholders have in Venus as they would be
able to see the code of ethics Venus operates on, leading them to not question their integrity.
Lastly, this will also set a standard which employees will have to meet which in turn would increase
the professionalism of the employees of Venus. This would reduce the likelihood of wrongdoing and
illegal acts committed by the staff, hence potentially saving Venus from spending resources on legal
fees and will prevent from tarnishing their reputation in the industry.