You are working in an Accounting, Finance and Business Advisory company as an investment advisor. In
You are working in an Accounting, Finance and Business Advisory company as an investment advisor. In this profession you are required to use numerous statistical data to advise your clients according to their individual circumstances and preferences. One of your clients (your trainer and assessor) wants to make an investment of $ 1,000,000. The options your client is considering to make the investment are as follow:
a. Making investment in Australian shares
b. Buying a café for $1,000,000 that will have a turnover of $ 450,000 and net profit of $18%.
c. Buying a household goods retailing store- having turnover of $1.2 million and net profit of 10%.
d. Buying a departmental store having turnover $ 1.8 million and net profit 4%.
Before making investments, your client wants to find out the best option where he can invest his money to get maximum returns.
Consider the following scenarios:
Considering that the client's business will follow the industry trends from September 2017 for all the options, the statistical data are as follow:
Scenario 1: Investment in Australian Shares (option a)
· ASX Ordinary Indexes reflects the trends in Australian share market. Numerous data can be used form ASX website to analyse Australian shares.
To obtain information on all the ordinary indexes, you can also refer to the following hyperlinks:
1. Yahoo Finance http://au.finance.yahoo.com/
2. Fairfax Trading Room http://www.tradingroom.com.au/apps/qt/index.ac
Scenario 2: Buying a Café (option b)
· In current prices, the trend estimates for Cafes, restaurants and takeaway food services fell 1% in 2017 and continue to fall by 1% in 2018 and then there will be a rise by 2% per year for next 4 years.
Scenario 3: Buying a retail store for household goods (option c)
· In current prices, the trend estimates for Household goods retailing fell 2% in 2017 and continue to fall by 2% in 2018 and then there will be a rise by 5% per year for next 3 years.
Scenario 4: Buying a Departmental store (option d)
· In current prices, the trend estimates for Department stores fell 0.5% in 2017 and continues to fall by 1% until the end of 2019 and then there will be a rise by 2.5% per year for next 3 years.
For detailed information on retailed trade statistics in Australia, refer to the link provided below:
http://www.ausstats.abs.gov.au/ausstats/meisubs.nsf/0/3FFBE958D831F1D6CA2581CC000D2200/$File/85010_sep%202017.pdf
Required:
Task 1: Using the Ordinary indexes for the investment in shares (option a), predict what will be the average return per year will be on your client's investment for five years year ending December 2022. Assuming that the client invested the returns (profits) for the initial two years but not for next three years.