Project Task a: Valuation and Sensitivity Analysis

1) Qantas Airways Limited is the national airline of Australia, it is also the largest airline in Australia. The Qantas Group’s principal business is providing domestic and international air transport services for passengers. Additionally, Qantas owns several subsidiary companies such as Jetstar and QantasLink that also operates flights to domestic and international locations, and Q Catering, a premium full service flight caterer.

The table below shows the equity betas for the firms presented in the case (using Jan-92 to Dec-96 equal weight NYSE/AMEX/NASDAQ as market portfolio):

Qantas is Australia’s largest domestic and international airline. Although Qantas is primarily a passenger airline, air freight is also an integral part of its core business. Other Qantas operations include catering, tourism and E-commerce devoted to transport and travel. In order to have an effective business and operations process, a company, like Qantas must be aware of the influences that can affect it. By being aware of the influences it enables the business to make decision and choices that can get the most out of each influence, by doing this it can assist the business in its endeavours for success.

Beta is the slope of the characteristic line. As shown in appendix1, we use the monthly historical data from April 2003 to April 2008 to graph SCL. We use S&P 500 as the market because it contains the stocks of 500 Large-Cap corporations and can reflect the market change broadly. As shown in exhibit 1, we can get the SCL: Ri-Rf = - 0.001 + 0.1649(Rm - Rf). So the beta is 0.1649 and the alpha (intercept) is -0.001. From the regression line, we find the R square is only 0.103. It reflects the degree that X variable explains Y variable is 10.3%. That is, Ri-Rf has no close relationship with Rm-Rf. In addition, due to the fact that beta is only 0.1649, it also provides the same result which Ri-Rf and Rm-Rf have no strong positive relationship. It is a good issue to consider why Wal-Mart stock return does not relate with S&P 500 return very well. From exhibit 2, we find the Wal-Mart price did not change very much while S&P 500 price went up. The major reasons may be that S&P 500 includes many high-tech stocks and those stocks performed very well during the period; therefore the volatility is greater than Wal-Mart. Moreover, maybe Wal-Mart has lower weight in S&P 500 so its trend of price change is different from S&P 500. From exhibit2, we also find Wal-Mart had good relationship with S&P 500 before 2004. To examine the situation, we use the data from 1998 to 2003 and find the SCL

Qantas capitalized on by increasing its domestic share of the market from 55% to approximately 80%. Qantas management had effectively filled the gap left by Ansett by moving planes from the depressed international routes to the company’s expanded domestic market and by leasing planes from overseas to expand its aircraft fleet by

The historical beta comes from historical data. This kind of beta would slope coefficient in a regression, and associated with company's stock returns and market returns. This approach is conceptually straightforward, and complications quickly arise in practice.

* Stock Beta: Exhibit 5 shows a detailed measurement of the company’s stock returns in relation to the rest of the market through 5-year historical price and index data. The analysis includes monthly returns of both the NYSE and the S&P 500 index in order to capture a comprehensive view of the market return. In each comparison, the monthly returns of the Target stock and market are plotted on Y-axis and X-axis respectively to get the regression line’s slope or beta. The analysis arrives at an average beta of 0.988 which indicates a similar movement of Target stock’s returns in comparison to the whole market over time.

Qantas is established in the Queensland outback in 1920 and after that it has become biggest domestic and international airline and strong brand in the Australia. It is enrolled as the Queensland and Northern Territory Aerial Services Limited (QANTAS) and the group two airlines brands are Qantas and Jetstar those provides transportation services of the customers. Qantas created its strong brand reputation through deliver safe and secure services, focus on customer services, maintain reliability of operations and focus on maintenance, engineering and technology (Qantas Airways Limited, 2014). Quanta main business aims or objectives are:

2. Compares the returns of the asset to the market over a period of time (Beta)

We use the equation ri=(Pt-Pt-1+Dt)/Pt-1 to calculate the monthly return of stock of Charles Schwab Corp, Quick & Reilly Group and Waterhouse Investor Srvcs. Then we have two methods to calculate the Beta of Equity for each company.

13. According to these three scatterplots, three-year data and three-month data both show the beta of holding Under Armour shares should be around 1.22~1.23. However,

For example : The UK govt bonds is providing a return of 3% and the average market rate of return is 8.7% .The investor is expecting to invest in ABC ltd , listed in LSE .The beta calculated is 0.9 . Therfore on calculating , Rf = 3 , Rm = 8.7 , β = 0.9 . The return on investment comes out to be as 8.13 which is less than the rate of average market return . Therefore , it would not be beneficial to invest in shares of ABC Ltd .

For this variable we take again the same risk free rate (4.66%) plus the equity market risk premium (5%) multiplied by the equity Beta of the E & P division (1.40). The beta we calculate with the comparables. The average equity beta in this industry is 1.15 and the average D/E ratio is 39.8%. With these information and the same formula as in question 3 we compute the asset beta

By using the company return and the Value Weighted Returns of the Market, we derived the companies’ levered equity betas and then unlevered them.

First, in order to facilitate the calculations, I referred to betas from Exhibit 9 and selected the value for Boeing calculated in comparison to the S&P 500 Index for the