2201AFE: Case Study on Corporate Finance - Accounting and Finance Assignment Help

Assignment Task:

Task:

This assignment consists of two parts, total marks 100, weights 50%. This assignment will be due at 11:59 pm, Sunday, week 12. In the Part A, you will select a public firm listed on the ASX 300 and you will prepare a report to research the selected company from TWO perspectives: (1) Corporate governance of the company, (2) risk and return relationship of this company’s shares. In the Part B, you will prepare a business-style response to a hypothetical but realistic situation and make recommendations on which project should invest in. Each performance task includes information detailing your role, a scenario, and a task to which you are required to respond. Please note, the company you have selected is used for Part A only. For Part B, a scenario is given for your analysis.
Word limit – 2000 words for Part A and 1500 words for Part B excluding graphs and Tables.
You will have a Google Doc available for registering selection of your company. Once a student has selected a company that company cannot be selected by another student.
This is an individual assignment
Submit your response in one Excel file and one Word file. The Excel worksheets should contain the calculations and workings, while the Word file should contain reports where you present the findings, considerations, recommendations, conclusions or any other issues relevant to each task.
Part A: Case study report for selected company (Total 60 marks)
The purpose of this case study is to allow students to take some of the main concepts introduced in the course and provide a framework for applying them to a company of their choosing. One of the best ways of learning corporate finance is to apply the models and theories we encounter to the real-world contexts and problems. You will:
Task 1: Evaluate the company corporate governance (20 marks)
Task 2: Evaluate stock price, and estimate the impact of an important announcement on its stock prices (40 marks);
Scenario
You have recently started an internship position with Griffith Best Equity Management (GEM), a large asset management company with A$750 million Assets Under Management located in Brisbane CBD. The company’s core investment focuses on domestic share market, however, investments in share markets have provided lower than expected returns in the recent years.
GEM’s Chief Investment Officer (CIO) has assigned you to perform an investment appraisal on a single company listed on the ASX300 and provide recommendation if the company analyzed should be included as part of GEM’s investment.
Your personal values and experiences are important, you should base your response on the evidence provided in these tasks along with your knowledge gained in the course. It is important that you provide clear evidence of your ability to apply your knowledge of finance as learned in the course to the task. The CIO has requested that your analysis must be up-to-date analysis with at least 3 years of data.
Your report must address the following issues, the first four issues are related the corporate governance (task 1), and the fifth issue is related to the share price analysis (task 2):
A brief description of the company analyzed
Information of the CEO of the company
The Board of Directors of the company
Societal Constraints
Analysis of company’s share price using
the Dividend Discount Model (1-stage and 2-stage). You will determine if the share price is priced fairly or over/under-valued.
News/Announcement effect on company’s share price. You will investigate the speed of share price adjustment to these announcements using graphs. You will discuss the share performance over the last 3 years, showing the major events (announcements) in the life of the company and discuss how these events (announcements) have impacted the share price.
On the same chart, present the performance of the major competitor and the market for comparison.
You will need to show calculations for 5 (a), (b), (c) and a graph for (d)
Your current internship position is under 3 months’ probation period. Upon completing the task on hand, your department secretary will arrange a meeting with CIO to discuss whether you have passed the probation period and be promoted to a Junior Corporate Finance Analyst.

• Guidance for Part A
• Task 1: Corporate Governance (20 marks)
• The CEO (5 marks)
• Who is the CEO of the company?
• How much did the CEO make last year?
• What form did the compensation take (salary, bonus, options)?
• How much equity in the company does the CEO own?
• The Board of Directors (5 marks)
• Who are on the board of directors of the company?
• How long have they served as directors?
• What is their remuneration?
• How many of the directors have other connections to the firm (as suppliers, clients, customers, etc.)? Are they independent?
• How many of the directors are CEOs of other companies?
• Do any of the directors have large stockholdings?
• Financial Market Considerations (5marks)
• How widely held and traded is the stock?
• Do many analysts follow the firm?
• How much trading volume is there in this stock?
• Societal Constraints (5 marks)
• How the firm addresses the issue of Corporate Social Responsibility?
• Does the firm have a particularly good or bad reputation as a corporate citizen?
• If it does, how has it earned this reputation
• Task 2: Evaluate stock price, and estimate the impact of an important announcement on its stock prices (40 marks)
• Evaluate stock price, and estimate the impact of an important announcement on its stock prices
• Stock beta: Download 3 years of weekly stock returns and ASX300 market index returns ending December 2020 from Yahoo Finance and estimate the stock beta. Does the estimate of stock beta make sense to you? (The normal range of beta is from 0.5 to 3.) Provide reasoning, why or why not? If not, you have to use the stock beta from Yahoo Finance for the later parts. (10 marks)
• Estimate the Cost of equity, using the CAPM return. Assume the market risk premium, Rm-Rf=6%, and use the current 10-year Government bond yield for the risk-free rate. (5 marks)
• DPS is the total annual dividend per share paid for the financial year. Based on the previous 5-year pattern of DPS payments, estimate the intrinsic values using 1-stage models (the constant dividend growth model), and the 2-stage non-constant dividend growth model. Please use the 10-year Government bond yield as the Dividend growth rate in the equilibrium stage. You need to choose which model is the most appropriate one to use, and compare the intrinsic value versus the share price as of November 2020 (‘current price’). Would you recommend to buy or sell the shares in November 2020? (15 marks)
• You will study an announcement in 2018-2020 from this company from ASX 300 firms (https://www.asx300list.com/). The announcement can be a new product, a scandal, an earnings announcement, a change in strategy, etc. What is your expectation of the market reaction to the announcement, good or bad news? (2 marks)
• Please download the daily stock prices from one month before to one month after the announcement date, and compute the cumulative holding period returns and plot them in a graph. (5 marks)
• Cumulative Holding period returns = [(1+r1)(1+r2) (1+r3)…( 1+rt)]-1
• Note: The holding period return is NOT the usual weekly return you calculated
• Discuss the following aspects: Does the stock price react quickly or slowly to the news announcement? How does it relate to the theory we learned in class? (3 marks)
• Choice of Company
• You can choose any company from ASX300 list (except for TPG) that has been listed on the stock exchange for at least 3 years, and with positive earnings and positive dividend for the 2019/2020 financial year.
• A complete submission to Learning@GU/SafeAssign consists a Word file, an Excel file, and should include the following:
• All input variables, such as risk-free rate, the market risk-premium, dividend growth rate, etc, and
• all computations such as the beta estimate, cost of equity, intrinsic value, Analyst Expected Return, RRR, etc. Please put all input variables in an input box.
• Font size: 12 of Calibri, Arial or Times New Roman
• Margins: minimum 1 cm on the top/bottom and right/left.
• NOTE:
• If Bloomberg is not available, you may use https://au.finance.yahoo.com/ to download all historical stock price data required.
• All submissions need to be clearly structured and calculations need to be clearly laid out.
•  
• Company TPG (2016 Dec.) Example
• Assume Rm-Rf=6%, beta=0.547, Rf=2%,
• DPS0= $0.2071, P0= $7.41
• CAPM R= 2% + 0.547*6% = 5.28%
• FYR=201220132014201152016
• Dividend=0.07860.10710.13220.1643 0.2071
• growth=0.36260.23440.24280.2605
• geometric av. growth last 3 years = 0.2458
• 2-stage DDM model:
• g = 0.2459 for 3 years; g =Rf = 2% afterward
• Intrinsic value = D1/(1+R) + D2(1+R)2 + (D3+P3)/(1+R)3
• = 0.2071*1.2459/1.0528 + 0.2071*1.24592/(1.0528)2 + (0.2071*1.24593 +
• 0.2071*1.24593*1.02/(0.0528-0.02)) /(1.0528)3
• = 11.55vsStock Price___________
• => under-/ over- priced
• Appendix 1: 1-stage and 2-stage models on valuation:
• TPG
• Rf 2% Rm-Rf 6% Beta 0.547 P0 (2016 Dec) 7.41 Target price 10 CAPM (R) 5.28% EPS 0.45 2-stage DDM model: Ex-Div. Date Amount Annual Div. Growth Geom. Avg. Growth
• 10/17/2016 0.1071 0.2071 0.2605 0.2458
• 04/18/2016 0.1 10/9/2015 0.0857 0.1643 0.2428 4/10/2015 0.0786 10/10/2014 0.0679 0.1322 0.2344 4/9/2014 0.0643 10/9/2013 0.0571 0.1071 0.3626 4/10/2013 0.05 10/10/2012 0.0393 0.0786 4/11/2012 0.0393 Div. growth rate First 3 years 24.59% Afterward 2% Year 0 1 2 3
• DPS 0.2071 0.2580 0.3215 0.4005
• P3 12.4554
• Intrinsic value= $11.55 1-stage DDM model: Constant growth model g=2% Intrinsic value= $6.44
• Excel Layout
• -453389187515500556641046945540054114705010150Beta
• 00Beta
• 1333533210500-7200901602740Stock
• Return
• 00Stock
• Return
• Note that this sample used the weekly stock prices-8001001193165Stock Holding Period Return
• return
• 00Stock Holding Period Return
• return
•  
• -30215018481300
• Announcement Effect
•  
• Part B
• This assignment is worth 40 marks in total and is composed of one practical task, each worth 40 marks. For each task the marks are allocated as follows:
• - Analysis 18 marks (correct calculation/workings and application of models/techniques)
• - Report 16 marks (relevant arguments, key points identified and recommendations)
• - Presentation 6 marks
• In this assignment, you will prepare a business-style response to a hypothetical but realistic situation. For the performance task, it includes information detailing your role, a scenario, and a task to which you are required to respond.
•  
• Task: Multi-chem
• Role and Context
• You are a financial analyst in the capital projects department of Multi-chem, a specialty chemicals producer of fire-control chemicals, additives, and pesticides based in Queensland. Currently, Multi-chem is small in scale, but embarking on a rapid expansion and modernization program. It is also expanding its range of products into dyes, rubber compounds, and water treatment chemicals. While Multi-chem has a large and expanding capital budget, it is currently considering which of two possible projects it should invest in, both of which would be used to manufacture furfural (an organic compound derived from agricultural by-products) and furfural-based derivatives to make resins, urethanes, and refining solvents over a 10-year operating period.
• Scenario
• The first project, the Manila Plant, is a proposed new plant in the Philippines, about 30 km outside the capital. Multi-chem has been considering this expansion for a number of years and believes that the combination of low wages, looser environmental protection, and proximity to its emerging markets in SE Asia will makes this new plant an attractive addition to its existing facilities. Specifically, in 2021 the Manila Plant will require the purchase of land for $2.5 million, with development and construction building costs of $13.5 million, and plant and equipment of $6 million. Multi-chem will also need to spend on working capital each year. The change in net working capital is estimated to be 4% of sales every year during the life of the project (the exception being the last year of the project which reverses the sum of all previous cashflows due to working capital). Sales are estimated to be $48.6 million in 2022, the first year of production, increasing by 10% per annum after that. The cost of goods sold is 65% of sales. Fixed costs will be $11.5 million in 2022, increasing by 5% per year. Both buildings and plant/equipment will be depreciated straight line to zero over the 10-year project life. The buildings will have a salvage value of 20% of cost and the plant and equipment will have no salvage value. At the end of the project, Multi-chem will rehabilitate the site and sell the land for light industrial development for $18.1 million. The company tax rate in the Philippines is 25%.
• The second project, the Cairns Plant, is a modification of an existing plant Multi-chem already owns in the city of the same name in north Queensland. The Cairns Plant has been idle for a number of years, but with renovation would be well suited to furfural production. If not used for the proposed project, Multi-chem will lease out the existing plant for $70,000 per year. The estimated development and construction building costs will be $15 million in 2021 alongside plant and equipment investment of $5 million. Multi-chem will again need to invest in working capital, thus the change in net working capital is estimated as 4% of sales every year (the exception being the last year of the project which reverses the sum of all previous cashflows due to working capital). Sales will be $45 million in 2022, increasing by 7.25% per annum thereafter. Given the relative geographic isolation of the plant and the stricter environmental controls given the proximity to the Great Barrier Reef, the cost of goods sold will be 75% of sales. Fixed costs will be $5 million in 2021, increasing by 5% per year. Both buildings and plant/equipment will again be depreciated straight line to zero over the 10-year project life. The buildings will have a salvage value of 30% of cost and the plant and equipment will have no salvage value. At the end of the project, the Townsville Plant will again revert to being idle awaiting potential future developments at no cost. The company tax rate in Australia is 30%.
• Task
• Provide a report to Multi-chem’s CFO, Ms. Mary Miller, recommending which of these two mutually exclusive projects Multi-chem should invest in, if any. Your recommendation should be supported by appropriate calculations. Assume Multi-chem has a cost of capital of 12.5% for domestic projects and 16% for international projects.

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