IB9MML: Financial Management - Report Writing - Accounting and Finance Assignment Help

Assignment Task

Risk and return on equity of AG Barr Plc and Britvic Plc

Freshly armed with your new Warwick MBA, you have recently joined an executive recruitment firm that specialises in advising and placing senior managers in the drinks industry. One of your clients is currently considering an offer of a senior post at AG Barr Plc when a similar post comes up at Britvic Plc (the companies have a long history of competition and rivalry). Both posts carry similar salaries and share option packages. Your client has some time to respond to AG Barr Plc so is interested to learn more about both companies. She has commissioned you to write a report on comparing the two companies in terms of equity risk and return. Using monthly prices between October 2017 and August 2022, you compute the historical return and volatility of the two stocks. In order to round up your analysis, you also estimate the two stock’s betas based on their correlation with the FTSE 250 Share index.

Required

Using the stock return analysis and a background check on the two companies, write a report that summarizes your thoughts concerning which company is a better investment opportunity when considering the risk-return trade-off.

Consider the following issues:

Pay attention to differences between volatility and betas when considering the risk-return trade-off. Describe what type of risk they measure.

Provide interpretation for the estimated betas given the two firms operate in the same industry. Why would betas of two firms in the same industry differ?

Compute the rate of return you require for investing in these two stocks. It may be convenient to assume that the expected risk-free rate is 0.7% and the expected market risk premium is 5.6%. Which stock has higher required rate of return and why? How is the required rate of return related to the average return computed based on the historical monthly returns? How does this relate to your decision to invest in the two stocks? Discuss your decision to invest in one of the stocks in the context of portfolio diversification. Are historical data suitable for judging future performance for these two stocks?

Notes on the data, your analysis and your submission.

Use adjusted monthly closing prices from Yahoo Finance that consider dividends and stock splits. The tickers are BAG.L for AG Barr Plc and BVIC.L for Britvic Plc. The ticker for the FTSE 250 index is ‘^FTMC’. The data is posted on my.wbs under individual assignment.

Please do not forget to calculate monthly returns from the downloaded prices before running further analysis.

You can use functions built into Microsoft Excel (like ‘average’, ‘stdev.p’, and ‘covariance.p’). Before using them, make sure that you understand what these functions do. It is perfectly fine not to rely on these or other functions but to base your analysis on your own calculations in Excel instead.

Your clear and concise report should consider the overall assignment word limit.

Your reports should be submitted in one pdf document. Any spreadsheet work, e.g. tables, diagrams, calculations etc should be copied and pasted into the report or appendices.

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