MAN7MFI: Management Finance and Science - University College of Estate Management - Report Writing Assessment Answer

Subject Code: MAN7MFI Internal Code: 1AIECE

Report Writing Assessment Answer

Assignment Code: MAN7MFI Task 1 Galliford Try plc is one of the UK’s largest construction companies and is listed on the London Stock Exchange in the top 250 companies. It specialises in housebuilding, construction and regeneration. You are provided with the following information:

• The company’s website: www.gallifordtry.co.uk/investors/reports-and-presentations/2018
• Historic share prices for the company: https://uk.finance.yahoo.com/quote/GFRD.L/history?p=GFRD.L

Please ensure these are referenced correctly if used and include your answers to each of the following points as separate sections in your report.

1. Download the historical share prices for Galliford Try plc for the period 1 January 2018 to 31 December 2018. Calculate the daily returns based on ‘close’ prices.
2. Please note that the daily return is calculated as the close price at the end of the day minus the close price for the preceding day and this is then divided by the close price from the preceding day and expressed as a percentage. This can be expressed in an equation, or formula, as (P1 – P0) / P0, where P1 is the close price today and P0 the close price for the preceding day.

Plot the daily returns for the year 2018 (around 250 observations) and calculate the descriptive statistics (range, mean, mode, median, variance and standard deviation).

1. Now repeat this operation (as described in part a) for Bovis Homes plc.
2. It is argued that the standard deviation is a good measure of investor risk.

Explain why this is the case using the above statistics for Galliford Try and Bovis Homes, to illustrate your case.

1. Consider the situation that Galliford Try plc is in with relation to the market place.

There are many variables that affect their revenues, but the precise relationship is unclear. Some of these (variables) are shown below (data set A and B) Using the close share price data from Galliford Try plc, and two other data sets taken from the lists below (one from A and one from B), produce a diagram (one diagram not two) that shows a correlation between these two sets of data and the close share price data. Data Set A (choose one data set)

• Unemployment/employment
• GDP /GNP changes
• CPI changes
• Consumer debt changes

Data Set B (choose one data set)

• UK house prices
• Average earnings
• Effective Exchange rate
• Exchange Rate £: Euro

1. Calculate the correlation coefficient (r) in each case and comment on the strength of the relationship between the data set A and the close share price and the data set B and the close share price. This data set should be for 12 months and can be for any time interval you choose – e.g. daily, weekly or monthly data.
2. Now taking this new data from parts c), d), and e) above, explain it’s meaning to the company in terms of its statistical significance and practical importance, in the short and long term, to Galliford Try plc.

Task 2 Investment appraisal Galliford Try plc is currently considering investing in a new construction venture, the projected details are shown below. In this case, the company can invest in only one of the projects.

1. Prepare a new section in your report on the planned investment that uses Payback, NPV, ARR and IRR methods, that unambiguously chooses one of the four possibilities presented (P, Q, R or S) and explains this choice to the readers of the report.
2. The section should also include a commentary on the risks of the project based upon this data together with an explanation of your choice of the discount rate.

Additional information:

• The residual value for each project at the end of its life is £2m, £10m, £15m and £18m respectively, and should be added to the year 5 net cash flow.
• The figures above assume 0% inflation, whereas inflation is actually forecast to be 3% a year.
• As the organisation’s tax situation is fluid you are to ignore tax for this project.
• The table shows the net cash inflow or net cash outflow (-) for each project.
• The company received no capital allowances in the year and depreciates non- current assets over five years (straight-line method).

b. The Directors of the company are very interested in funding possibilities and are divided between debt and equity funding for this project. Explain the issues as you see them for the stakeholders in Galliford Try plc. Consider which source of funding should be pursued and what the effect would be on the capital structure of the company.

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