Month: September 2019

Corporate Finance Assignment

Instructions:

1. Download BOTH the Assignment Question file and Data file to complete your assignment.

2. Use Microsoft Word for the main assignment

3. Use Microsoft Excel wherever possible for numerical calculations and graphs/plots.

4. Copy and paste Excel outputs (e.g. plots, tables) into your Microsoft Word document (to protect the formatting of Excel output, use the “paste as picture” option in Word.

5. Submit the completed assignment (as a Word document) electronically via “Written Assignment Submission Point: Word Document ONLY” in the Assessment Task 2 folder.

6. Submit the Excel file used for calculations/estimations electronically via “Excel Workbook Submission Point” under Assessment Task 2 folder.

7. Keep a hard copy of the submitted assignment, in case there are problems with the electronic submission.

Important Notice:

  1. Any answer in the Excel document, but not in the main Word document will NOT be marked.
  • As this is an individual assessment, students should submit their own assignment. All assignments submitted will go through a matching process. If found to have cheated/plagiarised, all submissions will receive a mark of zero for this assessment item. It is up to you to keep your assessment confidential.

This Assignment consists of 4 parts. Attempt all parts.

Consider the following scenario:

You will be asked a series of questions to guide your analysis. You will need to manipulate the data to answer the questions below. Some Excel formulas are provided in the worksheet.

Part 1: Average returns [5 marks = 3 + 2 marks]

Compute the monthly return on the shares of each company and the ASX200 index by using the following formula:

where  is the share price (or the value of ASX200 index) in time period . (Please note that you lose the first observation when calculating returns.)

(a) Using the monthly returns, calculate the average return on shares of each company from February 2015 – December 2017. Compare them with the average return on the ASX200 index.

(b) Suppose an investor created an equally weighted portfolio of these five companies (i.e. invested 20% of funds in each company). What would be the average return on the portfolio? Explain how you derived your answer.

Part 2: Volatility [9 Marks = 2 + 2 + 5 marks]

(a) Calculate the standard deviation of returns for the five companies. What does the standard deviation tell us about the overall risk of these companies?

(b) Compute the standard deviation of the equally weighted portfolio of these five shares. How does it compare to the standard deviation of the individual companies?

(c) How does the standard deviation of returns of the ASX200 index compare with that of individual shares and the equally weighted portfolio? Provide a brief explanation.

Part 3: Beta’s [6 Marks = 3 + 3 marks]

(a) Based on the data provided find an estimate of beta for each company.

For this you will have to first calculate the covariance of a company’s returns with the ASX200 index. Use the following formula in excel:

Beta’s can then be calculated by

(b) Briefly explain why each company has high/low values of beta.

Part 4 Forecast & Investment strategy [10 Marks = 7 + 3 marks]

The research department of Tri-Star Management has come up with the following forecast of the share prices and the ASX200 index for the month of June 2018:

They have also concluded that in 2018, the annual risk free rate is going to be steady at 1.5%.  

(a) Based on the forecasts given above, write a short report for the clients of Tri-Star Management. Your report should be approximately 500 words long and contain: (i) an assessment of risk of each company, (ii) an evaluation whether a share is overpriced, underpriced or correctly priced and (iii) your recommendation regarding investment in these companies.

(b) Would you recommend the clients of Tri-Star Management to invest in an equally weighted portfolio of these five companies? Provide a brief explanation.

Derivatives Assignment

FIN672 Investment Analysis Deliverable Template                                                                             

Please answer – and in doing so, provide the data to substantiate – the following items in your deliverable for your assigned company.  This project’s main deliverable should not exceed eight pages, front & back, 12 font, double spaced (although you may include an appendix of any length or form necessary).

To simplify this assignment, you may want to follow the following template ….

To make this as straightforward and easy as possible, you may want to chat with and befriend the TA Emma …

This project is due in hard copy on April 23, 2019.  Please, do not wait until the last days of that week to begin this deliverable as I believe you will find it a little much to complete in a single setting.

  1. Download and provide the last five years income statements.

Download and provide the last five years cash flow statements.

Download and provide the last five years balance sheets.

Provide a short paragraph suggesting the story that is being told by each statement – for example, profitability, growth, abundant free cash, etc.

For these last five years, more importantly, provide the adjustments and/or calculations for the free cash flows needed for the Discounted Free Cash Flow (DCF) or more specifically, your Free Cash Flow to the Firm (FCFF) model, either is easily constructed as an addition to the income statement or as a separate statement starting the after-tax EBIT.  Highlight this.

  • Highlight the abbreviated forecast of the next five years income statement, explicitly – and only – providing any line items and explanations that are material to your investment story. The only line items I want / need to see are the critical ones to your forecast.

Highlight the abbreviated forecast of the next five years cash flow statement, explicitly – and only – providing any line item explanations that are material to your investment story.

Highlight the abbreviated forecast of the next five-year DCF or FCFF forecasts (i.e., year by year) and the normalized, constant growth calculation for forecast years 6 to infinity.   Again, highlight this.

  • Provide a DCF or FCFF model based valuation range, explaining in brief, your inputs. This range will serve as an “absolute valuation” metric and will be calculated by discounting your individual five year FCFF forecasts by a realistic WACC, discounting the constant growth by the WACC, subtracting out debt and dividing by shares outstanding.  Highlight this absolute valuation range.
  • Provide 10-year price/earnings, price/book, and price/sales charts, commenting on today’s relative valuation AND providing the forecasted P/E, etc. metrics that you selected to use in your forecasts.  For example, substantiate your P/E ratio and earnings per share forecast inputs that will provide your P/E valuation. These “relative values” will serve as range value inputs for your final valuation range.  Highlight this relative valuation range.

Note:  The DCF absolute value range will be combined with the P/metric relative value ranges to form a final range of value. For example, if the DCF suggests $38/share and the P/metrics suggest $34–37, your valuation range – combining the absolute and relative values – would be $34–38/share.

  • Discuss the important “systematic factors” (inflation, interest rates, industrial production, etc.) that you believe will drive this security’s return, explaining why you chose to include the ones that you did.  You may wish to supply a simple regression to prove your point (hint)….
  • Discuss the important “fundamentals” (profitability, growth, cash flows, etc.) that you believe will drive this security’s future return, explaining why you chose the ones that you did.  Comment also on the “embedded expectations” that you believe the market is focusing on (please recall that any good analysis is about understanding the embedded expectations in the market price and how those expectations change so as to drive a higher or lower price in the future).
  • Given your analysis, would you recommend a buy or a sell on this equity security?  Explain your recommendation in a “summary paragraph” that you would provide as an executive summary with your employer.  Highlight this in a single paragraph, seeking to make sure it is an accurate and complete storyline of your analysis.
  • Provide the duration, convexity, and yield to maturity of any fixed income instrument of this company that matures after 2025.
  • Provide the Black-Scholes valuation of any option of this company that expires within the next 12 months (please be sure to provide your inputs as well as a brief discussion of your volatility assumptions). Briefly compare your valuation (V) to that last price (P) traded in the market.

Assignment help for Economics

  1. Why might unemployment not lead to lower nominal wages?
  2.  [From 2004] The Chinese economy has been growing at 9% on average for a number of years.  Its currency is pegged to the U.S. dollar while its trade surplus with the rest of the world is large.  If the yuan were to float freely would it be more likely to strengthen or weaken versus the dollar?  What are the three effects you predict of a floating yuan?
  3. Describe a policy that will promote education in the Middle East.  Explain how this policy does or does not target incentives at the margin.  If you would like to focus your answer, feel free to make a response that applies to specific regions or groups.  State your assumptions if you are unsure of specifics; your grade does not depend on detailed knowledge of the Middle East.
  4. Chinese growth will be slower in the next 15 years than the past 15 years. [asked several times]
  5. While in class we focused on fixed vs. flexible exchange rates, many nations have intermediate cases.  For example, some nations have band, where rates are fixed plus or minus some percent.  For example, a nation may fix its rates at 10 pesos per dollar plus or minus 4 percent, thus fixing between 9.6 and 10.4 pesos per dollar.  In other cases the fixed rate has a crawl built into it: We fix at 10 pesos to the dollar, depreciating 1 percent per month.  Other nations combine the two: a band each month, with built-in depreciation over time.  What are the advantages and disadvantages of these hybrid systems compared to pure fixed rates?
  6. Pick a specific policy to promote growth in Uganda.  Defend that policy.  (Recall that a policy is not a goal such as “improve human capital” or “reduce corruption,” but sufficiently specific that someone could disagree with it.)  Point out at least one weakness of your proposal and a partial solution to that weakness. Note: You are welcome to state your assumptions about Uganda; there is no penalty for good analysis based on sensible, if imperfect, assumptions.
  7. [From 2015] Who are two likely winners if Greece exits the Euro?  Who are two likely losers? Explain each answer.
  8. What are two reasons to be optimistic about growth in China over the next decade?  What are two reasons to be pessimistic?
  9. Pick a major macroeconomic event in the past year not discussed in this exam, not in the United States.   Analyze it using the tools of this class. There is no penalty if you do not recall specific numbers.  Be sure you have a topic sentence (a claim) that is worthy of defending.
  10. “Probably the biggest danger is that overambitious hopes for economic growth are taken to justify excessively expansionary fiscal policies and unduly lax monetary policy. In the short to medium run, that might generate a boom and even secure re-election for Mr. Trump, as similar policies did for Richard Nixon in 1972. In the longer term, this could be hugely destabilizing. [Martin Wolf, 2017]
  11. Why might “overambitious hopes [that] justify excessively expansionary fiscal policies and unduly lax monetary policy” be “hugely destabilizing”?  Is this a major risk?  ‘Another set of risks [face] emerging economies. In particular, the impact of the Trump administration might be highly destabilizing, via rising interest rates and a rising US dollar.”  [Martin Wolf, 2017]
  12. Why might the Trump policies lead to “rising interest rates and a rising US dollar”?  How could a strong dollar and high-interest rates help or hurt emerging economies?