Description

Plagiarism: 

When submitting work for assessment, students should be aware of the InterActive/Canvas guidance and regulations in concerning plagiarism. All submissions should be your own, original work.

You must submit an electronic copy of your work. Your submission will be electronically checked.

Learner declaration

I certify that the work submitted for this assignment is my own and research sources are fully acknowledged.

Student signature: Date: 

Harvard Referencing:

The Harvard Referencing System must be used. The Wikipedia, UKEssays.com or similar websites must not be used or referenced in your work.

Introduction

This is an individual task and all components are mandatory to be attempted. 

Students are required to focus on explaining the concepts and analyzing the results. Number calculations are considered as contributing factor for analysis. Therefore, you can imagine around 30% weightage given to calculations and remaining 70% to your explanations and analysis wherever appropriate. 

The reference list is appended in the course outline; however, the list is not exhaustive, and you will need to complete further research using ProQuest to complete individual tasks.

The individual performance and grading are according to BSBI’s grading criteria where additional marks will be awarded for juxtaposition of your answers. 

Learning Outcomes: 

1. Analyze capital structure for corporation and suggest changes in the capital structure by contemplating various aspects related to sources of finance like risk, return, and associated costs.

2. Employ risk and return theories to estimate the expected return for chosen asset classes and making sensible business investing decisions. 

3. Evaluate companies’ payouts and possible motivations of such payouts to make an informed investment decision by ruling out any movement in stock prices due to these payouts.

4. Value companies’ bonds and shares and employ these learnings to calculate company’s weighted average cost of capital to use these fundamentals in company’s valuations.

5. Derive feasibility of an investment company by using various investment appraisal techniques.

Assessment Criteria: Weighting 100% 

Written Report: 2,500 words 

Tasks:

(Please note that theory, explanation, analysis will contribute 70% weightage where appropriate and number calculations will only be allocated 30% for each given task)

Task 1: 20 Marks (LO3)

Review financial statements of Ford Inc. and state stakeholders of Ford. State the measures Ford is taking to ensure adequate Corporate Governance and the institutional arrangement for addressing Principal Agent Problem. Also, suggest impact of payout policies on Agency theory (Guidelines: Review Ford’s type of business organisation, various stakeholders, who manages and who are the owners, the ways managers ensure adequate reporting to owners).

Task 2 (30 Marks) (LO2)

You need to have an accumulated savings of $2 million by the time that you retire in 20 years. You currently have savings of $1million (5 Marks)

Choose a security from finance.yahoo.com that helps meeting your investment objective (10 Marks). 

Following above, list 5 securities that you have considered/ researched that you have researched for answering part b (5 Marks).

Could you suggest a two-asset portfolio that helps meeting your objective but minimizing risk (10 Marks)?

Task 3 (50 Marks):

Ford Inc. is a US listed company. Refer to the most recent audited Balance Sheet and Income Statement of the company

Being the finance manager, you are required to prepare a cash flow forecast for using the Discounted Cash Flow (DCF) approach and come up with a meaningful estimate of its share price.

In addition to the financial statement data, the following is the relevant information is also available about the business:

·         Forecast period: 5 years

·         Revenue growth from next year onwards: 10%

·         Expenses/Sales ratios for forecast period to be same as average expense/sales ratio for last three years

·         Tax rate to be computed as %EBT of last year and is to be continued for forecast period

·         Forecast change in working capital to be same as difference of working capital for last two years

·         Forecast depreciation to be same as last year’s depreciation

·         No additional capital expenditure to be made during the forecast period

·         Weights of debt and equity to remain same as those of last year

·         Beta of the stock to be computed using the share price and Nifty index data for last three years also provided in the excel document. Necessary adjustments to be made in the beta computation.

·         Risk-free rate, Rf: 6%, Market Return, Rm: 8%

·         No of Shares outstanding: 1,126,490,211

·         Terminal growth rate: 4%

Compute the following (10 marks each):

      i.        Beta of the Ford stock (LO2, 4)

     ii.        Weighted average cost of capital of the company (LO1, 4)

    iii.        Terminal value of the projection period (LO5)

   iv.        Enterprise value of the firm (LO1, 5)

    v.        Implied share price as per your calculations (LO1, 5)

All information necessary to estimate Ford’ WACC can be found in the annual reports. Make sure you clearly describe and reference the source, including page numbers, of the information used in your calculations. If you would like to use an additional approach that requires external information, you should provide details of these additional sources and your reasons for using them.

In addition to your numerical work, you should provide an explanation of your methodology and justify your choice of inputs in the WACC formula.

Remember to show all your calculations in detail.

Note: this question is not just testing your ability to derive a WACC; it is also looking at your understanding of which financial information is relevant for the calculations and how to deploy it. Not all information provided in the assessment resources folder is needed to answer this question.

Instruction Files