Assignment Detail:- FINC5001 Foundation in Finance - The University of Sydney
You currently work as a team at a major investment bank and have been tasked by the Investment Management Division -IMD- to analyse a stock that will be incorporated into a portfolio with other assets from the same market- You will need to prepare a professional business report that will be submitted to the Investment Management Division -IMD- that answers the questions proposed in this investment brief as well as a final recommendation-
Stock Details
Question 1- Select a publicly listed company that is a constituent of the S&P/ASX 300 index -Australia-, S&P 500 Index -US- or CSI 300 Index -China- that has at least 10 consecutive years of dividend history from 2012-2021- The selected company cannot be one which is listed on the last page of the Assignment instructions- Describe the company that you have chosen, so that the IMD has a comprehensive understanding of its operations and risks- -If the company did not pay dividends in 2020 due to COVID-19 but paid dividends in every other year, including 2021, this will be allowed-
Question 2- Find three news articles from the last 4 weeks about your chosen company and briefly summarise each article -1-2 sentences-- Briefly explain how the event-s- detailed in the news articles have affected your company-
Question 3- List the Global Industry Classification Standard -GICS- sector, industry, and sub-industry for your chosen company- List one other public company that is in the same sub-industry as your chosen company and briefly describe its operations- This competitor does not have to be listed in any of the indices nor is subject to the restrictions in part 1-
Question 4- Present a table of a current "stock quote" with the following characteristics: -1- CurrentPrice -2- 52 Week Range -3- Market Cap -4- Beta -5- P/E Ratio -6- EPS -7- Earnings Date-8- Forward Dividend and Yield, -9- Ex-Dividend Date, and -10- 1 year Target Estimate for both your chosen company and competitor- Define, interpret, and compare each characteristic for your IMD-
Question 5- Compare the P/E ratio of your chosen company and the competitor to the average P/E ratio of the industry of your chosen company- Compare these number with the average P/E ratio of your chosen stock market index as well- Discuss in detail-
Summary Statistics and Risk Characterisation
Question 6- Calculate the annual returns -from January 1st to December 31st for each year- for the market index that your chosen company belongs to for the last: -i- 5-year period, -ii- 10- year period, and -iii- 20-year period- Calculate the average annual return and standard deviation of annual returns over these 3 time periods using both the arithmetic and geometric averages -for the standard deviation, you can use just the arithmetic average-- How have these values changed over time???? What do these changes mean for the average investor???? Discuss in detail-
Question 7- List the current Government bond rates of the following maturities: -i- 1-year, -ii- 5-year,-iii- 10-year, -iv- 20-year, and -v- 30-year- List and graph the 10-year government bond rate over the time period 2010-2021- How has the 10-year rate changed over this period???? Why do you think this has occurred???? Do you think the 10-year rate will go up or down in the future???? Discuss with references to the appropriate academic literature-
Question 8- Calculate the annual returns -from January 1st to December 31st for each year- of your chosen company from 2012-2021- Annualise all dividends paid out- Calculate the average annual return and standard deviation of annual returns from 2012-2021 using both the arithmetic and geometric averages -for the standard deviation, you can use just the arithmetic average-- How has your company performed over this period???? Do the arithmetic and geometric averages differ for your company???? Why or why not???? Interpret these numbers for your manager-
Question 9- Calculate the annual beta for your chosen company returns using the annual returns from 2012-2021 along with the annual returns and standard deviation of your market index- Compare your calculated annual beta with the beta found in your stock quote- Are these values the same or different???? Explain and discuss why they may be similar and/or different- Calculate the annual beta for the subperiod between 2012-2019 -pre-COVID-19- and compare this number with your other betas- Compare and discuss the stability of your beta values with references to the appropriate academic literature-
Question 10- Graph and compare the annual returns and standard deviation of your company with the market index- Discuss and relate this comparison to your company's beta-s-- Does your beta calculation explain your company's returns with respect to the market???? Explain in detail why this may or may not be the case-
Question 11- Using the Capital Asset Pricing Model -CAPM-, calculate the required rate of return on equity for your chosen company using all the different government bond rates in part -7-, as proxies for the risk-free rate- Select one of the annual return calculations calculated in part -6-, as a proxy for the expected market returns and justify your choice- Discuss how appropriate your choices are as proxies for the theoretical values in the CAPM equation-
Growth Rates and Valuation
Question 12- Estimate the growth rate of your chosen company's cash flows by using the following three methods:
-a- Calculate and list the annual growth rates for dividends from 2012-2021 -For any years within your sample with anomalous dividend growth rates discuss why this might have occurred- If your company did not pay dividends in 2020 due to COVID-19 just use the dividends in the prior year as a proxy-- Calculate the arithmetic and geometric average annual growth rate of dividends over this period- Also calculate the arithmetic and geometric average annual growth rate of dividends for the subperiod between 2012- 2019 -pre-COVID-19- and compare the values- Do you think your company's dividends will grow at these rates for the foreseeable future???? Explain in detail why or why not-
-b- Calculate and list the annual growth rates for net income from 2012-2021 -For any years within your sample with anomalous net income growth rates discuss why this might have occurred-- Calculate the arithmetic and geometric average annual growth rate of net income over this period- Also calculate the arithmetic and geometric average annual growth rate of net income for the subperiod between 2012-2019 -pre- COVID-19- and compare the values- Do you think your company's net income will grow at these rates for the foreseeable future???? Explain in detail why or why not-
-c- Using the formula g = b * ROE, calculate and list the growth rates, plowback ratios, and ROE for the time period between 2012-2021 -For any years within your sample with anomalous plowback ratios and/or ROE discuss why this might have occurred-- Calculate the arithmetic and geometric average annual growth rate over this period
-remove any rates that are negative from your sample-- Also calculate the arithmetic and geometric average annual growth rate for the subperiod between 2012-2019 -pre-COVID-19- and compare the values -remove any rates that are negative from your sample-- Do you think this method of calculating growth rates is useful for valuation???? Explain in detail why or why not-
Question 13- Using the Discounted Cash Flow -DCF- models you have learnt in FINC5001, determine the intrinsic value of your chosen company using an appropriate required rate of return -from part 11- and -a- growth rate-s- -from part 12-- Justify the choices and assumptions you have made in undertaking this calculation in detail and why you did not choose any other values instead- Discuss why you chose your valuation model and its key assumptions and why you believe your chosen rates satisfy these assumptions- When do you think the GGM is preferred to a two-stage or multi-stage growth model and why???? Explain- -If you make deviations from the choices in part -11- and/or part -12-, clearly justify why you made these changes and why these new values are more sensible for this analysis--
Question 14- Draw a cash flow timeline -like discussed in the Modules- of your company's future dividends -implied by your valuation model in part 13- to support the discussion above-
Question 15- Calculate the Present Value of Growth Opportunities -PVGO- for your chosen company using the current stock price- Interpret this value for your manager-
Question 16- The values that you have utilised in part -13- represent only one possible set of choices for a valuation model- Determine the intrinsic value of your chosen company using a range of values -+1 and -1 for your growth rates and +1 and -1 for your discount rate-- You should have a total of 9 intrinsic value calculations like the table below:
g/r
+1
0
-1
+1
0
Base Case
-1
For example, the top left slot would calculate an intrinsic value using both a growth rate and required rate of return that is 1% higher than your chosen rates in part -13- -for any negative calculations just put N/A--
Recommendation
Question 17- Using the DCF analyses performed in parts 1-16, make a detailed recommendation for your chosen company as to whether to buy, sell or hold this stock- Along with your valuation model, you should use any relevant information about your chosen company, competitors, its industry, and the economic outlook to justify your recommendation- Detail the limitations of your analysis and assumptions as well as incorporate the sensitivity analysis done in part 16 and what this analysis adds to your valuation- A well- justified recommendation properly connects outside information on how it relates to your valuation model via dividends, cash flows, growth rates, discount rates, and other financial factors- Remember, you are trying to present a report that convinces the IMD that you have done a thorough and detailed analysis of your chosen company- The recommendation must be cohesive and consistent with the analyses performed in the sections above-
Peer evaluation
• List and date all your data sources- Depending on the day and time with which you collect the data, this will be different- For each set of data used in the report, present a screenshot of this data in the Appendix-• Justifications in the report should be made with references to appropriate academic literature-• The Excel workbook needs to be properly formatted and appropriately labelled such that the instructors can read, interpret your calculations, and replicate all results presented in the report without assistance-
Attachment:- Foundation in Finance-rar
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