Apply capital market theory

Reference no: EM133570453 , Length: word count:400

Managing Finance

Case Analysis

Learning Outcome 1: Apply the mathematics of finance to value financial securities, such as equities, bonds and money-market instruments.

Learning Outcome 2: Evaluate and compare the various sources and costs of financing available to an organisation.

Learning Outcome 3: Apply capital market theory.

Learning Outcome 4: Analyse and justify how organisations make investment and distribution decisions in order to maximise shareholder value.

Learning Outcome 5: Appraise financial risks and risk management concepts within the context of maximisation of shareholder value.

Assessment Task: The assessment is hinged on evaluating the student's ability to calculate risk and return metrics of two listed companies, determine their capital structures and weighted average cost of capital (WACC). It also investigates the extent of the use of Net Present Value (NPV) and Payback Period as capital budgeting techniques in any two of the OECD countries given, using journal articles published in the last 10 years.

Please refer to the Instructions for details on how to complete this task.

You are expected to apply yourself fully on this assessment in order to produce a draft that should be handed in for marking at the end of Week 9. It is viewed necessary to have this assessment in order to encourage students to commence early on Assessment 4 since the requirements of these two assessments are the same. The students will receive feedback from the Facilitator and should incorporate this in Assessment 4 if it applies.

Context:

For the period 1 August 2022 to 31 July 2023, inflation has generally been high in many countries including OECD countries. While, there has been some decrease in inflation in many OECD countries in the months of April and May 2023, core inflation has remained persistent. As a result, a number of OECD central banks have continued signalling a tighter monetary policy by increasing benchmark interest rates. This has put a significant burden on borrowers, among them mortgage holders.

It would be informative to check how the stock markets and share prices of a company listed on the Australian Securities Exchange and another on the London stock exchange (LSE) behaved in the 12 months from 1 August 2022 to 31 July 2023.

This assessment focuses on:

• Assessing the students' ability to compare financial and stock market performance of two companies
• Testing the students' ability to perform risk and return calculations based on historical stock prices of listed companies
• Identifying industry and company factors that could have contributed to good performance of the companies
• Determining the weighted average cost of capital (WACC) of the two companies and evaluating whether industry characteristics explain similarities or differences between them
• Assessing the students' ability to perform a comparative evaluation of the use of two named capital budgeting techniques in any two OECD countries from a list provided.

Instructions

You are assigned a pair of companies - one listed on the Australian Securities Exchange (ASX) and another on the London Stock Exchange (LSE) to analyse in order to address parts (a) to (f) below. The table of companies is in the Appendix.

(a) Compare the financial performance of the two companies using the two latest annual reports that you need to access from the company websites. You are required to use the following profitability ratios: Net Profit Margin, Return on Assets (ROA), Return on Equity (ROE) and the two investment ratios: Earnings per share (EPS) and Dividend yield.

(b) Using daily stock market prices and relevant stock market index values e.g. S&PASX300 for the companies listed on the Australian Stock Exchange (ASX), and the FTSE100 index for those listed on the London Stock Exchange (LSE), determine the daily stock returns, daily market index returns, arithmetic mean and geometric mean of the daily stock returns and index returns using data for the period 1 August 2022 to 31 July 2023. Please ensure that your chosen indexes are not what are called "accumulation indexes" as these include dividends.

(d) Using the latest Balance Sheets of the two companies, determine the capital structures of the companies and make a well-reasoned argument for similarities or differences in their capital structures. In your discussion you are expected to refer to the industries that they belong to and also to other factors that influence capital structures.

(e) Having determined the capital structure of the two companies and using other relevant information, calculate the weighted average cost of capital (WACC) of the two companies and explain why the two companies have different WACCs.

(f) Based on the calculations in Part (a) and Part (b), provide reasons why there could have been differences in financial and stock market performance between the two companies. You are expected to refer to company and industry factors.

(g) Using four articles from peer reviewed journals, published in the last 10 years, perform a comparative analysis of the use of Net Present Value (NPV) and Payback period as capital budgeting techniques in any two of the following OECD countries: Australia, France, USA, Germany, United Kingdom, Estonia, Italy, Canada, Greece, Japan, Iceland, Switzerland, Israel, Chile, Denmark, Belgium and Austria.

Consider the following as you work on this assignment:

• Data sources are annual reports, yahoo finance (au.finance.yahoo.com) especially for companies listed on the ASX, uk.finance.yahoo.com for companies on the LSE. You may use investing should you fail to get the required financial markets data from yahoo finance.

• You are expected to do calculations on an EXCEL Spreadsheet but the Assessment will be presented in a report format in a Word document. (See instructions below of how to embed an EXCEL file into a WORD document). Should you fail to embed the EXCEL document into the WORD document, you can upload the EXCEL document separately.

• Remember to cite, inside the text, the sources of information used. Also put the list of references at the bottom of the report.

• You will be assessed on how well you address the key questions in the assessments and how well you write the report.

• Ensure you strictly follow the Report Format and ensure you include an Executive Summary, Introduction and Conclusion that are properly written

1. Open your Assignment in Word and Click the "Insert" tab.

2. Click the "Object" button on the Text section of the ribbon. Click "Object" from the small dropdown menu.

3. When the Object window opens, click the "Create from File" tab. Browse to the Excel file containing your analysis in the directory where it is located and double-click it to embed it into the Word document.

Referencing
Use the APA 7th Edition Referencing style for citing and referencing research.

Note: Only two parts

Part C -200 words
Part G-200 words

Attachment:- Managing Finance.rar

Reference no: EM133570453

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