Reference no: EM132584084

FINA2006 Principles of Finance - Laureate International Universities

Learning Outcome 1: To apply the mathematics of finance to determine risk, return, evaluation of investment, financing, working capital and distribution

Instructions:

You are provided with two case studies. You are required to prepare solutions to the two cases in an Excel format. In addition, using results of calculations from Case 1 and Case 2 prepare a PowerPoint presentation of 10 slides covering risk, return and valuation information to make a recommendation as to whether investing shares of any one of the two companies under consideration is worthwhile or not. The length of presentation should not be more than 15 minutes.

Questions for the Assignment and Individual Presentation

Case study 1 (Valuation of stocks):

You are an analyst employed by BT Wealth Management Limited, a fund management firm operating in Melbourne's financial district. You have been approached by Ashford Masawi who recently inherited $20 million dollars from his late aunt's estate. Mr Masawi is considering investing all his funds in one stock chosen from any one of the following sectors of the All Ordinaries Index of companies on the Australian Securities Exchange: transportation, consumer durables & apparel, and banks. He does NOT want you to select across sectors but whatever sector is picked, choose any two stocks listed in the ASX and then perform calculations to determine which one of them would be suitable for your client.

Using the annual report of either 2018 or 2019 and yahoo finance complete the following table for each of the two companies. Information to be extracted from the annual reports should include the followings:

Requirements:

(1) Perform the following calculations:
a) market value of equity-to-book value of equity ratio
b) return on equity (ROE)
c) dividends per share
d) sustainable growth rate per annum
e) intrinsic value per share assuming a required rate of return of 14%

(2) Which stock will you recommend for Mr Ashford Masawi to invest in. Justify your decision. You may consider any publicly available information.

Case study (Risk and return)
This case requires you to perform calculation on risk and return using company data for the company that you recommended in Case 1 above Collect the monthly prices of stocks of X Ltd and monthly prices of S&P/ASX 200 (^AXJO) over the period 1 July 2014 to 30 June 2019.

Using the price data, perform the following calculations and suggest on the suitability of investing in stocks of FMG Ltd:

1. Monthly returns from stocks of X Ltd

2. Yearly returns from stocks of X Ltd

3. Average yearly returns over the five years from stocks of X Ltd

4. Monthly returns from ^AXJO

5. Yearly returns from ^AXJO

6. Average yearly returns over the five years from ^AXJO

7. Total risk associated to investment in X Ltd (perform one calculation using 60 monthly returns)

8. Total risk associated to investment in ^AXJO (perform one calculation using 60 monthly returns)

9. Systematic risk of stocks of X Ltd (perform one calculation using 60 monthly returns)

10. Unsystematic risk of stocks of X Ltd (perform one calculation using 60 monthly returns). On the basis of the above calculations do you think X Ltd is a good investment?

Assessment 2

You are to pick two companies in the same industry listed on the Australian Securities Exchange (ASX). The industries are restricted to: transportation, consumer durables & apparel, or banks. You can access the official list of all companies at: then look at the last column on the page to identify the specific industry.
One you have picked the two companies, you will then go to Yahoo Finance to download the necessary data for Case Study 2. You will also need to download both companies' annual reports for 2019 (note that the 2020 reports are not available yet, and you should only use 2018 reports if you cannot find the 2019 reports), then abstract the necessary data for Case Study 1.

Case Study 1
You should replicate the table in Excel and perform the required calculations. There is no set format for the answers or the number of decimal places to keep, however you should make sure the marker is able to follow the steps/calculations in the submitted Excel file. You will then provide your recommendation on which stock to invest in. In providing the recommendation, obviously whether you have $20 million or just $1 to invest makes no difference, your conclusion should be primarily based on the data and the calculations, plus any other publicly available information that you consider relevant. Note that you must recommend one and only one stock to invest in. Your recommendation should be typed in Excel following the calculations. Again, make sure the marker can easily follow your answers.

Case Study 2
You must go through the two additional files uploaded on BlackBoard: ‘Guidelines for risk and return calculations', and ‘An example of risk and return calculations helpful for Case Study 2'. You will not be able to even start on Case Study 2 if you do not go through these two files. You will then again go to Yahoo Finance to download the necessary data, including the S&P/ASX 200 index.

In completing Case Study 2, you must follow closely the Excel example, including the format (An example of risk and return calculations helpful for Case Study 2). Failure to do so will result in a loss of marks.

Assessment 3
Based on your analysis in Assessment 2, you will prepare a PowerPoint file containing exactly 10 slides, to be presented to a client who is seeking financial advice on investing in either one of the two stocks you have picked earlier. You should draw upon the data and calculations from Assessment 2 in designing your PowerPoint slides. Very importantly: the oral presentation part is now removed. That is, the client will only look at your PowerPoint slides, so the 15 minutes presentation timer no longer applies. Obviously, this is due to the current COVID-19 situation and the fact that it is simply infeasible for the client to listen to each one of you presenting for 15 minutes.

Final points to note:

1. For Assessment 2, you are to submit only one Excel file. Name the file using only your student number without the letter ‘T', e.g., 00123456.xlsx
2. For Assessment 3, you are to submit only one PowerPoint file. Name the file using only your student number without the letter ‘T', e.g., 00123456.pptx
3. I have created a discussion forum titled ‘Assessments 2 & 3' on BlackBoard under ‘Discuss'. This is the only place where assignment related questions should be raised, and responses provided. If you send a class message (you shouldn't be sending me class messages anyways, as I indicated many times that I only reply in emails) or an email asking any academic questions about the
assignment, you will not get a response. This is to make sure all students have equal access to the same set of information. Obviously, I will not provide answers to questions that either explicitly or implicitly demand ‘how to do the assignment'. Remember this is partly a research assignment to expose you to some real-world stuff, and you learn by doing.
4. No reference list is needed for either Assessment; however, all submitted files will be cross checked via SafeAssign for plagiarism detection.

Attachment:- Principles of Finance.rar