Identify the systematic and unsystematic risk factors

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Reference no: EM132311621 , Length: word count:1000

Financial Management Assignment - Group Report

Learning Outcomes addressed -

Explain the goal of financial decisions and the importance of financial information.
Examine financial instruments and their valuation.
Prepare and develop a working capital management plan.
Evaluate the concept of optimal capital structure.

Assessment purpose - The assignment is designed to enhance students' skills in analysing the implication of the time value of money as well as facilitating students' discussion of the role of large diversified banks.

The assignment consists of 2 parts.

Part A: Valuing Shares

Your investment adviser has sent you three analyst reports (A, B and C) for a young, growing company named Millennium Tutoring. These reports depict the company as speculative, but each one poses different projections of the company's future growth rate in earnings and dividends. All three reports show that Millennium Tutoring earned $1.50 per share in the year ended previously. There is a consensus that a fair rate of return to investors for this ordinary share is 12%, and that management expects to consistently earn a 13% return on the book value of equity (ROE = 13%).

Assignment

a. The analyst who produced report A makes the assumption that Millennium Tutoring will remain a small, regional company that, although profitable, is not expected to grow. In this case, Millennium Tutoring' management is expected to elect to pay out 100 percent of earnings as dividends. Based on this report, what model can you use to value the ordinary shares in Millennium Tutoring? Using this model, what is the value?

b. The analyst who produced report B makes the assumption that Millennium Tutoring will enter the national market and grow at a steady, constant rate. In this case, Millennium Tutoring 'management is expected to elect to pay out 30%of earnings as dividends. This analyst discloses news that this dividend has just been committed to current shareholders. Based on this report, what model can you use to value the ordinary shares in Millennium Tutoring? Using this model, what is the value?

c. The analyst who produced report C also makes the assumption that Millennium Tutoring will enter the national market but expects a high level of initial excitement for the product that is then followed by growth at a constant rate. Earnings and dividends are expected to grow at a rate of 50 percent over the next year, 20 percent for the following two years, and then revert back to a constant growth rate of 9 percent thereafter. This analyst also discloses that Millennium Tutoring' management has just announced the payout of 30 percent of the recently reported earnings to current shareholders. Based on this report, what model can you use to value the ordinary shares in Millennium Tutoring? Using this model, what is the value?

d. Discuss the feature(s) that drives the differing valuation of Millennium Tutoring. What additional information do you need to garner confidence in the projections of each analyst report?

Part B: Essay - 1,000 words

Students are supposed to write a formal essay under the topic given below.

'Risk management is one of the key functions of corporate finance.

Identify the systematic and unsystematic risk factors if you are a public company that is investing in consumer electronic business and what are the possible strategies to diversify the overall risk exposure of the company.

Assessment Criteria:

Demonstrated knowledge of identifying main systematic and unsystematic risk factors of a public consumer electronics company.
Demonstrate knowledge of identifying possible risk diversification strategies for a public consumer electronics company.
Logical inferences are drawn from information presented and appropriate justification of stance taken.
The overall presentation of the argument is relevant and appropriate.

Note - Need Part B: Essay - 1,000 words only.

Reference no: EM132311621

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Reviews

len2311621

5/25/2019 2:01:51 AM

Part B 1000 words. ASSESSMENT DESCRIPTION: Students are required to work in a group of 3 – 4 students in order to complete this assignment. Students must register for their group with the lecturer during the first three weeks of the trimester and it will NOT be allowed to change the group members afterward. ASSESSMENT SUBMISSION: This assessment is a group activity and students are required to work with their respective groups. No individual submission will be accepted. You will not receive any marks for this assignment if your group members collectively report against you for non-participation or non-cooperation. You have to nominate someone as your group leader to coordinate the assignment submission.

len2311621

5/25/2019 2:01:44 AM

GENERAL NOTES FOR ASSIGNMENTS - Assignments should usually incorporate a formal introduction, main points and conclusion, and will be fully referenced including a reference list. The work must be fully referenced with in-text citations and a reference list at the end. We strongly recommend you to refer to the Academic Learning Skills materials available in the Moodle. We recommend a minimum of THREE references unless instructed differently by your lecturer. Unless specifically instructed otherwise by your lecturer, any paper with less than FIVE references may be failed. Work that includes sources that are not properly referenced according to the “Harvard Referencing Workbook” will be penalised. Marks will be deducted for failure to adhere to the word count – as a general rule, you may go over or under by 10% than the stated length. High quality work must be fully referenced with in-text citations and a reference list at the end.

len2311621

5/25/2019 2:01:38 AM

THE ASSIGNMENT MARKING GUIDE: The content of the essay (demonstrated knowledge of the topic): 14 marks. Presentation: Proper essay format is used and an assignment cover page is also presented: 3 marks. Referencing: Harvard referencing is strictly followed. A minimum of 3 different academic reference sources were used. Students are advised to use EBSCO Research. (Remember that Wikipedia, Investopedia, and other similar websites are not academic sources and must not be used.): 3 marks. Word limit: The word limit is 1,000 for the essay. The acceptable range for the essay’s word count is based on +/- 10%. Possible mark deduction if failing to comply with the requirement.

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