Reference no: EM133199279 , Length: Word Count: 1000 Words

Accounting and Managerial Finance Assignment -

Learning Outcomes -

On successful completion of this assignment you will be able to:

1. Summarise key principles, trends and tools in accounting and corporate finance.

2. Demonstrate effective approaches to the analysis of corporate finance structure and analysis of corporate financial statements.

3. Assess the value of practical value of models and theories on making decisions on corporate financing in context.

4. Critically evaluate the benefits of various types of financing for different kinds of organisations.

5. Utilize internal and external financial information to appraise business performance.

Task - Question one of the individual assignment is to perform a detailed financial analysis of a listed company using key financial ratios and analysis of company financial statements. Critical evaluation of the financial health of the company, including the company's approach to working capital management, should be submitted.

Question two of the individual assignment is to prepare a report to the investment board of Philip Morris International (PMI) that recommends the appropriate funding choice for an investment project that will be evaluated based on the information provided below for question two.

Important: The two components, whilst both relating to Philip Morris International, are independent. The only connection that may be drawn between the two is the impact of the choice of funding the project on the company's capital structure.

In this assignment you will be using financial information from the 2016 to 2018 annual reports from Philip Morris International to assist in completing question one.

Question 1 - Access the annual reports from 2016 and 2018 for Philip Morris International and provide a critical analysis of the financial health of the company.

Required -

a) A brief introduction of the company and the current mid-term (3-5 year) outlook. Maximum of 300 words.

b) Key financial ratios need to be calculated and included in the report in table or chart format. Key ratios for a key competitor or the industry should also be included in the analysis.

c) Interpret and assess PMI's performance in the most recent year (2018) in comparison to the previous two years, justifying the significant differences.

d) Critically assess the company's approach to working capital management.

Notes: Be sure to include an analysis of the company's share price from 2016 to the present, together with synthesising any of the movements with market factors and issues identified in parts a) - d).

The accompanying analysis should be detailed and provide reasons for any changes. Simply stating that a certain ratio has changed and by how much is not sufficient for analysis at this level. Use your word count for the critical analysis.

Question 2 - Philip Morris International is currently undergoing a shift from traditional tobacco-based products to electronic cigarettes. The company is becoming increasingly environmentally conscious, as the statistics for non-recyclable plastics in the environment do not show a rosy picture, and they have decided to evaluate a proposal to acquire Terracycle - a recycler of difficult to recycle plastics - with a view to using only recycled plastics in their production of electronic cigarettes.

The board believes that this proactive move would enable them to benefit from substantial savings in material costs in the future, as well as making an impact environmentally. With additional investment in recycling facilities, Philip Morris International aims to, if all goes to plan, become a supplier to its competitors as well.

This is initially viewed by the board as an excellent opportunity to create additional value by aggressively promoting this practice and to further expand their market share.

Together with the company CFO, the investment team has come up with the most likely scenario of figures and would like a recommendation for acceptance of the project, including the choice of funding. Table 1 in the Excel file shows the relevant cash flows for the project. The initial outlay is expected to be $440m, which covers the cost of acquiring the Terracycle facilities and expanding the production to all locations. Working capital of $15m would be required at the beginning of the project and would be fully recovered in the last year of the project. Further data needed to perform the evaluations are in table 2, of which some items need to be sourced or calculated.

Required - You are required to value the project using the following methods and present a proposal to the investment committee in order for them to approve it:

a) Philip Morris International is considering financing the project as All Equity, and it should be valued as such in the first instance. This is due to the fact that the company has sufficient Cash and Reserves to cover the cost of the initial investment.

Hint: calculate the Free cash flow of the project and use CAPM to compute the discount rate. Assume that the Beta obtained from the financial website is 'all equity' for this part.

b) The CFO has also asked to value the project funding 50% of the initial investment with debt to determine the overall impact of the interest tax shield on the project and to take this into consideration when making the final recommendation. (Assume the same level of debt is held to the end of the project. Do not consider the repayment of the debt principal in the valuation.)

c) A Weighted Average Cost of Capital (WACC) valuation using the company's current Debt to Equity ratio. After applying all methods, write a final recommendation (proposal) to the investment committee for the chosen funding method, and include supporting reasons for the choice.

Suggested Structure: The presentation is open to your own interpretation of the project but should include the following items as a minimum:

1) Executive Summary (objectives and content)

2) Rationale for the project (describe the current situation)

3) Ratio Analysis (financial and non-financial)

4) Project Financials (investment valuation methods)

5) Project Risks (minimum one each of financial and non-financial)

6) Critical discussion of the methods (if the company did not invest in the project)

7) Final recommendation to the investment committee for the chosen funding method and supporting reasons for the choice.