Rules:

•    Please submit your assignment on Canvas before the deadline mentioned above.

•    If you use any assumptions in your solutions, state it clearly wherever it applies.

•    While intragroup communication is ENCOURAGED, intergroup communication is NOT ALLOWED! Any indication of sharing work with another group will be investigated and reported.

•    Please check your assignment type (A, B, C, or D) before solving the questions! If you submit wrong group’s answers, you will not be granted full credit for your work!

•    For the portfolio calculations, no short selling is allowed ! Thus, make sure to use non-negative weights in all your calculations!

•    Please write the NAMES of EACH group member clearly!

•    Please SHOW YOUR WORK to earn full credit! (For example, if you are using “Solver” in MS Excel, please share the print screen)

•    You can answer these questions by using MS Excel or handwriting (it is up to you).

•    If you have any questions about the assignment, please contact me during the office hours (via

Zoom) or via e-mail any other time before the due date.

Good luck to you all!

1.    (14 Points) You are working for a private equity firm and your team is assigned the task of        determining the enterprise value of a target firm. This target firm’s past and current Income    statements and other key accounts (from the Balance Sheet and the Statement of Cash Flows) are presented in the MS Excel file (attached).

Based on your team’s analysis, you expect the following net sales growth for this target firm:

During your team meetings, you agreed upon using the following rules in the enterprise value calculation:

•   The EBIT to Net Sales ratio will be constant in the future, and it is equal to the average EBIT to Net Sales ratio of the last three years.

•    Capital Expenditures (CAPEX) will be 8% of Net Sales each year.

•    Depreciation Expense will be 120% of the Capital Expenditures each year.

•    Net Working Capital change will be 12% of the Net Sales change each year.

a.    (8 Points) If your team believes that the proper discount rate for this target firm valuation is 14.10% pa, what is the enterprise value (EV) of this target firm as of January 2022?

b.    (3 Points) If this firm has 43M shares outstanding, what is the fair value of this target firm’s stock?

c.    (3 Points) If this firm’s stock was trading at $18 per share in the market, what kind of (and how big of) a correction did you expect to see? (Please calculate the percentage change you expect to see and briefly explain your logic)

2.    (12 Points) Please use the real-world data available on MS Excel file attached to answer this question.

a.    (4 Points) Please fill out the descriptive statistics table in the MS Excel file.

b.    (4 Points) Please fill out the correlation matrix in the MS Excel file.

c.    (4 Points) Please fill out the covariance matrix in the MS Excel file.

3.    (30 Points) Please use the real-world data available on MS Excel file attached to answer this question.

a.    (9 Points) Please calculate the portfolio risk and return for the given weight structures below.

b.    (4 Points) Please calculate the minimum variance portfolio weights, portfolio risk, and return.

c.    (6 Points) Please plot the mean-variance frontier of your two-stock portfolio including the minimum variance portfolio.

d.    (6 Points) Let us assume that monthly risk-free rate is 0.10%. Using that information, please calculate the Sharpe ratios of the relevant two-stock portfolios from part a and part b.

e.    (5 Points) Please calculate the weights, risk, and return of the risky asset portfolio allowing you to reach the maximum Sharpe ratio.

4.    (14 Points) Please calculate the portfolio risk and return for the given weight structures below.