Due Date:  Tuesday 23 May 2023 by 5 pm: Total = 50 marks (worth 20% of overall grade)

Please take note of the following:

Questions in this assignment cover content of Modules 11 – 13.

You must submit your answer to Questions 1 – 2 on pages 2‒3 as a pdf file on Canvas. Your answer is to be assessed using a criterion-referenced approach. That is, judgement about the quality of your answer is made by reference to the following predetermined criteria:

1) For written answers, full marks will be awarded for relevant arguments with supporting evidence. The clarity of your writing style (i.e., grammar, punctuation, and clear sentences) is important, and marks will be lost if your writing style is not appropriate. Clarity of writing, which also includes writing concisely, is also an important skill to learn because it will make you a more effective communicator, which employers increasingly look for when hiring graduates.  

2) For calculation answers, full marks will be awarded for answers with supporting workings, including writing out the formula you have used. You should show all workings, no matter how trivial these may be. This is also good practice for test and exam purposes because the majority of marks, in general, are usually given for workings and not just for the final answer. It is only possible for markers to award partial marks for a question if workings have been provided.

This is a group assignment. The group leader is required to submit the answer file on Canvas on behalf of each group. Each submission must include the completed Group Assignment Cover Sheet (See Appendix B).

Assignment Submission Instructions:

An electronic version of your assignment must be submitted on Canvas by the due time. LATE assignments will NOT be accepted for marking by Canvas.

1) Save your assignment as ONE Single PDF file. Ensure you have completed the cover sheet and all members have signed on the cover sheet.

2) Rename your assignment file to your group’s number. For example, Group 1.

3) Upload the file on Canvas by going to Assignments, then clicking on Group Assignment. You will see the “Start Assignment” button on the right-hand side of the webpage and click on it. When a message box appears, click on the “Choose File” button to locate your assignment file, which you renamed in the above steps, and click OK. Finally, click the “Submit Assignment” button in the new message box to submit your file.

4) After submission, open the file on Canvas to make sure that a complete version of your assignment answers is viewable on Canvas.

Questions 1 and 2 are independent inquiries that do not depend on each other. Both inquiries relate to the company assigned to your group. Please refer to Appendix A for your group's assigned company. Each group must ensure they have access to the S&P Capital IQ platform and know how to obtain their assigned company's most recent three years' annual reports before beginning.

Question 1: Forecasting

Required:

(a) Prepare a preliminary forecast of the company’s income statement and balance sheet for fiscal year (FY) 2023 using the following assumptions:

· Revenue will grow at the same rate as the average rate of FY2021 and FY2022. Refer to Appendix A for your assigned company’s FY2022 ending date.

· The effective tax rate will be the same as FY2022.

· Forecast operating items in the income statement and balance sheet (except Net Property, Plant, and Equipment) as a percentage of Revenue.

· Forecast Capital Expenditures (CAPEX) as a percentage of Revenue. FY2022 CAPEX can be obtained from S&P Capital IQ or found in the company's cash flow statement.

· Forecast depreciation expense as a percentage of beginning‑year Gross Property, Plant & Equipment. FY2022 depreciation expense can be obtained from S&P Capital IQ or found in the company’s financial statement footnotes.

· Forecast no change in nonoperating items in the income statement and balance sheet.

· If applicable, forecast no change in the following equity accounts: Preferred stock, Common Stock, Additional paid-in capital, Treasury stock, Accumulated other comprehensive income (loss), and Minority/Noncontrolling interest.

· Forecast dividends as a percentage of net income. Note that the company’s FY2022 dividend payout ratio is provided in Appendix A.

· Round all forecast percentages to three decimal places (for example, Inventories/Revenues is 0.134208 rounded to 0.134 or 13.4%). Use the rounded percentages to compute forecasts.

· Round forecasts to $ millions. 

Note:

(1) For “other items” in the income statement and balance sheet (such as “other revenues/expenses/gains/losses/assets/liabilities”), provide supporting evidence for why you classify it as an operating or nonoperating item.

(2) When an assumption is based on a percentage (e.g., a percentage of Revenue), use FY2022 reported numbers to compute the percentage and assume a continuation of the FY2022 percentage in FY2023.

(3) You should clearly specify any other assumptions you have made when forecasting.

(4) You may need to create a new account, either “Short-term investment” or “Short-term debt,” as the plug account to balance the forecasted balance sheet. (20 marks)

(b) What does the adjustment needed to balance the accounting equation in the forecast from part (a) reveal about the company's financing needs? (2 marks) 

(c) Do you believe the assumptions made in part (a) are reasonable based on relevant information disclosed in the company’s FY2022 annual report? Briefly explain. (2 marks)

(Total for Question 1: 24 marks)

Question 2: Cost of capital and Cash flow-based valuation

Required:

(a) Calculate the company’s weighted average cost of capital (WACC) as of the end of FY2022, using the book value of both debt and equity. Note that the company’s estimated cost of equity capital is provided in Appendix A. (4 marks)

(b) Compute the company’s comprehensive net operating profit after tax (NOPAT) for FY2022, assuming a statutory tax rate of 28%. (3 marks)

(c) Compute the company’s net operating assets (NOA) and net nonoperating obligations (NNO) at the end of FY2022.  (2 marks)

(d) Forecast the company’s revenue, comprehensive NOPAT, and NOA for FY2023 through FY2026 using the following assumptions:

· Revenue growth for FY2023‒FY2025 will be the same as the average rate of FY2021 and FY2022.

· Revenue growth for FY2026 will be 1.5%.

· Comprehensive NOPAT margin (NOPM) for FY2023‒FY2026 will be the same as FY2022.

· Net operating assets turnover (NOAT) using year-end balance for FY2023‒FY2026 will be the same as FY2022. (4 marks)

(e) The company’s terminal period starts from FY2027. Forecast the terminal period value assuming a 1.5% terminal period growth and using the NOPM and NOAT assumptions made in part (d). (2 marks) 

(f) Estimate the company’s equity value per share as of FY2022 year-end using the discounted cash flow (DCF) model. Note that you need to consider minority/noncontrolling interest (MI/NCI), similar to NNO, in obtaining the equity estimate. Assume the intrinsic value of MI/NCI equals its book value. (5 marks)

(g) Based on your company's closing stock price as of FY2022 year-end, how does your valuation estimate in part (f) compare to this closing price? What do you believe are some reasons for the difference? What investment decision is suggested by your results? (3 marks) 

(h) Based on the company’s stock price on 30 April 2023, how does your valuation estimate in part (f) compare with this closing price? Do you wish to adjust assumptions made in Question 2 based on this information? (3 marks)

(Total for Question 2: 26 marks)

Appendix A

Provided Information for Assigned Companies

Company Name	Exchange:Ticker	Assigned Group No.	FY2022 Ending	FY 2022 Dividend Payout Ratio	Estimated Cost of Equity
Fonterra Co-operative Group Limited	NZSE:FCG	1, 2	31-Jul-2022	55.3%	13.2%
Fletcher Building Limited	NZSE:FBU	3, 4	30-Jun-2022	67.6%	9.3%
Meridian Energy Limited	NZSE:MEL	5, 6	30-Jun-2022	54.2%	3.0%
EBOS Group Limited	NZSE:EBO	7, 8	30-Jun-2022	76.1%	3.3%
Vector Limited	NZSE:VCT	9, 10	30-Jun-2022	0.0%	5.2%
Mercury NZ Limited	NZSE:MCY	11, 12	30-Jun-2022	49.5%	6.0%
Contact Energy Limited	NZSE:CEN	13, 14	30-Jun-2022	133.0%	4.5%
Genesis Energy Limited	NZSE:GNE	15, 16	30-Jun-2022	74.3%	2.4%
Port of Tauranga Limited	NZSE:POT	17, 18	30-Jun-2022	85.6%	2.8%
Briscoe Group Limited	NZSE:BGP	19, 20	31-Jan-2023	69.2%	9.1%
Delegat Group Limited	NZSE:DGL	21, 22	30-Jun-2022	32.1%	6.0%
Green Cross Health Limited	NZSE:GXH	23, 24	31-Mar-2022	17.6%	10.2%
KMD Brands Limited	NZSE:KMD	25, 26	31-Jul-2022	118.3%	4.7%
NZME Limited	NZSE:NZM	27, 28	31-Dec-2022	67.0%	18.6%
Napier Port Holdings Limited	NZSE:NPH	29, 30	30-Sep-2022	73.4%	3.8%
South Port New Zealand Limited	NZSE:SPN	31, 32	30-Jun-2022	58.5%	5.0%
Scott Technology Limited	NZSE:SCT	33, 34	31-Aug-2022	21.3%	4.5%