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FINAN200-23

The case study focuses on applying basic knowledge of the paper to practical issues. It requires no additional information to complete.

Group Policy:

It is expected that every group makes a good plan in advance, communicates on a regular base, and gets everyone to contribute to minimize conflicts among members. A student who fails to contribute to the group will have to leave the group and work individually. A brief peer evaluation to show your share of contribution is required in the cover page.

Group members:

The maximum group size is 3. No marks will be given if 1) you exceed the group size limit of 3, or 2) you do not provide information about group member’s contributions.

Manuscript:

To ensure that you receive full credit for your work, it is important that you follow these instructions carefully.

o The first page of your report must be the provided cover page in the Moodle.

o For each question, be sure to copy the question and then provide a detailed answer which includes all your calculation, explanations, and the screenshot of annual report’s information used to answer the question. Failure to show your work or skipping steps may result in a lower grade, so please take the time to show your thought process and demonstrate your understanding of the material.

o Mathematics can be easily inputted in Microsoft Word.

o The final report should be saved as a PDF file.

Mark:

This assignment accounts for 25% of the total assessment. The full mark for this assignment is 100.

Case Study

Select a listed New Zealand manufacturing company (referred to as X in the following questions) and answer below questions.

IMPORTANT: For each question, you are required to include a screenshot of the relevant information from the company's annual report (such as the balance sheet, income statement, or other relevant financial information) which are used in your answer. By including this information, you provide evidence of your analysis.

1- Using Annual reports from 2017 to 2021, calculate the cashflow from asset, cash flow to creditor and cash flow to stockholder in each year. (10 marks)

2- The Corporation plans to establish a new manufacturing facility by the end of 2021 with an initial investment of 40% of the revenue in 2021. The new plant is expected to generate a net cash flow equivalent to 25% of the revenue in 2021 during the first year, and this cash flow is anticipated to increase by 6% annually in perpetuity.

a. If the company requires an 11% return on such undertakings, should the company invest in new plant? (10 marks)

b. The company is somewhat unsure about the assumption of a growth rate of 6 percent in its cash flows. At what constant growth rate would the company just break even if it still required a return of 11% on investment? (10 marks)

3- A proposed new investment at the end of 2021 has projected the increase in sales by 20% in 2022. The ratio of all different type of cost (excluding tax, depreciation, and interest) to revenue in 2022 is same as 2021. Depreciation and interest in 2022 are equal to 2021. The tax rate in 2022 is equal to the average tax rate in 2021 and 2020.

a. Prepare a pro forma income statement (10 marks)

b. Calculate the operating cash flow (10 marks)

4- According to the corporation stock price at the end of each year from 2017 to 2021.

a. What was the arithmetic average return on the company’s stock over this five-year period? (5 marks)

b. What was the variance of the company’s returns and the standard deviation over this period? (5 marks)

5- Portfolio is invested 42 percent in Stock G, 10 percent in Stock J, and 48 percent in Stock K. The expected returns on these stocks are 20 percent, 2 percent, and 5 percent, respectively.

a. What is the portfolio’s expected return? (5 marks)

b. What is the variance of a portfolio? (5 marks)

6- The company is expected to maintain a constant 4.5% growth rate in its 2021 dividends indefinitely. Considering stock price at the end of 2021, what is the company’s cost of equity? (10 marks)

7- The company has a target debt-equity ratio of 0.55. Its cost of equity is 11 percent, and its cost of debt is 6 percent. If the tax rate is 21 percent, what is the company’s WACC? (10 marks)

8- The company wants to raise $5 million via a rights offering. Its underwriter has set a subscription price of $35 per share and will charge the company a spread of 8 percent. If you currently own 500 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights? (Note: Number of common stock outstanding shares and stock price at the end of 2021 is needed) (10 marks)