BFC5914_Project Requirements

Some general key information about the project of BFC5914:

1. The project will be 45% of your overall grade.

2. You need to complete a project report and a presentation video.

3. You must complete the project individually (Requirement). 

4. One same firm can't be selected by more than 2 students.

5. Do not copy others' analyses. Otherwise, you will get 0.

6. Submit the project report and video via Moodle.

7. Collect the needed information by yourself. (e.g. financial reports, industry information, stock market information, etc.)

8. Choose your firm and post the name of the firm and the Student ID on the shared Excel sheet before COB Monday 9th October in week 11.

9. The chosen firm should be a non-financial and publicly listed company.

Penalties for late lodgment: students who submit the project after the due date will receive a late-submission penalty of 10 per cent of the available marks in that task. A further penalty of 10 per cent of the available marks will be applied for each additional day of late submission.

Part 1: Project Report (28%, 28 marks in total)

Due date: 27/10/2023, Friday, 4:30 pm (Week 13)
Context

Assume that the firm chosen by you would like to borrow an AU$1 million 3- year loan from your bank now. As a lending officer, you are asked to use different methods to conduct the credit analysis and make decisions on this loan application.

(1) Method 1: Five Cs (9 marks)

Collect relevant data (both the firm level and industry level) and insert it into an excel file; show your calculations in the excel file. Then conduct the analysis and make a loan decision.

(2) Method 2: Risk Premium Analysis. (5 marks)

According to your bank policy, all loans with a cumulative probability of default higher than 7% will be rejected. You need to collect the borrowing firm's relevant bond information to derive the computations and thus make loan decisions. If the borrowing firm has no bond information, you can use its closest peer's bond rating.

There are two possible ways to get the return rates of bonds.

(A)You can use the following table as the return rates of bonds.

Table 1A Corporate bond ratings and yields with different maturities

1-year
  2-year
 3-year
 4-year
  5-year
AAA
 2.50%
 3.20%
 3.70%
 4.45%
 5.50%
AA
 2.70%
 3.60%
 4.30%
 5.15%
 6.12%
A
 3.10%
 3.90%
 4.60%
 5.35%
 6.30%
BBB
 4.30%
 4.60%
 5.22%
 6.30%
 7.40%
BB
 4.80%
 5.50%
 6.55%
 7.35%
 8.45%
B
 5.70%
 6.50%
 7.80%
 8.95%
 10.20%
CCC
  6.50%
 7.10%
 8.20%
 10.55%
 11.10%
CC
 7.80%
 8.80%
 9.60%
 10.50%
 12.80%
Table 1B Government bond yields with different maturities
Maturity
  1-year
 2-year
 3-year
  4-year
 5-year
Returns
 1.50%
  2.10%
 2.50%
 3.20%
  4.10%


   
   

(B) You can also find out the average return rates of different bonds from the internet and use it to derive the computations.

(3) Method 3: The Altman Z-score. (2 marks)

(4) Method 4: The KMV Model. (4 marks)

For unavailable information, you need to make relevant assumption to derive the computation. Provide reasonable evidence to justify that your assumption is valid. You can take the Expected Default Frequency table (Table 2, KMV model, in the Project Data template) to determine the EDF of the borrowing firm or search other sources from the internet.

(5) Suppose that you approved the loan one year ago. Now that the borrowing firm's financial situation has deteriorated, combining the industry risk of the borrowing firm, how can the bank hedge this increased credit risk? (3 marks)

(6) Suppose that you approved the loan three years ago. Now the borrowing firm cannot pay back the loan as scheduled. What would you do as a loan officer? (3 marks)

(7) Format requirements and others. (2 marks) 

Steps of the project: 

(1) Choose your publicly listed non-financial company as the borrowing firm and post this information on the shared Excel sheet before COB Monday 9th October 2023. Here

is the link to fill in: https://docs.google.com/spreadsheets/d/14t4dh3HSy44qb_J51TxYLLAZlz8yw7FfHJ3lZMHbXqk/edit#gid=0

The link is available from Monday Week 10. You can access the link only via your Monash student email address.

(tips: Manufacturing firms would be easier for you to derive ratios)

(2) Collect the information of the firm, including the financial reports (at least 3 years), bond market information (if not available, you could use the bond information of its peer firms), and stock market information, industry information etc.

(3) Apply the methods and do the computations (e.g. related ratios, default probabilities, etc.).

(4) Edit your project and make one loan decision for each method.

(5) The final report will include two files: (i) the data collected in the excel file and (ii) the computation and analysis in the word file.

Requirements for the project report submission:

1. You need to submit two files: 1 excel file and 1 writing report,

2. For the writing report, only accept Word files. (Name of your files in the following way: ID number and Firm name; e.g. 1Apple). The ID number is the ID appears in the share spreadsheet.

3. Each student submits only once, and do not repeat your submission.

4. Polish your writing before submissions. (Poor writing could lead to low scores)

5. Format of the Word: font 12 and 1.5 lining spaces.

6. Words limit on the second part of computation and analysis: min 2000 words and max 3000 words.

7. The title page should include your full name, student ID, the name of the firm and your

ID number.

Part 2: Presentation ((17%), 17 marks in total)

Due Date: 27/10/2023, Friday, 4:30 pm (Week 13)

Students are expected to shoot a presentation video based on the writing report as described in part 1.

Format Requirements: Students must show the PPT and record themselves in the video (i.e., video recording but not picture). The required recording format is shown as follows (i.e., show PPT as background and your face at the top right corner):

2023-10-14