FINAN200-22A: Individual Assignment
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FINAN200-22A: Individual Assignment
Answer all of the following given questions:
Question 1: Case-Study for determining the Cost of Capital.
You have recently been hired by Hasher Motors in its Finance department. Hasher Motors was founded eight years ago by Asher. Asher Smith found a method to manufacture a cheaper battery that will hold a larger charge, giving a car powered by the battery a range of 700 miles before requiring a charge. The cars manufactured by Hasher Motors are mid-sized and carry a price that allows the company to compete with other mainstream auto manufacturers. The company is privately owned by Asher Smith and his family, and it had sales of $97 million in 2020.
Hasher Motors primarily sells to customers who buy the cars online, although it does have a limited number of company-owned dealerships. The customer selects any customization and makes a deposit of 20 percent of the purchase price. After the order is taken, the car is made to order, typically within 45 days. Hasher Motor’s growth to date has come from its profit. When the company had sufficient capital, it would expand production. Relatively little formal analysis has been used in its capital budgeting process.
Asher Smith has just read about capital budgeting techniques and has come to you for help. For starters, the company has never attempted to determine its cost of capital, and Asher Smith, would like you to perform the analysis. Because the company is privately owned, it is difficult to determine the cost of equity for the company. Asher Smith, therefore, wants you to use pure play approach to estimate the cost of capital to Hasher Motors, and he has chosen Tesla Motors as a representative company.
The following questions will lead you through the steps to calculate this estimate:
1. To estimate the cost of equity for Tesla, go to finance.yahoo.com and enter the ticker symbol “TSLA.” Follow the various links to find answers to the following questions: What is the most recent stock price listed for Tesla? What is the market value of equity, or market capitalization? How many shares of stock does Tesla have outstanding? What is the beta for Tesla?
What is the most recent dividend? Refer to finance.yahoo.com and follow the “Bonds” link. What is the yield on 3-month Treasury bills? Using a historical market risk premium, what is the cost of equity for Tesla using the CAPM?
2. Determine the weighted average cost of debt for Tesla using the book value weights and market value weights assuming Tesla is in the tax brackets of 28%.
3. Discuss in your own words the challenges and difficulties in estimating the cost of capital to Hasher Motors using Pure play approach.
(5 Marks)
Question 2: Recently you got a job in a Leather processing company. Your company plans to adopt sustainable business practices. As a part of clean environment, the top leadership plans to install Solar panels. Your boss asks you to write a brief note on the feasibility of installing Solar panels on roof top of the company. Based on the following considerations, describe the merits (or demerits) of installing solar panels (10 Marks).
- Look into success stories/earlier experiences of those who already installed (do some google search), (2 Marks).
- Describe the experiences of your friend/family members in installing solar panels, installation costs (electricity costs saving) (2 Marks).
- Provide a brief summary on the subsidised price offers by solar panel suppliers, or availability of loan facilities (Bank offers as a part of green finance (low interest or interest free offers) – BNZ, Westpac, ASB, ANZ and so on) (3 Marks).
- Present your recommendations by describing the merits (or demerits) of installing solar panels (3 Marks).
(Note: Your overall answer could range between 1200 to 1800 words).
Question 3: In your own words, describe the trends in venture capital market and New Zealand Venture Capital Investors in New Zealand. (3 Marks)
Provide a list of ten venture capital investors headquartered in New Zealand and include their investment activities, fund raising history, portfolio companies, and recent news. (2 Marks).
Question 4: a. Using an example, explain about underwriter and what is the role of an underwriter in an Initial Public Offering? Also discuss about underwriting process (use real
business world examples). (5 Marks)
b. Assume yourself as an underwriter and explain when and why you would use the following provisions (use real business world examples and describe in your own words).
- Green Shoe provision and
- Lockup agreements
(Note: Your answer could range between 800 to 1500 words).
2022-06-10