(8) Forward Dividend and Yield, (9) Ex-Dividend Date, and (10) 1 year Target Estimate for both your chosen company and competitor. Define and interpret the following four measures including Market Cap, Beta, EPS and forward dividend yield. Compare and discuss the differences that you observe between the two companies in respects of the four measures including Market Cap, Beta, EPS and Forward Dividend Yield. Note you should consider the comparability of the measures. (4 marks)

4. Define and interpret the P/E ratio. Compare the P/E ratios of your chosen company and the competitor to the average P/E ratio of the industry of your chosen company. Compare these number with the average P/E ratio of your chosen stock market index as well. Discuss in detail. (4 marks)

Summary Statistics and Risk Characterisation [30 marks]

5. List the current Government bond rates of the following maturities: (i) 2-year, (ii) 5-year, (iii) 7-year and (iv) 10-year in a table. Graph the 10-year government bond rate1 over the time period from January 2012 to the most recent month with data available. How has the 10-year rate changed over this period? Why do you think this has occurred? Do you think the 10-year rate will go up or down in the future? Discuss with references to the appropriate academic literature. (5 marks)

6. Calculate the annual returns (from Jul 1st to June 30th for each financial year) for the market index for the last: (i) 5-year period, (ii) 10- year period, and (iii) 20-year period. Calculate the average annual return and standard deviation of annual returns over these 3 time periods using both the arithmetic and geometric averages (for the standard deviation, you can use just the arithmetic average). Display the results in a table. How have these values changed over time? What do these changes mean for the average investor? Discuss in detail. (5 marks)

7. Calculate the annual return (for each financial year) of your chosen company from July 1st 2012-June 30th 2022. Annualise all dividends paid out2. Calculate the average annual return and standard deviation of annual returns for the whole period using both the arithmetic and geometric averages (for the standard deviation, you can use just the arithmetic average). Display the results in a table. How has your company performed over this period? Do the arithmetic and geometric averages differ for your company? Why or why not? Interpret these numbers for your manager. (5 marks)

8. Calculate the annual betafor your chosen company returns using the measures that you generated in Tasks 6 and 7. Report the formula that you followed to calculate the annual beta and explain how each variable in the formula is measured. Compare your calculated annual beta with the beta found in your stock quote. Are these values the same or different? Explain and discuss why they may be similar and/or different. (5 marks)

9. Using the Capital Asset Pricing Model (CAPM), calculate the required rate of return on equity for your chosen company. Select one of the different government bond rates in part (7), as proxies for the risk-free rate. Select one of the annual return (i.e. arithmetic average and geometric average) calculations calculated in part (6), as a proxy for the expected market returns and justify your choice. Discuss how appropriate your choices are as proxies for the theoretical values in the CAPM equation. (10 marks)

Growth Rates and Valuation [30 marks]

10. Estimate the growth rate of your chosen company’s cash flows by using the following three methods:

(a) Calculate and list the annual growth rates for dividends from July 2012- June 2022 (For any financial years within your sample with anomalous dividend growth rates discuss why this might have occurred. If your company did not pay dividends in 2020 due to COVID-19 just use the dividends in the prior year as a proxy). Calculate the arithmetic and geometric average annual growth rate of dividends over this period. Also calculate the arithmetic and geometric average annual growth rate of dividends for the subperiod between June 2012- July 2019 (pre-COVID-19) and compare the values. Do you think your company’s dividends will grow at these rates for the foreseeable future? Explain in detail why or why not. (5 marks)

(b) Calculate and list the annual growth rates for net income from July 2012- June 2022 (For any financial years within your sample with anomalous net income growth rates discuss why this might have occurred). Calculate the arithmetic and geometric average annual growth rate of net income over this period. Also calculate the arithmetic and geometric average annual growth rate of net income for the subperiod between July 2012- June 2019 (pre- COVID-19) and compare the values. Do you think your company’s net income will grow at these rates for the foreseeable future? Explain in detail why or why not. (5 marks)

(c) Using the formula g = b * ROE, calculate and list the growth rates, plowback ratios, and ROE for the time period between July 2012- June 2022 (For any financial years within your sample with anomalous plowback ratios and/or ROE discuss why this might have occurred). Calculate the arithmetic and geometric average annual growth rate over this period (remove any rates that are negative from your sample). Also calculate the arithmetic and geometric average annual growth rate for the subperiod between July 2012- June 2019 (pre-COVID-19) and compare the values (remove any rates that are negative from your sample). Do you think this method of calculating growth rates is useful for valuation? Explain in detail why or why not. (5 marks)

11. Using the Discounted Cash Flow (DCF) models you have learnt in FINC5001, determine the intrinsic value of your chosen company using the required rate of return from Task 9 and (a) growth rate(s) (from Task 10). Justify the choices and assumptions you have made in undertaking this calculation in detail and why you did not choose any other values instead. Discuss why you chose your valuation model and its key assumptions and why you believe your chosen rates satisfy these assumptions. When do you think the GGM is preferred to a two-stage or multi-stage growth model and why? Explain. (If you make deviations from the choices in Task 9 and/or Task 10, clearly justify why you made these changes and why these new values are more sensible for this analysis). (10 marks)

12. The values that you have utilised in part (11) represent only one possible set of choices for a valuation model. Determine the intrinsic value of your chosen company using a range of values (+1% and -1% for your growth rates and +1% and -1% for your discount rate). You should have a total of 9 intrinsic value calculations like the table below:

For example, the top left slot would calculate an intrinsic value using both a growth rate and required rate of return that is 1% higher than your chosen rates in part (11) (for any negative calculations just put N/A). (5 marks)

Recommendation [20 marks]

13. Using the DCF analyses performed in Tasks 1-12, make a detailed recommendation for your chosen company as to whether to buy, sell  or  hold  this  stock.  Along  with your valuation model, you should use any relevant information about your chosen company, competitors, its industry, and the economic outlook to justify your recommendation. Detail the limitations of your analysis and assumptions as well as incorporate the sensitivity analysis done in Task 12 and what this analysis adds to your valuation. A well- justified recommendation properly connects outside information on how it relates to your valuation model via dividends, cash flows, growth rates, discount rates, and other financial factors. Remember, you are trying to present a report that convinces the IMD that you have done a thorough and detailed analysis of your chosen company. The recommendation must be cohesive and consistent with the analyses performed in the sections above.

Presentation and overall style of the report [10 marks]

Marking Criteria

The criteria below will be followed when marking each part of the assignment:

1. The extent and quality of critical reasoning/critical thinking.

2. The demonstration of knowledge of relevant theory.

3. The successful usage and interpretation of relevant data.

4. The extent to which the work is clearly and concisely presented.

Weight of Final Mark: This assignment will be marked out of 100 marks and will be scaled to account for 20% of course total mark.

Formatting and Presentation:

1. The number of pages allowed ranges from a minimum of 15 to a maximum of 20, with

1.5 line spacing and a font size of 12 Arial or Calibri. It should have normal-sized (2.54cm) margins on all sides. Please number the pages of your report. Marks will be reduced by 5 for each page you exceed the lower and the upper page limit. For example, your mark will be reduced by 10 if the report is of a length of 22 pages or 13 pages. You will be penalised for inappropriate formatting.

2. Text presented in tables and graphs do not need to follow this formatting requirement. However, these will still need to be professionally presented in the report.

3. Ensure you use proper academic referencing in supporting the ideas and discussion within your report. All reports must include a list of references in academic form using the APA 7th method. Further information on the APA referencing style can be found here: https://libguides.library.usyd.edu.au/citation/apa7. Failing to reference your sources may be subject to further actions according to the University of Sydney Code of Conduct and will be dealt with by the School. https://www.sydney.edu.au/students/academic-dishonesty.html

1. The only acceptable form of submission is electronic via the submission link in the unit’s Canvas site. Hardcopy and email submissions will NOT be accepted. Late submissions will be penalized according to assessment policy. All submission will be checked through TURNITIN for similarity with external sources.

2. Submission format: Each group can only submit ONE project report. The group leader (as decided in your group meeting) is required to submit the assignment. (DO NOT submit if you are not the group leader). It is imperative that your project report is submitted in ONE document. Only a PDF format document will be accepted, and it is your responsibility to ensure all pages correctly display your original content. Missing or distorted figures and formulas will result in lower marks.

3. Cover page: Ensure the Student Identification Number (SID) of EACH student is on the cover page of your assignment. The name of student must NOT show up on the assignment to ensure the anonymous marking requirement. The cover page should be submitted with the assignment in a single file (as the front page).

4. Document name: Your project PDF file must be named in the following format: FINC5001_Groupnumber_2022.PDF Example: FINC5001_Group23_2022.PDF and your Excel file must be named in the consistent way such as FINC5001_Group23_2022.xlsx.

Group work ethics:

1. Every group member is expected to be actively engaged in the whole process of group assignment. Though it is hard to divide the work completely equally, “free-riding” practice will not be tolerated.

2. From week 7 to week 11, you are expected to meet at least four times to discuss the assignment tasks and to update your group members on your progress. At your first group meeting, please decide who will be the group leader. The group leader will be responsible for coordinating the work of the group and submitting the group report by the deadline.

3. Each group member will complete the Peer Performance Assessment Form (to be released on Canvas as a separate assignment approaching the due date) and submit the form separately online. Due to the limited marking time, we must give all group members the same mark based on group performance. However, free-riders will be penalised and the information you provide on the Peer Assessment Form will be used to determine whether a group member has made a reasonable contribution to the group's work.