Group Project Description

Corporate Finance – Fall 2012

Project overview

Objectives and requirements:

This is a comprehensive group assignment based on application of corporate finance concepts to particular company case. Students should be able to demonstrate their skills in valuing company’s securities, based on various methods, estimate the cost of capital and capital structure, to value a company and provide financial statements analysis.

The requirements to each step of analysis and description of what should be analyzed, provided below, are to guide you through the project, though you are free to show your creativity while working on this project. Each part of the project should be concluded with the comparison of results obtained with different models of valuation (if needed) and possible practical implications of the analysis results. So the report should include not only calculus, but the description of results obtained.

Group and company selection

This is a team assignment. Students are grouped into teams of 6 to 8 members. Once assigned to one of the teams, you are not allowed to change the team. Each team chooses the group leader, who will coordinate a work throughout the project and is supposed to contact instructors once questions or problems are raised. The reports are to be submitted on time by the group leader. You have to work collaboratively; substantial contribution of each of the team members to the project is expected. The leader also is assumed to evaluate a contribution of each member for each of two parts of the project (based on the grade from 1 to 10).

Groups could select a company of their choice, either domestic or multinational, that issued both stocks and bonds!.

The choice of the company should be approved by instructors.

Deadline for submission of groups lists and company choice: November 2

Contents:

Group work is divided in 3 parts:

Part I.

1. General characteristics of the company (organizational form, owners, size, industry, markets it is operating in, main competitors, key data on securities etc.)

2. Valuing bonds:

Bonds issue should be analyzed, specifying the following characteristics of the offering: underwriters, credit rating, purposes (project financing, mergers & acquisitions etc.), amount of the issue, coupon rate, term, callable or non-callable, secured or not, yields and price dynamics, fair value (based on valuation models discussed in class), factors that influenced the price and yields, financial crisis impact, and special information (if available): if there were defaults on bonds or some other features. As company could have issued different types and tranches of bonds, you are supposed to provide general information on these types, but choose the most recent one for your valuation.

3. Valuing stocks:

Describe the company’s stocks in general: what market are they traded on? What are types (type) of stocks did the company issue? What is the dividend history for the recent period (3-5 years)? Provide company’s stock’s valuation and estimation of the stock return for the current moment, based on both dividend discount models and CAPM.

Estimate company’s beta coefficient. Use stock’s and market returns on a monthly or weekly basis (depends on the liquidity) at least for 2 years. For calculation of the returns use closing (settlement) prices of the day as available from the trading systems or other sources of data. As a market return take a market index (RTS, S&P 500 etc.).

Describe the current situation with company’s stocks. What factors (economic, industry-specific, and company-specific) do impact the market for company’s stock? Make conclusions.

4. Estimating cost of capital:

Estimate company’s cost of equity, cost of debt and WACC, based on various methods considered in the course. Ignore flotation costs. Use book values for both debt and equity as weights if market data on the debt is not available.

Make conclusions, what factors impact your company’s cost of capital, what specific features you may indicate. Did different methods of estimation of the cost of equity demonstrate the same result? What methods used would you recommend for the company and investors while estimating the cost of capital?

Part 2.

1. In this part students have to apply financial statements analysis to evaluate company’s operating and financial performance, based on annual financial statements for last 4 years (statements for 2008, 2009, 2010 and 2011), make conclusions on changes and reasons for that. Compare ratios with industry averages that could be obtained using analysts forecast. Use consolidated statements based on the format provided by on-line financial resources (finance.yahoo, investor.reuters, moneycentral etc.). No details are needed with regard to the structure of particular item (types of inventories, securities, equipment and like).

a. Short-term solvency or liquidity ratios

b. Long-term solvency or financial leverage ratios

c. Asset management or turnover ratios

d. Profitability ratios

e. Market value ratios

f. Du Pont model

g. Trend analysis

h. Common size analysis

i. Percentage change analysis.

2. Provide company’s valuation based on the:

a. Corporate valuation model

b. Dividend growth model.

Compare results of the evaluation with one another and with the actual market data. See lecture slides, BE chapter 13.

For purposes of study and in order to avoid the issue of estimating a growth rate, you may do your evaluation for the year 2008 (2007), using actual financial statement figures for subsequent years (instead of projected statements). The non-constant growth model is applied in both cases (a and b). Thus you anyway have to choose a growth rate for the year N value estimation. You are supposed to proceed the same way you did for stocks valuation.

In case you do analysis for the year 2008 (2007), use market stock price for the end of the year 2008 (2007) for comparison with results to be obtained.

3. Describe briefly the big projects (transactions) your company dealt with for the last 3-5 years. Make conclusions, if those deals added value to the company. This is a qualitative part, no calculations are needed. The information for this part could be obtained from the resource ZEPHYR by the Bureau van Dijk, available at GSOM.

Part 3 (presentation)

Presentation of the project results (see description below)

Deliverables

Each group will be required to submit a report (Word or PDF format) via e-mail to Viktoria Tikhonova ([e-mail]).

Part 1 is submitted by November 22, 6 p.m.

Part 2 is submitted by December 9, 6 p.m.

Part 3 - Presentation of the project results – is submitted as a Power Point or PDF file one day before the final class.

We will use a penalty system for late submissions with 1 point deducted for each day that a submission is late.

Report Guidelines.

A cover sheet listing the title of the project and names of team members should be used. The volume of the each part of the report in not strictly limited, but it should contain at least 5 pages.

Present your conclusions clearly, as well as the rationale for those conclusions, provide responses to the questions asked. Organize your write-up carefully so that your ideas are presented clearly.

Tables, schedules and computational appendices should be organized, labeled, and attached. Excel file with calculation goes together with the report.

List of references is obligatory.

Presentation Guidelines

Groups will make presentations during the class sessions. The schedule for presentations will be announced. Each team will be given 10 minutes for presentation and 10 minutes for questions and answers. Presentation is supposed to be provided by all group members, though you may choose 2-4 speakers, but everybody should be ready to answer any questions with regard to the project. You have to be very specific about the valuation you made and conclusions, rather than to provide any theory.

Grading

Three parts of the project: presentation and two reports will be graded separately (see the table below). The maximum number of total scores for the team project is 15%.

Each part is graded on the scale from 0 to 10.

Reports will be graded on the scale from 0 to 10. Your report will be judged based on the quality of analysis provided, the ability to apply the concepts and models covered in the course.

Presentation is graded depending on the quality of materials to be presented, ability to deliver the information and conclusions in clear way, to substantiate the results, answer the questions. This part of the project is graded only by the instructor on the individual basis. The grade for this part of work is assigned only to students who participated in the presentation, based on their personal participation and ability to answer the questions on any part of the analysis.

Part	Max scores	Max grade (portion of the total grading)
Part 1		6%
Part 2		6%
Presentation		3%
Total		15%

Дата добавления: 2015-07-20