Company Analysis Discount Rates Capital Structure & Cost of Debt Worksheet You will be allocated ONE company from the list above. Write a report to an inv

Company Analysis Discount Rates Capital Structure & Cost of Debt Worksheet You will be allocated ONE company from the list above.

Write a report to an investor considering investing in the company that you have selected, referring to the company’s listing on the London Stock Exchange. Your report should cover the following areas:

(a) Discount Rates & Capital Structure

i. Calculate your chosen company’s Cost of Equity (Ke), Cost of Debt (Kd), and Weighted Average Cost of Capital (WACC) for each year for at least the last 5 years. Show your workings and state the sources for any of your assumptions.

(15 marks)

ii. Critically assess and discuss the capital structure that your chosen company has and the impact that these choices have made on its cost of equity, cost of debt, and WACC. If your company has any debt funding, assess its ability to make the repayments required using a range of appropriate ratios.

(10 marks)

(b) Dividend Policy:

i. What has the company paid out as dividends in each of the last 5 years? How is it changing?

ii. Critically assess whether these pay-outs are affordable using a variety of measures.

iii. Critically analyse whether the dividends that have been paid are consistent with the company’s stated dividend policy.

Provide appropriate academic theory on dividend policy where appropriate.

(15 marks)

(c) Valuation

Value the equity shares of your chosen company using both

Static valuation multiples
An absolute valuation technique of your choice

In both cases justify your choice of any parameters that you use.

(20 marks)

(d) Critically discuss where your chosen company is in the Corporate Life Cycle discussed during the module, and described in Corporate Financial Strategy by Ruth Bender, by analysing its:

Revenue & profit growth
Financing (proportions of debt and equity funding )
Free Cash Flow
Dividend Payout ratio

Justify your answer of where the company is in its lifecycle with a range of comparisons of the company’s performance

(20 marks)

(e) Using the share price information analyse Shareholder Value performance for your company over at least the last 5 years. Critically assess its performance on each of the seven Rappaport Value Drivers, and compare its performance against its leading competitors. Company Analysis
This assignment is designed to assess module learning outcomes:
•
Critically analyse the use of target capital structure in estimating WACC and
how target capital structure weights may be determined. Calculate and
interpret the cost of debt capital using the yield-to-maturity approach and the
debt-rating approach.
•
Calculate and interpret the cost of equity capital using the capital asset pricing
model approach, the dividend discount model approach, and the bond-yieldplus risk-premium approach.
•
Critically describe regular cash dividends, extra dividends, liquidating
dividends, stock dividends, stock splits, and reverse stock splits, and analyse
their expected effect on shareholders’ wealth and a company’s financial
ratios.
•
Describe practices related to board and committee independence,
experience, compensation, external consultants, and frequency of elections,
and determine whether they are supportive of shareowner protection.
•
Describe how Financial Strategies change as a company’s position within its
corporate lifecycle changes.
•
Understand how changes in Financial Strategies affect the seven Rappaport
Value Drivers and impact on value creation.
Please read the article entitled “DIVIDEND CUTS BY UK
COMPANIES THIS YEAR EXCEED £30 BILLION” from
Morningstar which can be found here:
https://www.ajbell.co.uk/news/dividend-cuts-uk-companies-yearexceed-ps30-billion
The article mentions the following companies listed on London Stock
Exchange:
•
BP
•
GlaxoSmithKline
•
Legal & General
•
Diageo
•
Tesco
•
SSE
•
Prudential
•
Anglo American
•
CRH
•
Unilever
•
3i
•
Standard Life Aberdeen
•
CCH
•
London Stock Exchange Group
•
Admiral
•
Smith & Nephew
•
SEGRO
•
Hargreaves Lansdown
•
Berkeley Group
•
Pearson
•
DCC
•
Hikma Pharmaceuticals
•
Croda
•
Sage
•
Spirax-Sarco Engineering
(Vodafone has been omitted as we will use it as an example in class)
You will be allocated ONE company from the list above.
Write a report to an investor considering investing in the company that you have
selected, referring to the company’s listing on the London Stock Exchange. Your
report should cover the following areas:
(a) Discount Rates & Capital Structure
i.
Calculate your chosen company’s Cost of Equity (Ke), Cost of
Debt (Kd), and Weighted Average Cost of Capital (WACC) for each year for at least
the last 5 years. Show your workings and state the sources for any of your
assumptions.
(15 marks)
ii.
Critically assess and discuss the capital structure that your
chosen company has and the impact that these choices have made on its cost of
equity, cost of debt, and WACC. If your company has any debt funding, assess its
ability to make the repayments required using a range of appropriate ratios.
(10 marks)
(b) Dividend Policy:
i.
What has the company paid out as dividends in each of the last
5 years? How is it changing?
ii.
Critically assess whether these pay-outs are affordable using a
variety of measures.
iii.
Critically analyse whether the dividends that have been paid are
consistent with the company’s stated dividend policy.
Provide appropriate academic theory on dividend policy where appropriate.
(15 marks)
(c) Valuation
Value the equity shares of your chosen company using both
•
Static valuation multiples
•
An absolute valuation technique of your choice
In both cases justify your choice of any parameters that you use.
(20 marks)
(d) Critically discuss where your chosen company is in the Corporate Life Cycle
discussed during the module, and described in Corporate Financial Strategy by Ruth
Bender, by analysing its:
•
Revenue & profit growth
•
Financing (proportions of debt and equity funding )
•
Free Cash Flow
•
Dividend Payout ratio
Justify your answer of where the company is in its lifecycle with a range of
comparisons of the company’s performance
(20 marks)
(e) Using the share price information analyse Shareholder Value performance for
your company over at least the last 5 years. Critically assess its performance on
each of the seven Rappaport Value Drivers, and compare its performance against its
leading competitors.
(20 marks)
Total (100 marks)
Structure
You have been asked to produce a report. It should contain the following:
•
Appropriate coversheet (as attached in this document )
•
Title Page, including the given title in full.
•
Contents Page
•
Introduction
•
Main body, which should also be organised under appropriate headings.
•
Conclusion
•
Appendices, which should be numbered.
o
Make sure you refer your reader to them as required.
.
Layout
Your work should be word processed in accordance with the following:
•
Font style, Arial, font size 12
•
1.5 line spacing.
•
The page orientation should be ‘portrait’
•
Margins on both sides of the page should be no less than 2.5 cm
•
Pages should be numbered
•
Your name should appear on the script, together with the company allocated to
you
•
.
Your student number should be ncluded on every page.

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