FINA2006 Principles Of Finance

FINA2006 Principles Of Finance. You are provided with two case studies. You are required to prepare solutions to the two cases in an Excel format. In addition, using results of calculations from Case 1 and Case 2 prepare a PowerPoint presentation of 10 slides covering risk, return and valuation information to make a recommendation as to whether investing shares of any one of the two companies under consideration is worthwhile or not. The length of presentation should not be more than 15 minutes.

Case Study 1 (Valuation Of Stocks):

You are an analyst employed by BT Wealth Management Limited, a fund management firm operating in Melbourne’s financial district. You have been approached by Ashford Masawi who recently inherited $20 million dollars from his late aunt’s estate. Mr Masawi is considering investing all his funds in one stock chosen from any one of the following sectors of the All Ordinaries Index of companies on the Australian Securities Exchange: transportation, consumer durables & apparel, and banks. He does NOT want you to select across sectors but whatever sector is picked, choose any two stocks listed in the ASX and then perform calculations to determine which one of them would be suitable for your client.

Using the annual report of either 2018 or 2019 and yahoo finance (https://au.finance.yahoo.com) complete the following table for each of the two companies. Information to be extracted from the annual reports should include the followings:

Description Company ACompany B
Total assets (book value) ($m)  
Total Liabilities(book value) ($m)  

Requirements:

(1) Perform the following calculations:

a) market value of equity-to-book value of equity ratio 

b) return on equity (ROE) 

c) dividends per share 

d) sustainable growth rate per annum 

e) intrinsic value per share assuming a required rate of return of 14% 

(2) Which stock will you recommend for Mr Ashford Masawi to invest in. Justify your decision. You may consider any publicly available information.

Case Study 2 (Risk And Return):

This case requires you to perform calculation on risk and return using company data for the company that you recommended in Case 1 above Collect the monthly prices of stocks of X Ltd and monthly prices of S&P/ASX 200 (^AXJO) over the period 1 July 2014 to 30 June 2019.

Using the price data, perform the following calculations and suggest on the suitability of investing in stocks of FMG Ltd:

  1. Monthly returns from stocks of X Ltd 
  2. Yearly returns from stocks of X Ltd 
  3. Average yearly returns over the five years from stocks of X Ltd 
  4. Monthly returns from ^AXJO 
  5. Yearly returns from ^AXJO 
  6. Average yearly returns over the five years from ^AXJO
  7. Total risk associated to investment in X Ltd (perform one calculation using 60 monthly returns)
  8. Total risk associated to investment in ^AXJO (perform one calculation using 60 monthly returns)
  9. Systematic risk of stocks of X Ltd (perform one calculation using 60 monthly returns)
  10. Unsystematic risk of stocks of X Ltd (perform one calculation using 60 monthly returns). On the basis of the above calculations do you think X Ltd is a good investment? FINA2006 Principles Of Finance