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Case Study on Corporate Finance for 2201AFE

Case Study on Corporate Finance for 2201AFE

This assignment consists of two parts, total marks 100, weights 50%. This assignment will be due at 11:59 pm, Sunday, week 12. In the Part A, you will select a public firm listed on the ASX 300 and you will prepare a report to research the selected company from TWO perspectives: (1) Corporate governance of the company, (2) risk and return relationship of this company’s shares. In the Part B, you will prepare a business-style response to a hypothetical but realistic situation and make recommendations on which project should invest in. Each performance task includes information detailing your role, a scenario, and a task to which you are required to respond. Please note, the company you have selected is used for Part A only. For Part B, a scenario is given for your analysis.
Word limit – 2000 words for Part A and 1500 words for Part B excluding graphs and Tables.
You will have a Google Doc available for registering selection of your company. Once a student has selected a company that company cannot be selected by another student.
This is an individual assignment
Submit your response in one Excel file and one Word file. The Excel worksheets should contain the calculations and workings, while the Word file should contain reports where you present the findings, considerations, recommendations, conclusions or any other issues relevant to each task.

Part A: Case study report for selected company (Total 60 marks)
The purpose of this case study is to allow students to take some of the main concepts introduced in the course and provide a framework for applying them to a company of their choosing. One of the best ways of learning corporate finance is to apply the models and theories we encounter to the real-world contexts and problems. You will:
Task 1: Evaluate the company corporate governance (20 marks)
Task 2: Evaluate stock price, and estimate the impact of an important announcement on its stock prices (40 marks);
Scenario
You have recently started an internship position with Griffith Best Equity Management (GEM), a large asset management company with A$750 million Assets Under Management located in Brisbane CBD. The company’s core investment focuses on domestic share market, however, investments in share markets have provided lower than expected returns in the recent years.
GEM’s Chief Investment Officer (CIO) has assigned you to perform an investment appraisal on a single company listed on the ASX300 and provide recommendation if the company analyzed should be included as part of GEM’s investment.
Your personal values and experiences are important, you should base your response on the evidence provided in these tasks along with your knowledge gained in the course. It is important that you provide clear evidence of your ability to apply your knowledge of finance as learned in the course to the task. The CIO has requested that your analysis must be up-to-date analysis with at least 3 years of data.
Your report must address the following issues, the first four issues are related the corporate governance (task 1), and the fifth issue is related to the share price analysis (task 2):
A brief description of the company analyzed
Information of the CEO of the company
The Board of Directors of the company
Societal Constraints
Analysis of company’s share price using
the Dividend Discount Model (1-stage and 2-stage). You will determine if the share price is priced fairly or over/under-valued.
News/Announcement effect on company’s share price. You will investigate the speed of share price adjustment to these announcements using graphs. You will discuss the share performance over the last 3 years, showing the major events (announcements) in the life of the company and discuss how these events (announcements) have impacted the share price.
On the same chart, present the performance of the major competitor and the market for comparison.
You will need to show calculations for 5 (a), (b), (c) and a graph for (d)

Your current internship position is under 3 months’ probation period. Upon completing the task on hand, your department secretary will arrange a meeting with CIO to discuss whether you have passed the probation period and be promoted to a Junior Corporate Finance Analyst.

Guidance for Part A
Task 1: Corporate Governance (20 marks)
The CEO (5 marks)
Who is the CEO of the company?
How much did the CEO make last year?
What form did the compensation take (salary, bonus, options)?
How much equity in the company does the CEO own?

The Board of Directors (5 marks)
Who are on the board of directors of the company?
How long have they served as directors?
What is their remuneration?
How many of the directors have other connections to the firm (as suppliers, clients, customers, etc.)? Are they independent?
How many of the directors are CEOs of other companies?
Do any of the directors have large stockholdings?

Financial Market Considerations (5marks)
How widely held and traded is the stock?
Do many analysts follow the firm?
How much trading volume is there in this stock?

Societal Constraints (5 marks)
How the firm addresses the issue of Corporate Social Responsibility?
Does the firm have a particularly good or bad reputation as a corporate citizen?
If it does, how has it earned this reputation

Task 2: Evaluate stock price, and estimate the impact of an important announcement on its stock prices (40 marks)
Evaluate stock price, and estimate the impact of an important announcement on its stock prices

Stock beta: Download 3 years of weekly stock returns and ASX300 market index returns ending December 2020 from Yahoo Finance and estimate the stock beta. Does the estimate of stock beta make sense to you? (The normal range of beta is from 0.5 to 3.) Provide reasoning, why or why not? If not, you have to use the stock beta from Yahoo Finance for the later parts. (10 marks)

Estimate the Cost of equity, using the CAPM return. Assume the market risk premium, Rm-Rf=6%, and use the current 10-year Government bond yield for the risk-free rate. (5 marks)

DPS is the total annual dividend per share paid for the financial year. Based on the previous 5-year pattern of DPS payments, estimate the intrinsic values using 1-stage models (the constant dividend growth model), and the 2-stage non-constant dividend growth model. Please use the 10-year Government bond yield as the Dividend growth rate in the equilibrium stage. You need to choose which model is the most appropriate one to use, and compare the intrinsic value versus the share price as of November 2020 (‘current price’). Would you recommend to buy or sell the shares in November 2020? (15 marks)

You will study an announcement in 2018-2020 from this company from ASX 300 firms (https://www.asx300list.com/). The announcement can be a new product, a scandal, an earnings announcement, a change in strategy, etc. What is your expectation of the market reaction to the announcement, good or bad news? (2 marks)
Please download the daily stock prices from one month before to one month after the announcement date, and compute the cumulative holding period returns and plot them in a graph. (5 marks)
Cumulative Holding period returns = [(1+r1)(1+r2) (1+r3)…( 1+rt)]-1
Note: The holding period return is NOT the usual weekly return you calculated
Discuss the following aspects: Does the stock price react quickly or slowly to the news announcement? How does it relate to the theory we learned in class? (3 marks)

Choice of Company
You can choose any company from ASX300 list (except for TPG) that has been listed on the stock exchange for at least 3 years, and with positive earnings and positive dividend for the 2019/2020 financial year.

A complete submission to Learning@GU/SafeAssign consists a Word file, an Excel file, and should include the following:
All input variables, such as risk-free rate, the market risk-premium, dividend growth rate, etc, and
all computations such as the beta estimate, cost of equity, intrinsic value, Analyst Expected Return, RRR, etc. Please put all input variables in an input box.
Font size: 12 of Calibri, Arial or Times New Roman
Margins: minimum 1 cm on the top/bottom and right/left.

NOTE:
If Bloomberg is not available, you may use https://au.finance.yahoo.com/ to download all historical stock price data required.
All submissions need to be clearly structured and calculations need to be clearly laid out.

Company TPG (2016 Dec.) Example

Assume Rm-Rf=6%, beta=0.547, Rf=2%,
DPS0= $0.2071, P0= $7.41
CAPM R= 2% + 0.547*6% = 5.28%

FYR= 2012 2013 2014 20115 2016
Dividend= 0.0786 0.1071 0.1322 0.1643 0.2071
growth= 0.3626 0.2344 0.2428 0.2605
geometric av. growth last 3 years = 0.2458

2-stage DDM model:
g = 0.2459 for 3 years; g =Rf = 2% afterward

Intrinsic value = D1/(1+R) + D2(1+R)2 + (D3+P3)/(1+R)3
= 0.2071*1.2459/1.0528 + 0.2071*1.24592/(1.0528)2 + (0.2071*1.24593 +
0.2071*1.24593*1.02/(0.0528-0.02)) /(1.0528)3
= 11.55 vs Stock Price___________
=> under-/ over- priced

Appendix 1: 1-stage and 2-stage models on valuation:
TPG
Rf 2%
Rm-Rf 6%
Beta 0.547
P_0 (2016 Dec) 7.41
Target price 10
CAPM (R) 5.28%
EPS 0.45
2-stage DDM model:
Ex-Div. Date Amount Annual Div. Growth Geom. Avg. Growth
10/17/2016 0.1071 0.2071 0.2605 0.2458
04/18/2016 0.1
10/9/2015 0.0857 0.1643 0.2428
4/10/2015 0.0786
10/10/2014 0.0679 0.1322 0.2344
4/9/2014 0.0643
10/9/2013 0.0571 0.1071 0.3626
4/10/2013 0.05
10/10/2012 0.0393 0.0786
4/11/2012 0.0393
Div. growth rate First 3 years 24.59%
Afterward 2%
Year 0 1 2 3
DPS 0.2071 0.2580 0.3215 0.4005
P3 12.4554
Intrinsic value= $11.55
1-stage DDM model:
Constant growth model g=2%
Intrinsic value= $6.44

Excel Layout
Note that this sample used the weekly stock prices

Announcement Effect

Part B
This assignment is worth 40 marks in total and is composed of one practical task, each worth 40 marks. For each task the marks are allocated as follows:
– Analysis 18 marks (correct calculation/workings and application of models/techniques)
– Report 16 marks (relevant arguments, key points identified and recommendations)
– Presentation 6 marks

In this assignment, you will prepare a business-style response to a hypothetical but realistic situation. For the performance task, it includes information detailing your role, a scenario, and a task to which you are required to respond.

Task: Multi-chem

Role and Context
You are a financial analyst in the capital projects department of Multi-chem, a specialty chemicals producer of fire-control chemicals, additives, and pesticides based in Queensland. Currently, Multi-chem is small in scale, but embarking on a rapid expansion and modernization program. It is also expanding its range of products into dyes, rubber compounds, and water treatment chemicals. While Multi-chem has a large and expanding capital budget, it is currently considering which of two possible projects it should invest in, both of which would be used to manufacture furfural (an organic compound derived from agricultural by-products) and furfural-based derivatives to make resins, urethanes, and refining solvents over a 10-year operating period.

Scenario
The first project, the Manila Plant, is a proposed new plant in the Philippines, about 30 km outside the capital. Multi-chem has been considering this expansion for a number of years and believes that the combination of low wages, looser environmental protection, and proximity to its emerging markets in SE Asia will makes this new plant an attractive addition to its existing facilities. Specifically, in 2021 the Manila Plant will require the purchase of land for $2.5 million, with development and construction building costs of $13.5 million, and plant and equipment of $6 million. Multi-chem will also need to spend on working capital each year. The change in net working capital is estimated to be 4% of sales every year during the life of the project (the exception being the last year of the project which reverses the sum of all previous cashflows due to working capital). Sales are estimated to be $48.6 million in 2022, the first year of production, increasing by 10% per annum after that. The cost of goods sold is 65% of sales. Fixed costs will be $11.5 million in 2022, increasing by 5% per year. Both buildings and plant/equipment will be depreciated straight line to zero over the 10-year project life. The buildings will have a salvage value of 20% of cost and the plant and equipment will have no salvage value. At the end of the project, Multi-chem will rehabilitate the site and sell the land for light industrial development for $18.1 million. The company tax rate in the Philippines is 25%.

The second project, the Cairns Plant, is a modification of an existing plant Multi-chem already owns in the city of the same name in north Queensland. The Cairns Plant has been idle for a number of years, but with renovation would be well suited to furfural production. If not used for the proposed project, Multi-chem will lease out the existing plant for $70,000 per year. The estimated development and construction building costs will be $15 million in 2021 alongside plant and equipment investment of $5 million. Multi-chem will again need to invest in working capital, thus the change in net working capital is estimated as 4% of sales every year (the exception being the last year of the project which reverses the sum of all previous cashflows due to working capital). Sales will be $45 million in 2022, increasing by 7.25% per annum thereafter. Given the relative geographic isolation of the plant and the stricter environmental controls given the proximity to the Great Barrier Reef, the cost of goods sold will be 75% of sales. Fixed costs will be $5 million in 2021, increasing by 5% per year. Both buildings and plant/equipment will again be depreciated straight line to zero over the 10-year project life. The buildings will have a salvage value of 30% of cost and the plant and equipment will have no salvage value. At the end of the project, the Townsville Plant will again revert to being idle awaiting potential future developments at no cost. The company tax rate in Australia is 30%.

Task
Provide a report to Multi-chem’s CFO, Ms. Mary Miller, recommending which of these two mutually exclusive projects Multi-chem should invest in, if any. Your recommendation should be supported by appropriate calculations. Assume Multi-chem has a cost of capital of 12.5% for domestic projects and 16% for international projects.
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Sample Answer:

Case Study on Corporate Finance for 2201AFE

Student’s Name
Institutional Affiliation
Course
Physical Address
Date

Case Study on Corporate Finance
TASK A
The Chief Executive Officer
The current CEO of Magellan Financial Group Limited is called Dr. Peter Brett Cairns. The CEO is responsible for the overseeing of the operations of the group. The CEO has been office since 201 to restore the confidence of all stakeholders in investing in the Magellan Financial Group. The CEO works together with the Chief Financial Officer and both of them report to the Board of the company. The chief executive officer is compensated through salary, bonus and options. The CEO salary is AUD$ 1,545,000 per year which is reviewed annually (Magellan Financial Group Limited Annual Report, 2020).
The Chief executive officer is further compensated through short term incentive payments. The short term incentive payments involve an amount not exceeding 50% of the executive base salary. The short term incentive payments are based on the performance metrics which are set by the executive board and the performance measurements are subject to review annually. The CEO is further entitled to a bonus which is pegged on the performance of the firm. The CEO works handy with the chairman to the Board in ensuring corporate governance principles are upheld in the organization. Moreover, since the CEO is an executive director he ensures coordination of all activities of the Group. The chief executive officer furthermore leads the firm strategically to ensure a going concern of the business.
The Board of Directors
The Board of Magellan Financial Group Limited is comprised of both executive and non-executive directors. The constitution of the Group stipulates that Magellan Financial Group Limited can have a minimum of 3 and a maximum of 19 directors. Currently, the Group has 7 Directors of which two are executive directors while the other five are independent non-executive directors. The executive directors are Dr. Brett Peter Cairns and Hamish Douglas who are the Chief Executive Officer and the Chairman and Chief Investment Officer respectively. The Non-executive directors include John Eales, Robert Fraser, Paul Lewis, Hamish McLennan, and Karen Phin (Magellan Financial Group Limited Annual Report, 2020).
The role of the board to direct and oversee the activities of the Group. The role is directly dependent on the different skill set and expertise they bring to the firm. These skills are necessary in determine the overall strategy of the group and are critical in spearheading the financial and operational performance of the Group. The Board members are also required to have specific attributes such as honesty, integrity and maintain high ethical standards. The board needs should prove to have accumulated shareholder value in the Group and must always be available to execute their responsibilities effectively (Magellan Financial Group Limited Corporate GOvernance Report, 2020). Besides that, the directors need to have an inquiring mind suitable for attending to matters involving the board. Also, they should have commitment to ensuring governance in the group as well as the ability to consider materiality thresholds and risk tolerance in decision making.
The Directors have specific skills which are essential for the Group such as Marketing, Financial Acumen, Human resources, strategy, financial services industry, executive leadership, risk and compliance and governance. These specific skills are combined to form a strong team that drives the vison and mission of the group. The board has also established separate committees for audit and risk and remunerations and nominations. These committees report to the board on occasional basis based on their mandate to the group. The board performs the following roles in the group;
i. approving the strategic direction of the Group and significant corporate initiatives;
ii. approving the annual budget and financial statements and monitoring financial performance against forecast and prior periods;
iii. assessing and determining whether to accept risks beyond the approval discretion provided to management;
iv. monitoring the effectiveness of risk management and compliance including satisfying itself through reporting and oversight that appropriate internal control mechanisms are in place and are being implemented;
v. determining capital management policies including dividend policy and the amount, timing and nature of dividends to be paid;
vi. appointing and removing the Chairman, Chief Executive Officer and the Company Secretary;
vii. establishing Committees of the Board and, in relation to each Committee, appointing the members and the Chairman, setting Committee charters and delegating authority to relevant Committees; and
viii. Assessing the performance of the Board and individual Directors and determining the remuneration of Directors and Committee members.
The remuneration of the Board of directors is based on the remuneration policy of the group developed by the Remuneration and Nominations Committee. The Committee comprises of five independent non-executive directors and is responsible for developing the remuneration policy of the Group. Its role is to promote staff behaviour in line with client’s interest, attract and retain outstanding staff, and build a culture of performance in the Group. The Board of directors are considered as key management personnel in the group just as the Chief Financial Officer, Head of Risk, Compliance and Legal and the Head of Governance and Advisory. The non-executive directors receive remuneration as external advisors to the group. Their remuneration is not linked with the performance of the Group unlike the Executive Directors. The directors receive directors’ fees which have been determined by the remuneration and nominations committee (Magellan Financial Group Limited Annual Report, 2020). In the financial year 2020, the following were the director fees for the non-executive directors;
Table 1: Director Fees for Non-Executive Directors
Position Fees ($)
Magellan Asset Management Limited Chairman 25,750
Audit & Risk Committee Chairman 25750
Audit & Risk Committee Member 10,300
Board (Group) Non-Executive Director 72,100
Remuneration & Nominations Committee Chairman/Member –

The executive directors on the other hand are remunerated on a salary basis and have other benefits such as variable remuneration and the share purchase plan. The following were the earnings of the executive directors of Magellan Financial Group Limited.
Table 2: Remuneration for Executive Directors
Title Fixed Remuneration Variable Remuneration Share Purchase Plan
Hamish Douglas ( Chairman and Chief Investment Officer) $2,500,000 Up to 200% of fixed remuneration based on performance of the Group’s Global Equity strategy over a three year period Not eligible as he owns 2.22 million shares
Dr. Brett Cairns $1,1545,000 Up to 50% of the fixed remuneration based on performance metrics set by the Board. Eligible for the share purchase plan in the Group.

The non-executive directors of Magellan Financial Group are the only ones who are independent. Being non-executive directors, they cannot act as suppliers and creditors in the company since may lead to conflict of interest. Conflict of interest arises when their direct relationship between the company and suppliers meaning the parties involves are likely to manipulate decision making in the firm. Therefore, these non-executive directors cannot supply or loan Magellan Financial Group any financial aid. However, they are allowed to be CEOs of other or their own companies. They are only required to avail themselves at Magellan Group when there is matter of urgency and the board has to be convened.
The Board members are shareholders in the Group. The Board Chairman, Hamish Douglas is the largest shareholder in the Group and is closely followed by Dr. Brett Cairns among the directors. Additionally the shareholding of the board of directors was as follows;
Table 3: Shareholding of the Board of Directors
Balance as at 30th June 2018 Additions Balance as at 30th June 2019 Additions Balance as at 30th June 2020
Non-Executive Directors
John Eales 77,616 – 77,616 – 77,616
Robert Fraser 599,109 – 599,109 – 599,109
Paul Lewis 1,500,000 – 1,500,000 – 1,500,000
Hamish McLennan 100,248 – 100,248 5,000 105,248
Karen Phin 89,312 – 89,312 – 89,312
Executive Directors
Hamish Douglas 22,212,727 – 22,212,727 – 22,212,727
Dr. Brett Cairns 1,024,523 10,000 1,034,523 103,092 1,137,615

The table above shows that Hamish Douglas, the Group Chairman is the leading shareholder in Magellan Financial Group limited.
Financial and Market Considerations
Magellan Financial Group is listed on the Australian Stock Exchange as MAG.AX. The market capitalization for Magellan Financial Group Limited is AU$ 9.164 billion. The stocks of the group are currently trading at AU$ 49.86 with an average volume of 497,109 shares traded on the Australian Stock Market (Magellan Financial Group Limited, n.d.). There has been a steady increase in the share price for the last five years as illustrated in the graph below.

Source: Yahoo Finance
However, there have been instances of fluctuations in the share value as a result of market conditions and other strategic decisions made in the Group. Besides that, the Group’s equities are performing well on the stock market. The shareholding of the Group is comprised of both institutions and individuals who are insiders as well as from the general public. Consequently this shows that the company attracts a large portfolio of investors.28% of the shares of the Group are held by insiders, 15.83% are held by institutions. Therefore, this further indicates the firm shareholders is an amalgamation of both individual and corporate investors.
According to analysis, the drive for institutional investors in Magellan Financial Group is driven by the need to reap returns from their investments. Also, these investors buy stocks of highly capitalised securities such as Magellan Group. Also, increased institutional shareholding indicate the level of credibility of the group in the financial sector and industry. Based on this, other individual shareholders or the general public are interested in investing in such securities. Furthermore, the analysts are predicting an increase in the share price of the Group which is likely to influence its financial performance. Moreover, investors are attracted to the company due to its dividend growth of 3.94% (Magellan Financial Group Limited, n.d.). Investors will invest their money where there is a return on investment. Increased share value show that there are prospects of receiving higher returns from investments.
Social Constraints
Corporate Social Responsibility is a critical aspect of the Magellan Financial Group Limited in ensuring sustainability of its activities. The Group is focused on ensuring sustainability among the community, employees, environment and governance. These are some of the key issues underlying the corporate social responsibility of the firm. The Group seeks to address community issues such as human rights, philanthropy, and products. Employee’s issues involve compensation and benefits, diversity and labour rights, as well as training, health and safety of the employees (Magellan Financial Group Limited CSR/ESG Ranking, n.d.). Furthermore, the environmental issues include energy, climate change, and environment policy and resource management. Governance on the hand addresses the board, leadership ethics and transparency. The Group incorporates all these aspects in ensuring corporate social responsibility is upheld in the firm.
Magellan Financial Group is performing well on its environmental, social and governance objectives which has led to improved corporate social responsibility. Consequently this has led to high brand recognition which is AAA- rated as at March 2019. The high rating indicate that the Group is a good corporate citizen. Perhaps, this is likely to increase band image and reputation in the industry. The company also performs well on environment, social and governance aspects of business as compared to its competitors in the industry. The group is ranked 48 among 19,242 companies in the financial sector (Magellan Financial Group Limited CSR/ESG Ranking, n.d.). The graph below indicates how the group ranks as compared to the industry;
Graph 2: Magellan Financial Group CSR/ESG Ranking

Source: https://www.csrhub.com/CSR_and_sustainability_information/Magellan-Financial-Group-Ltd
Moreover, the environment, social and governance aspect is critical in determining the value of the company. Investors consider investing a company which indicates sustainability. However, this may results from mistrusts from the public and the company may not perform well. Due to this, Magellan Financial Group reports on the corporate social responsibility aspect of its business. The report is aimed at showing the shareholders and other stakeholders on the Group has taken the issues of environment, social and governance. The Group is further involved in philanthropic activities such as donations to support education and other environmental and social initiatives (Magellan Financial Group Limited Corporate Social Responsibility Report, 2020). Besides that there are internal priority areas that influence the corporate governance which involve leadership and governance and employees. Corporate social responsibility is a critical element of business continuity as it estimates whether a business is a sustainable going concern. Thus, as firms are driven towards financial performance, they need to embrace sustainability practices that will ensure sustainable development of the business.

References
Magellan Financial Group Limited CSR/ESG Ranking. (n.d.). CSRHUB. https://www.csrhub.com/CSR_and_sustainability_information/Magellan-Financial-Group-Ltd
Magellan Financial Group Limited. (2020). Annual Report. Sydney, S: Magellan Financial Group.
Magellan Financial Group Limited. (2020). Corporate Governance Report. Sydney S: Magellan Financial Group.
Magellan Financial Group Limited. (2020). Corporate Social Responsibility Report. Sydney, S: Magellan Financial Group.
Magellan Financial Group Limited. (n.d.). Yahoo FInance. https://au.finance.yahoo.com/quote/MFG.AX/holders?p=MFG.AX

TASK B
The Equity Beta of the Group
Date Open High Low Close Adj Close Volume
1/1/2018 26.96 27.21 26.33 26.49 22.8947 1380002
1/8/2018 26.71 28.1 26.4 27.7 23.94047 2123969
1/15/2018 27.79 27.86 27.1 27.48 23.75033 1929243
1/22/2018 27.55 27.73 27.07 27.73 23.9664 1058590
1/29/2018 27.81 28.16 26.95 27.98 24.18247 1851242
2/5/2018 27.5 27.78 24.35 25.61 22.13414 5184232
2/12/2018 25.51 25.76 24.89 24.99 21.97321 3077233
2/19/2018 25.02 25.2 24.435 24.54 21.57754 2487699
2/26/2018 24.85 25.53 24.39 24.51 21.55116 2662276
3/5/2018 24.51 25.63 24.425 25.4 22.33372 1911355
3/12/2018 25.71 26.3 25.1 25.68 22.57992 2532967
3/19/2018 25.9 26.01 24.1 24.14 21.22582 2233582
3/26/2018 24 24.6 23.635 23.84 20.96204 1738404
4/2/2018 23.84 23.84 22.96 23.15 20.35534 1587865
4/9/2018 23 23.19 22.13 22.71 19.96845 2024538
4/16/2018 22.78 23.32 22.23 23.25 20.44326 2338129
4/23/2018 23.28 23.4 22.58 23.32 20.50481 1834406
4/30/2018 23.42 24.42 23.18 24.18 21.26099 1651227
5/7/2018 24.51 24.74 23.44 24.38 21.43685 1985954
5/14/2018 24.48 24.63 23.65 24 21.10272 1751541
5/21/2018 24 24.08 23.24 23.53 20.68946 1558164
5/28/2018 23.54 23.65 22.67 22.74 19.99483 1643885
6/4/2018 22.8 23.11 22.335 22.66 19.92449 2039843
6/11/2018 22.66 23.56 22.36 23.47 20.6367 2363263
6/18/2018 23.5 24.19 23.11 23.76 20.8917 2771845
6/25/2018 23.76 23.93 23 23.3 20.48723 2216246
7/2/2018 23.45 23.8 21.8 23.11 20.32017 4446132
7/9/2018 23.25 24.57 23.24 24.48 21.52478 3142322
7/16/2018 24.47 25.29 24.32 25 21.982 1829938
7/23/2018 24.93 25.13 24.11 24.83 21.83253 2513245
7/30/2018 24.8 25.34 23.675 23.79 20.91807 1985291
8/6/2018 24.05 28.31 23.7 27.99 24.61105 4584219
8/13/2018 28 28.32 26.91 27.69 24.34727 4199487
8/20/2018 27.99 28 27 27.12 24.63919 1994692
8/27/2018 27.1 28.24 27.07 28.02 25.45686 2749237
9/3/2018 28.02 28.37 27.1 27.42 24.91174 1701389
9/10/2018 27.3 27.85 26.76 27.1 24.62102 1543500
9/17/2018 27.07 28.23 26.98 27.89 25.33875 1954186
9/24/2018 27.62 28.29 27.36 27.69 25.15704 1414011
10/1/2018 27.44 29.52 26.95 29 26.34721 2586580
10/8/2018 29 29.22 25.56 26.44 24.02139 2952779
10/15/2018 26.19 27.49 25.73 27.19 24.70278 1840905
10/22/2018 27 27.06 24.74 24.97 22.68586 2358620
10/29/2018 25.1 27 25.09 26.91 24.44839 1858711
11/5/2018 26.71 27.52 26.29 26.89 24.43022 1454697
11/12/2018 26.64 26.945 25.65 26.45 24.03047 1783198
11/19/2018 26.48 26.85 25.3 25.82 23.4581 1634026
11/26/2018 25.7 26.83 25.39 26.09 23.7034 1517416
12/3/2018 26.44 27.62 25.81 26.75 24.30303 3062006
12/10/2018 26.26 26.35 24.73 25.22 22.91299 2581489
12/17/2018 25.11 25.23 22.74 22.84 20.7507 2992300
12/24/2018 22.71 23.91 22.55 23.79 21.6138 907430
12/31/2018 24.21 24.22 22.92 23.02 20.91423 1429979
1/7/2019 23.7 27.8 23.42 26.48 24.05773 3221419
1/14/2019 26.26 28.04 26.25 27.97 25.41143 1878620
1/21/2019 28.05 28.44 27.53 28.11 25.53862 1508794
1/28/2019 28.11 28.72 27.57 28.38 25.78392 1888187
2/4/2019 28.25 29.5 28.15 29.16 26.49258 2567316
2/11/2019 29.11 32.87 29.08 32.6 29.6179 3322922
2/18/2019 32.79 33.44 31.75 32.66 29.67241 3810030
2/25/2019 32.71 35.52 32.71 35.23 32.74131 3077509
3/4/2019 35.88 36.34 35.07 35.15 32.66696 3229953
3/11/2019 35 37.06 35 36.64 34.05171 2969064
3/18/2019 36.81 36.88 35.62 35.95 33.41045 2661052
3/25/2019 35 36.69 34.81 36.43 33.85654 2284950
4/1/2019 36.44 38.36 36.38 38.26 35.55726 1964500
4/8/2019 38.72 40.25 38.38 40 37.17435 2932055
4/15/2019 40 41.61 39.72 40.78 37.89925 2300307
4/22/2019 40.78 43.3 40.78 43.24 40.18548 2017039
4/29/2019 43.07 45.42 42.8 45.1 41.91408 3197085
5/6/2019 44.9 44.92 42.89 43.89 40.78956 3280206
5/13/2019 43.88 45.49 41.8 44.82 41.65386 4369027
5/20/2019 45.43 45.74 43.83 43.88 40.78027 2333977
5/27/2019 44.13 44.54 43.02 43.43 40.36206 1874524
6/3/2019 43.38 45.92 40.84 45.83 42.59251 3414329
6/10/2019 45.83 49.28 45.83 47.6 44.23748 3189960
6/17/2019 47.51 52.38 47.41 51.2 47.58317 4132173
6/24/2019 50.37 51.96 49.95 51 47.3973 4093744
7/1/2019 51.21 55.68 51.21 55.35 51.44001 3353787
7/8/2019 54.93 57.14 53.96 56.96 52.93628 3117802
7/15/2019 56.5 59.74 55.93 58 53.90281 4143447
7/22/2019 57.57 62.13 57.52 61.6 57.24851 3337304
7/29/2019 60.9 62.6 59.74 60.72 56.43066 3164459
8/5/2019 60.17 61.53 54.64 60.75 56.45855 4474667
8/12/2019 60.47 61 49.34 51.64 47.99209 8515583
8/19/2019 52.75 54 51.05 52.09 49.48811 5172795
8/26/2019 50.72 53.11 48.78 50.74 48.20554 19385459
9/2/2019 50.62 54.56 49.52 54.32 51.60672 3566643
9/9/2019 54.28 54.48 51.05 51.4 48.83257 3549380
9/16/2019 51.09 53.58 50 52.5 49.87763 4803405
9/23/2019 53.09 53.86 50.58 51.88 49.28859 2867797
9/30/2019 53.13 53.3 49.12 50.87 48.32904 3861613
10/7/2019 50.97 51.27 46.96 48.35 45.93492 3726628
10/14/2019 48.63 50.79 47.5 50.45 47.93002 3355606
10/21/2019 50.08 51.31 48.24 50.63 48.10103 2643891
10/28/2019 50.63 51.04 47.13 48.03 45.6309 2936190
11/4/2019 48.31 50.83 48 49.33 46.86597 2515103
11/11/2019 50.02 50.8 48.36 50.76 48.22453 2912378
11/18/2019 51.13 51.72 47.555 49.43 46.96097 2736131
11/25/2019 50 53.98 49.42 52.49 49.86813 3494424
12/2/2019 52.7 53.14 48.25 52.34 49.72562 3299538
12/9/2019 52.99 55.91 52.25 55.88 53.0888 3682322
12/16/2019 55.93 58.72 55.86 58.33 55.41642 2824853
12/23/2019 58.72 59.49 57.67 59.47 56.49948 726090
12/30/2019 59.7 59.81 56.95 59.06 56.10996 954715
1/6/2020 58.25 63.59 57.03 62.89 59.74864 2575646
1/13/2020 62.1 64.31 61.88 63.32 60.15717 1605217
1/20/2020 63.46 66.95 62.85 66.52 63.19732 1696123
1/27/2020 66.52 67.38 60.81 67.27 63.90986 1858274
2/3/2020 65.99 71.54 64.55 69.28 65.81947 2402562
2/10/2020 69.69 74.91 69.1 73.67 69.99018 2637743
2/17/2020 73 73.22 70.39 72.4 68.78362 2273243
2/24/2020 70 70.26 55.64 55.76 53.66183 4719540
3/2/2020 54.49 61.1 52.9 52.9 50.90945 4188061
3/9/2020 50.92 51.89 37 42.92 41.30498 7773037
3/16/2020 40.01 43.91 31.52 35.22 33.89473 8673454
3/23/2020 32 43.75 30.1 38.16 36.72409 8317101
3/30/2020 38.15 48.32 37.7 42.12 40.53508 6646933
4/6/2020 44.45 51.5 43.06 49.87 47.99346 3689302
4/13/2020 49.87 51.73 46.5 48.41 46.5884 4354175
4/20/2020 48.26 48.87 44.4 46.41 44.66366 3359960
4/27/2020 46.96 52.06 46.76 48.03 46.2227 3437671
5/4/2020 47.51 55.15 46.57 55 52.93043 3603945
5/11/2020 55.2 55.6 51.91 54.32 52.27602 2358901
5/18/2020 54.6 58.48 53.76 55.95 53.84469 2265160
5/25/2020 56.08 61.55 55.13 58.35 56.15437 3642085
6/1/2020 57.5 60.72 56.83 58 55.81754 3437542
6/8/2020 58 61.44 53.68 55.72 53.62334 3406725
6/15/2020 55.11 57.88 53.08 57.54 55.37486 4023889
6/22/2020 56.08 58.9 55.05 58.04 55.85604 2885325
6/29/2020 55.99 63.5 54.55 62.45 60.10009 3097746
7/6/2020 62.05 65.13 60.62 61.25 58.94525 2674299
7/13/2020 61.99 63.26 60.125 60.71 58.42557 2220394
7/20/2020 60.93 63.86 58.12 58.56 56.35647 2345485
7/27/2020 58.1 62.68 57.91 61.16 58.85864 2514988
8/3/2020 60.88 63.38 60.1 61.11 58.81052 2018744
8/10/2020 61.96 66 61.43 65.36 62.9006 2808421
8/17/2020 63.53 64.19 61.24 61.61 59.29171 2305976
8/24/2020 61.61 63.47 59.61 60.19 59.02692 2349595
8/31/2020 60.18 62.7 56.69 58.52 57.38919 3663122
9/7/2020 58 60.95 56.15 56.87 55.77108 3210224
9/14/2020 56.75 60 55.13 56.93 55.82992 3921221
9/21/2020 57.08 57.53 53.8 56.1 55.01596 3600080
9/28/2020 56.29 58.07 56.23 56.7 55.60436 2516392
10/5/2020 57.93 63.44 57.55 62.73 61.51784 2895514
10/12/2020 63 64.44 62 62.38 61.17461 2128083
10/19/2020 62.22 62.4 58.63 59.27 58.1247 2798616
10/26/2020 59.22 60.06 55.1 55.1 54.03528 3012486
11/2/2020 55.55 62.62 54.585 60 58.8406 3295544
11/9/2020 60.96 63.48 59.64 60.51 59.34074 4134100
11/16/2020 61.08 62.79 60.06 62.43 61.22364 1981908
11/23/2020 62.43 62.83 60 60.98 59.80166 2216261
11/30/2020 60.71 61.28 57.49 57.54 56.42813 2880161
12/7/2020 57.73 58.52 54.7 54.8 53.74108 3027467
12/14/2020 55 56.47 54.71 55.29 54.22161 2638662
12/21/2020 55.5 56.89 54.02 54.23 53.18209 1444657
12/28/2020 54.23 55.39 53.66 53.66 52.6231 670845

Regression Statistics
Multiple R 0.902008305
R Square 0.813618982
Adjusted R Square 0.812416524
Standard Error 6.634269616
Observations 157

ANOVA
df SS MS F Significance F
Regression 1 29780.87 29780.87 676.6298 2.02E-58
Residual 155 6822.098 44.01353
Total 156 36602.96

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -1854.435724 72.84687 -25.4566 3.06E-57 -1998.34 -1710.53 -1998.34 -1710.53
Date 0.043413078 0.001669 26.01211 2.02E-58 0.040116 0.04671 0.040116 0.04671

The equity beta of the company will be the coefficient of the date which is 0.0434. The equity beta is lower than 0.5% which means the Group is performing below the market and industry average of between 0.5 and 3. The company y should consider increasing its shareholding volume on the stock market to ensure increased market capitalization leading to improved equity beta. Moreover, this is likely to improve the financial performance of the firm to higher margins. Also, the share prices are likely to rise and lead to increased growth.

b.
Rm-Rf =6%

Cost of Equity = RF+Beta(Rm-Rf)

RF of a 10 year yied bond is 1.537%

Eqity beta is 0.043

the Cost of equity will be 1.537%+0.043(6%)

=1.537% + (0.043(6%))
0.01828
2%

c.

Date Dividends
2/21/2017 0.384
8/14/2018 0.9
2/9/2018 0.445
8/16/2019 1.114
2/19/2019 0.738
2/18/2020 0.929
8/17/2020 1.22
2/23/2016 0.513
8/17/2016 0.38
8/15/2017 0.472

One Stage
Year 2016 2017 2018 2019 2020
Dividends 0.38 0.472 0.9 1.14 1.22

Growth 0.092 0.428 0.24 0.08
0.242105 0.90678 0.266667 0.070175

Av growth for the z year dividends 0.414541
41.45%

Two Stage
G = 0.414541
Rf = 0.01537
R = 0.01828
INTRINSIC VALUE is estimated by the following formula

Year 2016 2017 2018 2019 2020 Value
Dividends 0.38 0.472 0.9 1.14 1.22
D1, D2, D3, D4,D5 0.395753 0.559808 0.791872 1.120135 3.660813
(r+1)^-n 0.982048 0.964419 0.947105 0.930103 0.913406
Intrinsic value 0.388648 0.539889 0.749986 1.041841 3.343809 6.064174

The above analysis shows that the stocks of the company are overpriced. The intrinsic value computed is lower than the current share price in the market. Such scenarios are likely to arise in the financial sector since most companies hide financial performance and fail to focus on other aspects of the industry. The firm should ensure the share price reflects the correct position in the industry. As a result if the information goes to the public, they are likely to discredit the firm and the Group may lose substantial investors.

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Tags: Case Study on Corporate Finance for 2201AFE

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