UGB363 Strategic Corporate Finance Individual assignment Weighting – 100% of the marks for this module This is an individual assignment of 3,000 words. (+ or – 10%) The hand in date is: 10th May 2021 Students are required to submit their coursework through JIRA. Only assessments submitted through JIRA will be marked. Any other submission including submission to your study centre in hard copy will be treated as a non-submission. If your centre supports Turnitin© or alternatively, SafeAssign by Blackboard, a copy of your Turnitin© or SafeAssign originality report must be submitted in conjunction with your assignment. Requirements: Part A of the assessment is compulsory for all students with a marking allocation of 50% awarded within this element. Students will then select to attempt EITHER Part B or Part C of the assessment with this element of the work also being awarded a mark allocation of 50%. The assignment has been designed to cover the following learning outcomes associated with successful completion of the module: Knowledge K1. Critical understanding of the key strategic decisions that a business may have to make and appreciated how accounting and finance can assist in making and evaluating those decisions. K2. Critical understanding of specific analytical skills in key decision areas within strategy and finance at local and international level. K3. Critical understanding of the limitations of the current state of financial theory in making strategic business decisions. Skills S1. Competence in applying the key valuation concepts and methodologies of financial decision making in order to contribute to the wider decision making of the organisation Part A (compulsory) You have recently joined the portfolio investment team as a financial analyst at Top Glove, a financial advisory for manufacturing firm based in Malaysia. As part of the initial duties you have been asked by the Board of Directors to investigate the five-year performance of a companiesthat are currently performing well during COVID-19 and listed on the Bursa Malaysia Stock Exchange and forms part of the FTSE Bursa Malaysia KLCI Index with the view to potentially investing future companies funds into the chosen company: Required: Select two companies from same industry that are listed on the FTSE Bursa Malaysia KLCI Index and prepare a comparison report for the Board of Directors of Top Glove analyzing and evaluating the five-year performance of these companies. In this section students should demonstrate both knowledge and understanding in analyzing five (5) years performance in each companies using ratio analysis and compare which company perform well in the market. Choose two (2) more topics that can be considered for inclusion within the report include divided policy, merger and acquisition, capital structure, corporate governance, financing strategy, investment strategy or five-year share price fluctuations. Total for Part A – 50 marks Part B a) Ibrahim bought 200 shares of a stock trading in the Abu Dhabi Securities Exchange at AED 12 (United Arab Emirates dirham) per share. Over time, the price of the stock increased to AED 18 per share. Since the political risk in the Middle East is increasing, there have been days where the market was very volatile. Ibrahim still thinks that the value of the stock is undervalued because he has done a lot of fundamental and technical analysis on the stock. When he heard that the Abu Dhabi Securities Exchange is offering options on the stocks that trade in the exchange, he consults with his broker on the difference methods of protecting his profit and, at the same time, not lose the appreciation potential of the stock. After the consultation, Ibrahim decides to buy a put on the stock. His broker tells him that he can buy three-month puts, with a strike price of AED 18, at a cost AED 1.5 per option. Required: i) Given the circumstances surrounding Ibrahim’s current investment position, what benefits would be derived from using puts as a hedge device? What would be the major drawback?(3 marks) ii) What will be Ibrahim’s minimum profit if he buys two puts at the indicated price? How much would he make if he did not hedge but instead sold his stock immediately at a price of 18 AED per share? (4 marks) iii) Assuming Ibrahim uses two puts to hedge his position, indicate the amount of profit he will have if the stock moves to AED 25 by the expiration date of the puts. What if the stock drops to AED 11 per share? (3 marks) (b) The efficient markets hypothesis focuses on the extent to which markets incorporated information into prices. The more information that is incorporated into stock prices and the more rapidly that information becomes incorporated into prices, the more efficient the market becomes. One ways of characterizing the extent to which markets are efficient is to define different levels of efficient corresponding to different types of information that prices may reflect. Required: Critically evaluate the differing forms of market efficiency ensuring the response is supported with relevant examples based on past studies. (40 marks) In this section students should clearly demonstrate both understanding and knowledge of the differing strengths of market efficiency. The discussion / evaluation should be supported with relevant examples that has been performed within this area and should be referenced accordingly as per Harvard referencing requirements. Ensure the response does not become overly descriptive; rather, the response should aim to adopt a critical evaluative approach that develops argument based upon the accessed research, enabling logical conclusions to be drawn. Total for Part B – 50 marks Part C Jack Arnold is a resident of Lubbock, Texas, where he is a prosperous rancher and businessman. He has also built up a sizeable portfolio of common stock, which, he believes, is due to the fact that he thoroughly evaluates each stock he invests in. As Jack says, “You can’t be too careful about these things! Anytime I plan to invest in a stock can be bet I’m going to learn as much as I can about the company.’’ Jack prefers to compute his own ratios even though he could easily obtain analytical reports from his broker at no cost. (In fact, Bob Smith, his broker, has been volunteering such services for years). Recently Jack has been keeping an eye on a small chemical stock. The firm, South Plains Chemical Company, is big in the fertilizer business- which is something Jack knows a lot about. Not long ago, he received a copy of the firm’ latest financial statements (summarized here) and decided to take a closer look at the company. South Plains Chemical Company Balance Sheet ($ thousands) Cash $1,250 Account receivable 8,000 Current liabilities $10,000 Inventory 12,000 Long-term debt 8,000 Current assets 21,250 Stockholder’s equity 12,000 Fixed and other assets 8,750 Total liabilities and Stockholder’s equity 30,000 Total assets 30,000 South Plains Chemical Company Income Statement ($ thousands) Sales $50,000 Cost of goods sold 25,000 Operating expenses 15,000 Operating profit 10,000 Interest expenses 2,500 Taxes 2,500 Net profit 5,000 Dividends paid to common stockholders ($ in thousands) 1,250 Number of common shares outstanding 5 million Recent market price of the common stock 25 Required: (a) Given the information above, calculate the following ratio of South Plains Chemical Company: Price-to-earnings ratio (3 marks)Dividend yield. (4 marks)Price-to-book-value ratio. (3 marks) Required: (b) “Kemboja Bhd, a local company which specializes in the manufacturing of surgical instruments, had recently been listed on the ACE Market of Bursa Malaysia. It has embarked on an aggressive strategy for expanding its activities into overseas market. Since a lot of cash is required to fund this ongoing venture, the company has decided not to pay any dividend to its shareholders. At least none are expected in the near future. The company is expected to earn RM2 million in net free cash flow next year. This cash flow is expected to grow at 10% during the next four years and then grow at 8% per year indefinitely. The company has RM20 million in debt and 500,000 shares outstanding”. i) Based on above statement analyze whether expanding business to overseas plan is aligned with the fundamental corporate financial objective of shareholder wealth maximization when there is no any dividend payout to its shareholders. Discuss the main impact to shareholders especially there is no dividend payout for few years, other concepts that can be considered include the motives for business expansion, how business are financed (capital structure), and the key beneficiaries of expansion to the company and shareholders.(30 marks) ii) Calculate the intrinsic value of the stock using 15% discount rate. (10 marks) The evaluative element of the assessment should clearly demonstrate evidence of wider reading that is sensibly integrated and in-text referenced within the work as per Harvard referencing requirements. The response could also incorporate practical, real-life business expansion without paying dividend as a real examples (based on past studies), addressing whether expanding the businesses in a real studies have been successfully implemented, along with accessing empirical findings regarding who benefits from the expansion process (company or shareholder or both). Finally, calculate the intrinsic value of the stock using 15% discount rate. Total for Part C – 50 marks Generic Assessment Criteria – Undergraduate Bachelor’s degree CategoriesGradeRelevance Knowledge Analysis Argument and Structure Critical Evaluation Presentation Reference to Literature86 –The work examined is exemplary and provides clear evidence of a complete grasp of the knowledge, understanding and skills appropriate to the Level of the qualification. There is also unequivocal evidence showing that all the learning outcomes and responsibilities appropriate to that Level are fully satisfied. At this level it is expected that the work will be exemplary in all the categories cited above. It will demonstrate a particularly compelling evaluation, originality, and elegance of argument, interpretation or discourse.100%76-85%The work examined is excellent and demonstrates comprehensive knowledge, understanding and skills appropriate to the Level of the qualification. There is also excellent evidence showing that all the learning outcomes and responsibilities appropriate to that level are fully satisfied. At this level it is expected that the work will be excellent in the majority of the categories cited above or by demonstrating particularly compelling evaluation and elegance of argument, interpretation or discourse and there may be some evidence of originalityThe work examined is of a high standard and there is evidence of comprehensive knowledge, understanding and skills appropriate to the Level of the qualification. There is also clearly articulated t evidence demonstrating that all the learning outcomes and responsibilities appropriate to that level are satisfied At this level it is expected that the standard of the work will be high in the majority of the categories cited above or by demonstrating particularly compelling evaluation and elegance of argument, interpretation or discourse.70 –75%60 – 69%Directly relevant to the requirements of the assessmentA substantial knowledge of relevant material, showing a clear grasp of themes, questions and issues thereinGood analysis, clear and orderlyGenerally coherent and logically structured, using an appropriate mode of argument and/or theoretical mode(s)May contain some distinctive or independent thinking; may begin to formulate an independent position in relation to theory and/or practice.Well written, with standard spelling and grammar, in a readable style with acceptable formatCritical appraisal of up-to-date and/or appropriate literature. Recognition of different perspectives.Very good use of source material. Uses a range of sourcesPassSome attempt toAdequate knowledge of a fair range of relevant material, with intermittent evidence of an appreciation of its significanceSome analyticalSome attempt to constructSound work whichCompetentlyUses a variety of literature which includes some recent texts and/or appropriate literature, though not necessarily including a substantive amount beyond library texts. Competent use of source material.50 – 59%address thetreatment, buta coherent argument, butexpresses a coherentwritten, with onlyrequirements ofmay be prone tomay suffer loss of focusposition only in broadminor lapses fromthe assessment: may drift awaydescription, or to narrative, whichand consistency, with issues at stake stated onlyterms and in uncritical conformity to one orstandard grammar, with acceptablefrom this in lesslacks clearvaguely, or theoreticalmore standard viewsformatfocused passagesanalytical purposemode(s) couched in simplistic termsof the topic40 – 49%Some correlation with the requirements of the assessment but there are instances of irrelevanceBasic understanding of the subject but addressing a limited range of materialLargely descriptive or narrative, with little evidence of analysisA basic argument is evident, but mainly supported by assertion and there may be a lack of clarity and coherenceSome evidence of a view starting to be formed but mainly derivative.A simple basic style but with significant deficiencies in expression or format that may pose obstacles for the readerSome up-to-date and/or appropriate literature used. Goes beyond the material tutor has provided. Limited use of sources to support a point.Fail35 – 39%Relevance to theA limitedHeavyLittle evidence of coherentAlmost whollyNumerousBarely adequate use of literature. Over reliance on material provided by the tutor.requirements ofunderstanding of adependence onargument: lacksderivative: the writer’sdeficiencies inthe assessment may be verynarrow range of materialdescription, and/or ondevelopment and may be repetitive or thincontribution rarely goes beyondexpression and presentation; theintermittent, and may be reduced to its vaguest and least challenging termsparaphrase, is commonsimplifying paraphrasewriter may achieve clarity (if at all) only by using a simplistic or repetitious styleThe evidence provided shows that the majority of the learning outcomes and responsibilities appropriate to that Level are satisfied – for compensation consideration. 30 – 34%The work examined provides insufficient evidence of the knowledge, understanding and skills appropriate to the Level of the qualification. The evidence provided shows that some of the learning outcomes and responsibilities appropriate to that Level are satisfied. The work will be weak in some of the indicators.15-29%The work examined is unacceptable and provides little evidence of the knowledge, understanding and skills appropriate to the Level of the qualification. The evidence shows that few of the learning outcomes and responsibilities appropriate to that Level are satisfied. The work will be weak in several of the indicators.0-14%The work examined is unacceptable and provides almost no evidence of the knowledge, understanding and skills appropriate to the Level of the qualification. The evidence fails to show that any of the learning outcomes and responsibilities appropriate to that Level are satisfied. The work will be weak in the majority or all of the indicators.
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