Assignment Task:
Task:
Introduction
This is an individual task, and all components are mandatory to be attempted.
Students are required to focus on explaining the concepts and analyzing the results. Number calculations are considered as contributing factor for analysis. Therefore, you can imagine around 30% weightage given to calculations and remaining 70% to your explanations and analysis wherever appropriate.
The reference list is appended in the course outline; however, the list is not exhaustive, and you will need to complete further research using ProQuest to complete individual tasks.
The individual performance and grading are according to BSBI’s grading criteria where additional marks will be awarded for juxtaposition of your answers.
Learning Outcomes:
LO1 Critically analyse principles, advanced scholarship, leading-edge research, and trends in corporate finance.
LO2 Critically evaluate the use and impact of discounted cash flow and cash flow evaluation methods in complex financial management decision making in conditions of uncertainty and incomplete data.
LO3 Synthesize and creatively apply complex knowledge in corporate finance; make sound judgements in the absence of complete data, communicate conclusions clearly to specialist and non-specialist audiences and advance scholarship.
LO4 Critically evaluate the relative economic and strategic benefits of treasury risk management and enhancing value.
Tasks:
(Please note that theory, explanation, analysis will contribute 70% weightage where appropriate and number calculations will only be allocated 30% for each given task)
Task 1: 20 Marks (LO3)
Review financial statements of Tesla Inc. and state stakeholders of Tesla. State the measures Tesla is taking to ensure adequate Corporate Governance and the institutional arrangement for addressing Principal Agent Problem. Also, suggest impact of payout policies on Agency theory (Guidelines: Review Tesla’s type of business organisation, various stakeholders, who manages and who are the owners, the ways managers ensure adequate reporting to owners).
Task 2 (30 Marks) (LO2)
You need to have an accumulated savings of $2 million by the time that you retire in 20 years. You currently have savings of $1million (5 Marks)
Choose a security from finance.yahoo.com that helps meeting your investment objective (10 Marks).
Following above, list 5 securities that you have considered/ researched that you have researched for answering part b (5 Marks).
Could you suggest a two-asset portfolio that helps meeting your objective but minimizing risk (10 Marks)?
Task 3 (50 Marks):
Tesla Inc. is a US listed company. Refer to the most recent audited Balance Sheet and Income Statement of the company
Being the finance manager, you are required to prepare a cash flow forecast for using the Discounted Cash Flow (DCF) approach and come up with a meaningful estimate of its share price.
In addition to the financial statement data, the following is the relevant information is also available about the business:
· Forecast period: 5 years
· Revenue growth from next year onwards: 10%
· Expenses/Sales ratios for forecast period to be same as average expense/sales ratio for last three years
· Tax rate to be computed as %EBT of last year and is to be continued for forecast period
· Forecast change in working capital to be same as difference of working capital for last two years
· Forecast depreciation to be same as last year’s depreciation
· No additional capital expenditure to be made during the forecast period
· Weights of debt and equity to remain same as those of last year
· Beta of the stock to be computed using the share price and Nifty index data for last three years also provided in the excel document. Necessary adjustments to be made in the beta computation.
· Risk-free rate, Rf: 6%, Market Return, Rm: 8%
· Terminal growth rate: 4%
Compute the following (10 marks each):
i. Beta of the Tesla stock
ii. Weighted average cost of capital of the company
iii. Terminal value of the projection period
iv. Enterprise value of the firm
v. Implied share price as per your calculations
All information necessary to estimate Tesla’ WACC can be found in the annual reports. Make sure you clearly describe and reference the source, including page numbers, of the information used in your calculations. If you would like to use an additional approach that requires external information, you should provide details of these additional sources and your reasons for using them.
In addition to your numerical work, you should provide an explanation of your methodology and justify your choice of inputs in the WACC formula.
Remember to show all your calculations in detail.
Note: this question is not just testing your ability to derive a WACC; it is also looking at your understanding of which financial information is relevant for the calculations and how to deploy it. Not all information provided in the assessment resources folder is needed to answer this question.
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