Quiz-Essay Paper 3 – Capital Structure and Financial Leverage Risk
INTRODUCTION: Enter historical EBIT for your non-financial company and determine your optimal
capital structure for shareholder value (EPS) and Risk (beta-driven WACC). For purposes of enterprise
planning and/or acquisitions, a strategic view of capital structure across alternative debt/capital ratios
and operating earnings scenarios is essential. You are encouraged to develop more than one earnings
scenario – a probability distribution of EBIT is best thought not required for this assignment.
If you discover issues or are unsure of how to deal with negative EBIT, growth or cash flow from your
selected company’s financial statements, please let me know. Additional information on writing the QEP
is posted in our course, under the Content-Student Resources-Checklists – be sure to take advantage of
this, as it will prove quite helpful for this and following papers. Finally, although we don’t grade your
writing process directly– plan to start on time with preliminary research, draft, revision(s), and finalize
steps.
Contact EWC (Resources Menu-EWC) to make sure your paper is written in a manner that is in scope
and carries the most impact. Let me know if you feel like you might be getting stuck or need clarification
on developing analytic perceptions or have scope questions.
SPECIFICS OF THE ASSIGNMENT: In this assignment, you will write a 1 1/2 – 2 page narrative analysis of
your selected non-financial company’s optimal capital structure for shareholder value and cost. Base
your analysis on example spreadsheet provided or similar framework covering shareholder value and
risk for capital structure. No year over year, point to point recitations please.
Calculate and use financial leverage inputs of the example spreadsheet using descriptive statistics (e.g.,
mean, median, standard deviation, geometric mean, rolling average, min, max, etc.) see example Excel
worksheet [Content] or other sources. Use descriptive statistics for key financial leverage inputs in your
narrative analysis for best grade (e.g., discuss mean relative to median, standard deviation, reversion to
the mean, scenarios, rolling average trend, etc.).
For Optimal Capital Structure Analysis:
Typically, the analyst finds the mean or median ratio and standard deviation for each of the financial
leverage inputs group and re-calculates an estimated WACC and EPS of the subject company as if
company performance had shifted due to different levels of debt. Multiple scenarios of estimated
WACC and EPS are presented to demonstrate a reasonable range estimate of optimal capital structure.
What might be a reasonable HighLowMostLikely WACC-EPS pre-acquisition? How might H-L-ML change
if an acquisition were to optimize the capital structure? For best grade show before optimal capital
structure and after optimal capital structure.
Ask me if you have questio ...
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Quiz-Essay Paper 3 – Capital Structure and Financial Leverage .docx
1. Quiz-Essay Paper 3 – Capital Structure and Financial Leverage
Risk
INTRODUCTION: Enter historical EBIT for your non-financial
company and determine your optimal
capital structure for shareholder value (EPS) and Risk (beta-
driven WACC). For purposes of enterprise
planning and/or acquisitions, a strategic view of capital
structure across alternative debt/capital ratios
and operating earnings scenarios is essential. You are
encouraged to develop more than one earnings
scenario – a probability distribution of EBIT is best thought not
required for this assignment.
If you discover issues or are unsure of how to deal with
negative EBIT, growth or cash flow from your
selected company’s financial statements, please let me know.
Additional information on writing the QEP
is posted in our course, under the Content-Student Resources-
Checklists – be sure to take advantage of
this, as it will prove quite helpful for this and following papers.
Finally, although we don’t grade your
writing process directly– plan to start on time with preliminary
research, draft, revision(s), and finalize
steps.
Contact EWC (Resources Menu-EWC) to make sure your paper
is written in a manner that is in scope
and carries the most impact. Let me know if you feel like you
might be getting stuck or need clarification
on developing analytic perceptions or have scope questions.
2. SPECIFICS OF THE ASSIGNMENT: In this assignment, you
will write a 1 1/2 – 2 page narrative analysis of
your selected non-financial company’s optimal capital
structure for shareholder value and cost. Base
your analysis on example spreadsheet provided or similar
framework covering shareholder value and
risk for capital structure. No year over year, point to point
recitations please.
Calculate and use financial leverage inputs of the example
spreadsheet using descriptive statistics (e.g.,
mean, median, standard deviation, geometric mean, rolling
average, min, max, etc.) see example Excel
worksheet [Content] or other sources. Use descriptive statistics
for key financial leverage inputs in your
narrative analysis for best grade (e.g., discuss mean relative to
median, standard deviation, reversion to
the mean, scenarios, rolling average trend, etc.).
For Optimal Capital Structure Analysis:
Typically, the analyst finds the mean or median ratio and
standard deviation for each of the financial
leverage inputs group and re-calculates an estimated WACC and
EPS of the subject company as if
company performance had shifted due to different levels of
debt. Multiple scenarios of estimated
WACC and EPS are presented to demonstrate a reasonable range
estimate of optimal capital structure.
What might be a reasonable HighLowMostLikely WACC-EPS
pre-acquisition? How might H-L-ML change
if an acquisition were to optimize the capital structure? For
best grade show before optimal capital
structure and after optimal capital structure.
Ask me if you have questions or are unsure what your capital
3. structure analysis steps should be.
TECHNICAL: Start your assignment on time: Monday,
September 14, 2015 Due date: draft by:
Saturday, September 19, 2015 final -- Sunday, September 20,
2015;
12-point Times New Roman font … must include an
APA-formatted Title Page; double-spaced; Place
Tables and charts in Appendix. Use Company 10k and UMUC
Library Mergent Online and valueline.com
only for financial statement information.
Show all work-calculations; Cite all sources including page
numbers where appropriate.
NOTE: This 1 1/2-2 page paper can be done in a short
timeframe if the work starts on time and is
completed in well-organized segments and drafts.
QEP3-CapitalStructureCorp ReturnStdDev
---
AverageEnter Market IDX ReturnStdDev
---
AverageIndustry Return %StdDev
---
AverageYearCorp_CCorp_CsSPY_RSPY_RsXLY_R
wm: SP Sector Idx Return
http://www.sectorspdr.com/sectorspdr/
13. 7.82015-CorrelationBeta=Corr(UFCF_C,SPY_R) *
(STDEV(UFCF_Cs)/STDEV(SPY_Rs))SPY_R0.778=CORREL(I
4:I6,K4:K6)82.29
wm: What happens to beta if we calculate a moving standard
deviation for each range?=D20*(J4/L4)-0.062-
6.560.44246.74Corr(All)0.039=CORREL(I4:I8,K4:K8)Beta
(All)4.17=D23*(J4/L4)Avg(3)0.386Avg(3)40.82y,
xGROW_C*Weighted Moving Standard Deviation
http://www.itl.nist.gov/div898/software/dataplot/refman2/ch2/w
eightsd.pdf
Measures of Scale: Standard Deviation
http://www.itl.nist.gov/div898/handbook/eda/section3/eda356.ht
m
http://www.morningstar.com/InvGlossary/standard_deviation.as
px
A Avg
Grow 2009 2010 2011 2012 2013 2014 56 71 73 65 79
85 GROW_A 2009 2010 2011 2012 2013 2014 71.5 71.5
71.5 71.5 71.5 71.5 GROW_S+ 80.840770846134703
80.840770846134703 80.840770846134703
80.8407708 46134703 80.840770846134703
80.840770846134703 GROW_S-
62.159229153865297 62.159229153865297
62.159229153865297 62.159229153865297
62.159229153865297 62.159229153865297
GROW_M 72 72 72 72 72 72
3y Roll
Grow 2009 2010 2011 2012 2013 2014 56 71 73 65 79
85 GROW_3y 2009 2010 2011 2012 2013 2014
66.666666666666671 69.666666666666671
72.333333333333329 76.333333333333329
GROW_3ys+ 74.2 53204451160698
73.066013009061862 78.068216844695087
84.713203393317684 GROW_3ys-
14. 59.080128882172644 66.267320324271481
66.59844982197157 67.953463273348973
3y Wgt Mov
Grow 2009 2010 2011 2012 2013 2014 56 71 73 65 79
85 GROW_3ywM 2009 2010 2011 2012 2013 2014 68.25
68.5 74 78.5 GROW_3yws+ 68.866568122756931
68.802501532282889 74.477609253551833
79.161231483094838 GROW_3yws-
67.633431877243069 68.197498467717111
73.522390746448167 77.838768516905162
Linest
Grow 2009 2010 2011 2012 2013 2014 56 71 73 65 79
85 GROW_3ywM 2009 2010 2011 2012 2013 2014 68.25
68.5 74 78.5
x,y plot
UFCF_C2SPY_R 4.7333333333333334 36.5 -8.125
5.6428571428571432 14.166666666666666 5
11.7 7.6 32.299999999999997 15.6
RPPart2-Beta-StudyItem Change %StdDevEnter IDX
ReturnStdDevIndustry Return
%StdDevYearCorp_CCorp_CsSPY_RSPY_RsXLY_R
wm: SP Sector Idx Return
http://www.sectorspdr.com/sectorspdr/
& http://performance.morningstar.com/funds/etf/total-
returns.action?t=XLY20105.09.65.09.627.4613.2201111.711.75.
9920127.67.623.6201332.332.342.74201415.615.69.49Corp_C2
SPY_RCorp_C2XLY_RXLY_R2SPY_RCorrelationSPY_RXLY_
RSPY_RBetaTotalMarketFirmIndustry=Correl(Corp_C,SPY_R)
* (STDEV(Corp_Cs)/STDEV(SPY_Rs))2010-20121.000-0.975-
0.975=CORREL(b3:b5,f3:f5)-1.00
wm: What happens to beta if we calculate a moving standard
deviation for each range?-0.71
wm: What happens to beta if we calculate a moving standard
15. deviation for each range?-1.34=G11*(G3/E3)2011-
20131.0000.7930.793-1.000.581.092012-20141.0000.7250.725-
1.000.531.00Reported Value-
>Correl(All)1.0000.5290.529=CORREL(b3:b7,f3:f7)Beta
(All)1.001.000.390.73=G14*(G3/E3)Avg(3)1.0000.1810.181Av
g(3)-1.000.130.25StdDev00.81777362160.8177736216StdDev-
0.000.601.12Median1.0000.7250.725Median-1.000.531.00y,
xCorp_CCorp_CXLY_R
x,y plot
Corp_C2SPY_R 5 11.7 7.6 32.299999999999997
15.6 5 11.7 7.6 32.299999999999997 15.6
x,y plot
Corp_C2XLY_R 5 11.7 7.6 32.299999999999997
15.6 27.46 5.99 23.6 42.74 9.49
x,y plot
XLY_R2SPY_R 27.46 5.99 23.6 42.74 9.49 5
11.7 7.6 32.299999999999997 15.6
Quiz-Essay Analysis Paper 2 – Dividend Discount Model
INTRODUCTION: Use the Dividend Discount Model for this
paper. This method is important because
DDM is a traditional income method of valuation for financial
institutions. DDM relies on actual or
imputed dividend payout to derive an absolute measure of value.
DDM is a complement to a market
method of valuation using comparable companies.
For example, other income methods include discounted cash
flow and other market methods include
16. direct comparison and normalizing of financial ratios.
If you discover issues with your selected company’s financial
statements, please let me know. Additional
information on writing the QEP is posted in our course, under
the Content-Student Resources-
Assignments-Checklists – be sure to take advantage of this, as it
will prove quite helpful for this and
following papers. Finally, although we don’t grade your writing
process directly– plan to start on time
with preliminary research, draft, revision(s), and finalize steps.
Contact EWC (Resources Menu-EWC) to make sure your paper
is written in a manner that is in scope
and carries the most impact. Let me know if you feel like you
might be getting stuck or need clarification
on developing analytic perceptions or have scope questions.
SPECIFICS OF THE ASSIGNMENT. In this assignment, you
will write a 1-2 page narrative analysis of your
selected company’s dividend discount valuation. Base your
analysis on descriptive statistical analysis of
3-5 years of historical data. No year over year, point to point
recitations please.
Calculate and use descriptive statistics (e.g., mean, median,
standard deviation, geometric mean, rolling
average, min, max, etc.) see example Excel worksheet or other
sources. Use descriptive statistics in your
17. narrative analysis for best grade (e.g., discuss mean relative to
median, standard deviation, reversion to
the mean, scenarios, rolling average trend, etc.).
For DDM:
What is the best dividend metric to use? Mean, median, most
recent? What is the standard deviation?
What might be a reasonable HighLowMostLikely distribution of
dividend, growth rate, discount rate and
valuation? Be aware that most present value equations do not
produce accurate results if you attempt to
use a growth rate higher than the discount rate.
Ask me if you have questions or are unsure what your steps
should be.
Your paper must include thesis-evidence-discussion-conclusion.
TECHNICAL: Start your assignment on time: Monday, August
31, 2015 Due date: September 13, 2015
Draft by: Friday, September, 5, 2015 final -- September 13,
2015;
12-point Times New Roman font … must include an APA-
formatted Title Page; double-spaced; Place
Tables and charts in Appendix. Use Company 10k and UMUC
Library Mergent Online only for financial
statement information.
Show all work-calculations; Cite all sources including page
numbers where appropriate.
18. NOTE: This 1-2 page paper can be done in a short timeframe if
the work starts on time and is completed
in well-organized segments-drafts. If work for this assignment
starts on the due date, expect a stressful
experience.
QEP1-RelativeValue-EYEnter Financial
ItemAverageStdDevGeomeanMedianItem ChangeStdDevEnter
IDX ReturnStdDev3yr Rolling AvgStdDev3yr Weighted Roll
AvgStdDevQuartile ExclusiveQuartileWgt AvgRolling
AvgEYEY_AEY_SEY_S+EY_S-
EY_GEY_MEY_CEY_CsSPY_RSPY_RsEY_3yEY_3ysEY_3ys+
EY_3ys-EY_3ywEY_3ywMEY_3yws*EY_3yws+EY_3yws-
EY_QxEY_QiEY_CqSPY_RqWgtPeriods20093.68.43333333333
.211.75.27.78.9Min3.60-
29.005.000.253201011.28.43333333333.211.75.27.78.91.512.55
.00.24.73Q16.00-
2.257.600.252011138.43333333333.211.75.27.78.97.211.79.34.
113.35.210.210.20.911.19.38.85Median8.9-
1.411.70.5201298.43333333333.211.75.27.78.9-
2.37.611.11.612.79.410.610.60.410.910.211.65Q310.651.4715.6
020138.78.43333333333.211.75.27.78.9-
29.032.310.22.012.28.39.99.90.410.39.4Max13.07.232.320145.1
8.43333333333.211.75.27.78.9-
1.415.67.61.89.45.87.07.00.57.56.5Floor6.00-2.257.6050.62Q
Box2.90.84.13QBox1.82.93.9RangeLo2.4026.752.60RangeHi2.3
55.7516.70Mean(g)7.7-
4.814.4CorrelationBeta=Correl(EY_C,SPY_R) *
(STDEV(EY_Cs)/STDEV(SPY_Rs))SPY_R0.700=CORREL(K4:
K6, M4:M6)40.66
wm: What happens to beta if we calculate a moving standard
24. e: [email protected]
Financial Management Instrumentation Model-DRAFT
Financial Ratios, Rolling Average, Dispersion, Quartile,
Correlation, Beta and Ranking
NOTE: This is not a template; modify and use as necessary to
meet your own requirements for applied financial management
analysis.
Outline of Model
1. Financial Ratios and Items from Company Financial Reports
2. 2-4 Measures of Absolute Value
3. 2-4 Measures of Relative Value
4. Descriptive Statistics
5. Serialize financial items from 3-5 years of historical reports
6. Plot item change and benchmark return standard deviation for
All Items
7. Copy sheet for new items
8. Derive and Rank items against comparable companies
9. Probability Distribution overlay of annual observations
10. Quartile box, Mean, Median dispersion chart
11. Beta Study - Total-Market-Industry-Firm
References:
Fundamentals of Financial Management
E. Brigham & J. Houston, 7th edition
Valuation
A. Damodaran, University Edition
Excel Box Chart for Quartile-Dispersion Analysis
http://peltiertech.com/excel-box-and-whisker-diagrams-box-
plots/
*Weighted Moving Standard Deviation
http://www.itl.nist.gov/div898/software/dataplot/refman2/ch2/w
25. eightsd.pdf
Measures of Scale: Standard Deviation
http://www.itl.nist.gov/div898/handbook/eda/section3/eda356.ht
m
http://www.morningstar.com/InvGlossary/standard_deviation.as
px
Beta
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile
/totalbeta.html
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/valques
tions/totalbeta.htm
SP Sector Index Return
http://www.sectorspdr.com/sectorspdr/
&
http://performance.morningstar.com/funds/etf/total-
returns.action?t=XLYEV_EBIT Ratio by Sectore.g., [Industrial
Services | Engineering & Construction]
R-T: Damodaran, Value Multiples by Sector [ev/ebit(DA) ratio]
list:
http://people.stern.nyu.edu/ADAMODAR/New_Home_Page/data
file/vebitda.htmlEarnings Yield [EBIT/EV]ROCE
[EBIT/CE]FCF Yield [FCF / MV]Market Value-MV [EBIT *
EV_EBIT Ratio]Interest-bearing debt [ST+LT]Excess Cash
[Cash-(Revenue * 5%)]Enterprise Value-EV [MV + Debt -
Excess Cash]Capital Employed-CE [Cash + AR + INV - AP +
NFA]Return on Sales-RS [EBIT/Revenue]
Quiz-Essay Paper 1 – Financial Ratio Analysis and Descriptive
Statistics
26. INTRODUCTION. The Financial Ratio Analysis and
Descriptive Statistics paper is important because it
strengthens your understanding of subject company historical
performance measured by variation of key
ratios and equation inputs. It is also quite helpful beyond the
course, as it is a type of combined analysis
often found in the professional world. For example, standard
deviation analysis helps us understand the
dispersion of reported financial observations relative to the
mean – a key factor to consider if setting up
a representative performance simulation or planning to model a
forecast of future financial results.
If you discover issues with your selected company’s financial
statements, please let me know. Additional
information on writing the QEP is posted in our course, under
the Content-Student Resources-Checklists
– be sure to take advantage of this, as it will prove quite helpful
for this and following papers. Finally,
although we don’t grade your writing process directly– plan to
start on time with preliminary research,
draft, revision(s), and finalize steps.
Contact EWC (Resources Menu-EWC) to make sure your paper
is written in a manner that is in scope
and carries the most impact. Let me know if you feel like you
27. might be getting stuck or need clarification
on developing analytic perceptions or have scope questions.
SPECIFICS OF THE ASSIGNMENT. In this assignment, you
will write a 1-2 page narrative analysis of your
selected company’s key financial ratio profile in relation to
income method and market method
valuation. Base your analysis on descriptive statistical analysis
of 3-5 years of historical data. No year
over year, point to point recitations please.
Calculate and use descriptive statistics (e.g., mean, median,
standard deviation, geometric mean, rolling
average, min, max, etc.) see example Excel worksheet [Content]
or other sources. Use descriptive
statistics in your narrative analysis for best grade (e.g., discuss
mean relative to median, standard
deviation, reversion to the mean, scenarios, rolling average
trend, etc.).
Your paper must include thesis-evidence-discussion-conclusion.
Use 1-2 each: performance return ratios, price ratios, maximum
sustainable growth rate and operating
and financial leverage ratio (note: solvency and liquidity
concerns are out of scope); Use your textbook
to verify ratio equations.
TECHNICAL: Start your assignment on time: Friday, August
21, 2015 Due date: August 30, 2015 draft
by: Friday, August ,28, 2015 final – August 30, 2015;
12-point Times New Roman font … must include an APA-
formatted Title Page; double-spaced; Place
28. Tables and charts in Appendix. Use Company 10k and UMUC
Library Mergent Online only for financial
statement information.
Show all work-calculations; Cite all sources including page
numbers where appropriate.
RPPart1-Correlation-StudyItem Change %StdDevEnter IDX
ReturnStdDevIndustry Return
%StdDevYearCorp_CCorp_CsSPY_RSPY_RsXLY_R
wm: SP Sector Idx Return
http://www.sectorspdr.com/sectorspdr/
& http://performance.morningstar.com/funds/etf/total-
returns.action?t=XLY20105.09.65.09.627.4613.2201111.711.75.
9920127.67.623.6201332.332.342.74201415.615.69.49Correlati
onSPY_RXLY_RSPY_R2010-20121.000-0.975-
0.975=CORREL(b3:b5,f3:f5)2011-20131.0000.7930.7932012-
20141.0000.7250.725Reported Value-
>Correl(All)1.0000.5290.529=CORREL(b3:b7,f3:f7)Avg(3)1.00
00.1810.181StdDev00.81777362160.8177736216Median1.0000.
7250.725y, xCorp_CCorp_CXLY_R
x,y plot
Corp_C2SPY_R 5 11.7 7.6 32.299999999999997 15
.6 5 11.7 7.6 32.299999999999997 15.6
x,y plot
Corp_C2XLY_R 5 11.7 7.6 32.299999999999997
15.6 27.46 5.99 23.6 42.74 9.49
x,y plot
XLY_R2SPY_R 27.46 5.99 23.6 42.74 9.49 5
11.7 7.6 32.299999999999997 15.6
QEP2-DDM-GrowthRateYearEnter Financial
29. ItemAverageStdDevGeomeanMedianItem ChangeStdDevEnter
IDX ReturnStdDev3yr Rolling AvgStdDev3yr Weighted Roll
AvgStdDevGrowGROW_AGROW_SGROW_S+GROW_S-
GROW_GGROW_MGROW_CGROW_CsSPY_RSPY_RsGROW
_3yGROW_3ysGROW_3ys+GROW_3ys-
GROW_3ywGROW_3ywMGROW_3yws*GROW_3yws+GROW
_3yws-
WgtPeriods20095671.59.380.862.270.972.00.25320107171.59.3
80.862.270.972.04.714.85.00.10.2520117371.59.380.862.270.97
2.036.511.766.77.674.359.168.368.30.668.967.60.520126571.59
.380.862.270.972.0-
8.17.669.73.473.166.368.568.50.368.868.220137971.59.380.862
.270.972.05.632.372.35.778.166.674.074.00.574.573.520148571
.59.380.862.270.972.014.215.676.38.484.768.078.578.50.779.27
7.82015-CorrelationBeta=Corr(UFCF_C,SPY_R) *
(STDEV(UFCF_Cs)/STDEV(SPY_Rs))SPY_R0.778=CORREL(I
4:I6,K4:K6)82.29
wm: What happens to beta if we calculate a moving standard
deviation for each range?=D20*(J4/L4)-0.062-
6.560.44246.74Corr(All)0.039=CORREL(I4:I8,K4:K8)Beta
(All)4.17=D23*(J4/L4)Avg(3)0.386Avg(3)40.82y,
xGROW_C*Weighted Moving Standard Deviation
http://www.itl.nist.gov/div898/software/dataplot/refman2/ch2/w
eightsd.pdf
Measures of Scale: Standard Deviation
http://www.itl.nist.gov/div898/handbook/eda/section3/eda356.ht
m
http://www.morningstar.com/InvGlossary/standard_deviation.as
px
A Avg
Grow 2009 2010 2011 2012 2013 2014 56 71 73 65 79
85 GROW_A 2009 2010 2011 2012 2013 2014 71.5 71.5
71.5 71.5 71.5 71.5 GROW_S+ 80.840770846134703
80.840770846134703 80.840770846134703
36. your alternative idea for approval from the Professor:
The use of publicly traded companies as comparables will
facilitate data collection, and the selection of a
single company and companies in the same industry will
simplify the analysis. Based on analysis, define
scenarios where an acquiring firm [might] overpay, underpay, or
pay “fair market value” for the target
firm and why.
The purpose of this Acquisition Simulation is to give students
the opportunity to apply the tools they
have learned in an increasingly common real world situation,
i.e., mergers and acquisitions. In no more
than 12 pages plus supporting charts, tables, financial
statements and appendices, each proposal must
address the following areas:
1. Executive summary [<1 page]: Identify the industry/market in
which the acquiring firm is seeking to
grow and discuss why a particular firm was chosen as the target.
Moreover, discuss the rationale for the
magnitude and composition of the initial offer price and your
recommendation as to how it should be
financed and why. This section should be no more than one page
in length.
37. 2. Industry/market overview[1 page]: Describe the
industry/market in terms of size, growth rate,
product offering, and other pertinent characteristics.
Furthermore, describe industry/market dynamics
in terms of customers, competitors, potential entrants,
product/service substitutes, and suppliers.
3. Opportunities/threats [1/2 page]: Discuss major opportunities
and threats that exist because of the
industry’s competitive dynamics including any barrier to entry.
Be sure that you can show how these
threats or opportunities are a consequence of industry dynamics
described in (2).
4. Objectives [1 page]: Assume FINANCIAL BUYER. Specify
how the acquisition will enable the new
company (i.e., the combination of the acquirer and target firms)
to grow and create shareholder value.
Cite specific objectives the acquirer hopes to achieve (e.g., gain
access to new customers or products or
proprietary technologies, improve shareholder value by
achieving economies of scale or scope, etc.) and
quantify whenever possible. Note that objectives can include the
exploitation of opportunities or
defense against threats identified in section (3).
38. 5. Negotiating strategy [1/2 page]: Once the primary target has
been identified
Acquisition Proposal Research Project
FINC 430 Financial Management
Prof. Marcoux
Fall 2015
--Describe what you believe to be the primary issues/needs of
the parties involved (i.e., target firm
stakeholders)
--Recommend a deal structure that addresses the primary needs
of all parties. Identify and explain the
rationale for choosing the main elements of the structure
including the proposed acquisition vehicle,
post closing organization, form of payment, form of acquisition,
and tax structure. Indicate how you
might “close the gap” between the seller’s expected price and
the offer price, if the seller rejects the
initial offer, by making a counter-offer.
6. Financials and valuation [3-4 pages]: For the acquiring and
target firms, provide projected three-five
year income and balance sheet and estimate each firm’s value
based on its projected DDM. List key
39. forecast assumptions. Provide projected five year income,
balance sheet, and cash flow statements for
the consolidated acquirer and target firms including the effects
of potential synergy.
Clearly state potential sources and destroyers of value. Develop
a preliminary minimum and maximum
purchase price range for the target firm. Identify an initial offer
price, the composition (i.e., cash, stock,
debt, or some combination) of the offer price, and why you
believe this price is appropriate in terms of
meeting the primary needs of both target and acquirer
shareholders. The appropriateness of the offer
price should reflect your preliminary thinking about the deal
structure.
7. Financing plan [1/2 page]: Using the combined/consolidated
financial statements, determine if the
proposed offer price can be financed through some combination
of cash, stock, or borrowing without
endangering the combined firm’s credit worthiness or seriously
eroding near-term profitability and cash
flow.
8. Integration plan [1/2 page]: Identify potential integration
challenges and possible solutions. (For
those characterizing themselves as financial buyers, integration
40. may not apply. Instead, they should
identify an appropriate “exit” strategy.)
9. Conclusion: [<1 page] Recommendations for achieving value
in the proposed acquisition supported by
key evidence discussed in the narrative.
10. References: List articles read and data sources.
11. Appendices: Any detailed analyses and charts-tables used to
support statements made in the “body”
of the paper should be included here. If a chart or table is cited
it should have a narrative of no more
than 150 words. Unnecessary or un-narrated elements of a chart-
table have no grade value. All work
must be shown for equation calculations and equations must be
plain-language specified. (Source ratio,
e.g., Morningstar, must have an equation spec.)
The Acquisition Analysis and Valuation Proposal will be
completed by submitting the Proposal in the
assignment folder. The cover page should be APA standard.
Acquisition Proposal Assessment: See Rubric Conference
Acquisition Proposal Research Project
FINC 430 Financial Management
41. Prof. Marcoux
Fall 2015
Acquisition Proposal Sequence Subject Class Preparation
Sequence
1. Acquisition Process: Developing Business
and Acquisition Plans
Required reading: Chapter 4 in DePamphilis
To Do #1: Each Acquisition Manager will
provide the Professor with the name of
acquiring company and acquisition target.
2. Acquisition Process: Search through Closing
Required Reading: Chapters 5 and 6 (pp. 223-
245; 254-261) in DePamphilis
To Do #2: [optional] The project plan should
include key objectives (i.e., why the you-the
acquirer wants to acquire the target firm), key
activities that must be completed to meet the
42. proposal deadline, completion dates for each
activity, and the responsibilities for each
activity.
Acquisition Proposal Research Paper Part 2 – Beta Study
INTRODUCTION: The Beta statistic is a measure of
correlation and relative volatility (typically relative to
a market benchmark) found at the core of financial management
theory. Part 2 of the Acquisition
Proposal is necessary because it lays the foundation for
evaluation of cost of capital typically used as a
valuation discount rate. It is also quite helpful beyond the
course, as this metric is often described in
static form, using historical data when it is sure to be dynamic
during a forward-looking forecast period.
Understanding its derivation and upper and lower bounds is a
critical skill in the professional world. For
example, a deterministic derivation of beta is typically used to
derive a discount rate used for many
years going forward as a constant. However, relatively small
43. variations in beta would have significant
impact on valuation modeling of dividends or cash flow.
If you discover issues with your selected company’s financial
statements, please let me know. Additional
information on writing a short research paper is posted in our
course, under the Content-Student
Resources-Checklists – be sure to take advantage of this, as it
will prove quite helpful for this and
following papers. Finally, although we don’t grade your writing
process directly– plan to start on time
with preliminary research, draft, revision(s), and finalize steps.
Contact EWC (Resources Menu-EWC) to make sure your paper
is written in a manner that is in scope
and carries the most impact. Let me know if you feel like you
might be getting stuck or need clarification
on developing analytic perceptions or have scope questions.
SPECIFICS OF THE ASSIGNMENT. In this assignment, you
will write a 1-1 1/2 page narrative analysis of
your selected company’s beta derived with market and industry
returns. Base your analysis on
descriptive statistical analysis of 3-5 years of historical data.
No year over year, point to point recitations
please.
Calculate and use descriptive statistics (e.g., mean, median,
44. standard deviation, geometric mean, rolling
average, min, max, etc.) see example Excel worksheet [Content]
or other sources. Use descriptive
statistics in your narrative analysis for best grade (e.g., discuss
mean relative to median, standard
deviation, reversion to the mean, scenarios, rolling average
trend, etc.).
Your paper must include thesis-evidence-discussion-conclusion.
Use Annual Performance: find or calculate annual price return
performance for 3-5 years for your target
financial services company, SP500 and Industry Index.
TECHNICAL: Start your assignment on time: Monday, August
31, 2015 Due date: September 12, 2015
draft by: Friday, September, 11, 2015 final – September 12,
2015;
12-point Times New Roman font … must include an APA-
formatted Title Page; double-spaced; Place
Tables and charts in Appendix. Use Company 10k and UMUC
Library Mergent Online only for financial
statement information.
Show all work-calculations; Cite all sources including page
numbers where appropriate.
Acquisition Proposal Research Paper Part 1 – Correlation Study
INTRODUCTION: The Correlation statistic is found at the core
45. of financial management theory. Part 1 of
the Acquisition Proposal is important because it strengthens
your understanding of the variation of this
important metric which results in significant impact to beta and
return valuation. It is also quite helpful
beyond the course, as this variation is difficult to forecast
making typical academic models which assume
continuity, unreliable in the professional world. For example,
derivation of beta typically uses standard
inputs. However, relatively small variations in correlation
would have significant impact on beta-driven
cost of capital modeling.
If you discover issues with your selected company’s financial
statements, please let me know. Additional
information on writing a short research paper is posted in our
course, under the Content-Student
Resources-Checklists – be sure to take advantage of this, as it
will prove quite helpful for this and
following papers. Finally, although we don’t grade your writing
process directly– plan to start on time
with preliminary research, draft, revision(s), and finalize steps.
Contact EWC (Resources Menu-EWC) to make sure your paper
is written in a manner that is in scope
46. and carries the most impact. Let me know if you feel like you
might be getting stuck or need clarification
on developing analytic perceptions or have scope questions.
SPECIFICS OF THE ASSIGNMENT. In this assignment, you
will write a 1-1 1/2 page narrative analysis of
your selected company’s correlation with market and industry
returns. Base your analysis on descriptive
statistical analysis of 3-5 years of historical data. No year over
year, point to point recitations please.
Calculate and use descriptive statistics (e.g., mean, median,
standard deviation, geometric mean, rolling
average, min, max, etc.) see example Excel worksheet [Content]
or other sources. Use descriptive
statistics in your narrative analysis for best grade (e.g., discuss
mean relative to median, standard
deviation, reversion to the mean, scenarios, rolling average
trend, etc.).
Your paper must include thesis-evidence-discussion-conclusion.
Use Annual Performance: find or calculate annual price return
performance for 3-5 years for your target
financial services company, SP500 and Industry Index.
TECHNICAL: Start your assignment on time: Friday, August
21, 2015 Due date: August 29, 2015 draft
by: Friday, August ,28, 2015 final – August 29, 2015;
12-point Times New Roman font … must include an APA-
formatted Title Page; double-spaced; Place
Tables and charts in Appendix. Use Company 10k and UMUC
Library Mergent Online only for financial
47. statement information.
Show all work-calculations; Cite all sources including page
numbers where appropriate.
FINC 430 Research Project:
Company Valuation and Analysis (Authentic Assessment)
Assigned Beginning of Week 1
Due Date: End of Week 8 (36% of final grade)
Objective
The specific objective of this exercise (written research project)
is to give you an opportunity to complete a research project
related to the material covered in the course. This assignment is
an "Authentic Form of Final Assessment," which substitutes for
a final examination in the course.
Analysis of Company's Stock
This project involves preparation of an analysis of a publicly
traded company's common stock. Your task is to analyze and
critique a company, using financial statements, an analyst's
report(s), and other information, and then recommend the price
ranges to buy, sell, or hold the stock.
Your report on the company stock analysis will be evaluated
based on the following factors:
· 25 percent–analysis and valuations
· 25 percent–”stock risk and return analysis and technical
analysis
· 20 percent–”organization of paper and critical thinking
· 20 percent–”presentation of paper and writing
· 10 percent–”research approach and use of appropriate
professional sources of information and data
Final Project Rubric
48. Criteria
5
4
3
2
1
Introduction
Posed thoughtful, creative questions that contribute to
knowledge in a specific area
Posed focused questions that yield relevant information in a
specific area.
Relied on teacher-generated questions or posed questions with
little creativity
Organization
Information is very organized with well constructed paragraphs
content follows a logical sequence which adds clarity to reader
Information is organized with well constructed paragraphs
content flows nicely to add clarity to reader
Information is generally organized with only 1 or 2 problems
separate ideas discussed in separate paragraphs content is
generally clear to reader
2 or 3 problems with organization of information separate ideas
are not discussed in separate paragraphs reader must reread at
times for clarity
Information is disorganized gaps in content leave reader
confused.
Quality of Information
Information clearly relates to questions posed in the
introduction 3 or 4 unique, creative supporting details and/or
examples are used which add interest to reader
Information clearly relates to questions posed in the
introduction 1 or 2 supporting details and/or examples are used
49. to add interest.
information clearly relates to the questions posed in the
introduction 1 supporting detail and/or example in provided.
Information is not entirely related to questions posed in
introduction no supporting details and/or examples provided
Information has little to do with the questions posed in the
introduction no supporting details and/or examples provided.
Diagrams (optional)
Diagrams and illustrations are neat, accurate and clearly relate
to the questions posed in the introduction they provide
additional insight to the content
Diagrams and illustrations are accurate and clearly relate to the
questions posed in the introduction they add interest to the
content
Diagrams and illustrations are accurate and are related to the
questions posed in the introduction
Diagrams and illustrations where present are neither neat nor
entirely accurate they don’t add much to the content
Diagrams and illustrations where present are neither neat nor
accurate; and they don’t appear to relate to the questions posed
in the introduction
Summary
Highlights important information conclusions are logical and
reasonable and clearly relate to the questions posed in the
introduction
Highlights important information conclusions are reasonable
and clearly relate to the questions posed in the introduction
Important points indicated conclusions are reasonable and relate
to the questions posed in the introduction
Not all of the important points are identified there are some
gaps in logic relating conclusions to the questions posed in the
introduction
Important points not identified conclusion does not relate to
questions posed in the introduction
Punctuation, Capitalization & Spelling
There are no grammatical, spelling or punctuation errors
50. There are 1 or 2 minor grammatical, spelling or punctuation
errors
There are 3 or 4 minor errors in punctuation, grammar and/or
spelling which do not break the flow for the reader
There are 1 or 2 major errors in punctuation, grammar and/or
spelling which do interrupt the flow for the reader
There are a number of major errors in punctuation, grammar
and/or spelling which make it difficult to read
Sources
All sources are accurately documented and in the desired format
3 or more sources were used
All sources are accurately documented and in the desired format
2 or 3 sources were used
All sources are accurately documented
Only 1 or 2 sources were used
Attempt to document source used is not completely accurate
Only 1 source was used
source used is not documented
only 1 source was used
![SPECIFICS OF THE ASSIGNMENT: In this assignment, you
will write a 1 1/2 – 2 page narrative analysis of
your selected non-financial company’s optimal capital
structure for shareholder value and cost. Base
your analysis on example spreadsheet provided or similar
framework covering shareholder value and
risk for capital structure. No year over year, point to point
recitations please.
Calculate and use financial leverage inputs of the example
spreadsheet using descriptive statistics (e.g.,
mean, median, standard deviation, geometric mean, rolling
average, min, max, etc.) see example Excel
worksheet [Content] or other sources. Use descriptive statistics
for key financial leverage inputs in your
narrative analysis for best grade (e.g., discuss mean relative to
median, standard deviation, reversion to
the mean, scenarios, rolling average trend, etc.).
For Optimal Capital Structure Analysis:
Typically, the analyst finds the mean or median ratio and
standard deviation for each of the financial
leverage inputs group and re-calculates an estimated WACC and
EPS of the subject company as if
company performance had shifted due to different levels of
debt. Multiple scenarios of estimated
WACC and EPS are presented to demonstrate a reasonable range
estimate of optimal capital structure.
What might be a reasonable HighLowMostLikely WACC-EPS
pre-acquisition? How might H-L-ML change
if an acquisition were to optimize the capital structure? For
best grade show before optimal capital
structure and after optimal capital structure.
Ask me if you have questions or are unsure what your capital](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)