BAFI1042 Investment Company Valuation Assignment (30%) Semester 1 2017 Company: Primary Health Care Limited (PRY) Website: www.primaryhealthcare.com.au Submission Date: Monday 01. 05. 2017, 5:00pm (Beginning of Week 9) [Group Composition for Group Assignment: strictly 3 students per group within the same tutorial] For this assignment you are required to use publicly available information to analyse a publicly listed company and prepare a report which provides an assessment of the company’s current position and future prospects, and which incorporates the use of a range of valuation models to arrive at an estimate of the company’s share price. To provide structure the assignment should include the points listed below: The final submission of the assignment should include the following: Part 1: Conduct Financial Performance and Analyse Current Issues (10%) In this section, students are expected to provide: • An evaluation of the company’s brief recent history and financial performance over time and also include peer group analysis. • Conduct ROE for the company following the DuPont ROE approach and include peer group comparison. • An analysis of the current issues facing the company, the industry it operates in, and explain the impact of the issues on the company’s future earning. Part 2: Estimate Valuation Models (15%) The second part/section of the assignment should contain the estimation of the value of the company’s share using:  Dividend discount/valuation model (DDM)  Free cash flow to equity model (FCFE) You are expected to use the Capital Asset Pricing Model (CAPM) - discussed in topic 3 - to estimate the required rate of return or discount rate needed for each model. For CAPM estimation, you are required to calculate the following: 1. Beta: You cannot pick a beta value estimated elsewhere (e.g., Bloomberg) and use it in your report. Follow topic 3 lecture notes and relevant chapter (chapter 3) of the prescribed textbook to estimate the beta of the company and attach details of your work as an appendix. Also adjust the raw beta using appropriate methodology (refer to topic 3 lecture notes). http://www.primaryhealthcare.com.au/ 2 2. Risk-Free Rate: Use 10 years Govt. Bond Yield as a proxy for the risk-free rate. Indicate any advantages or disadvantages if there are any. 3. Market Risk Premium: The estimation of the expected market risk premium is crucial. You must carefully explain what you do and any assumption you make while estimating market risk premium. • Risk Premium Estimation To estimate the risk premium, first, you have to estimate the expected market return (ASX200 is your market portfolio). Then, subtract the RFR from the expected market return and arrive at your market risk premium. Once you estimate these three figures (1-3) you will be able to estimate the required rate of return or discount r ...

1. BAFI1042 Investment Company Valuation Assignment (30%)
Semester 1 2017
Company: Primary Health Care Limited (PRY)
Website: www.primaryhealthcare.com.au
Submission Date: Monday 01. 05. 2017, 5:00pm (Beginning of
Week 9)
[Group Composition for Group Assignment: strictly 3 students
per group within
the same tutorial]
For this assignment you are required to use publicly available
information to analyse a
publicly listed company and prepare a report which provides an
assessment of the
company’s current position and future prospects, and which
incorporates the use of a
range of valuation models to arrive at an estimate of the
company’s share price. To
provide structure the assignment should include the points listed
below:
The final submission of the assignment should include the
following:
Part 1: Conduct Financial Performance and Analyse Current
Issues (10%)

2. In this section, students are expected to provide:
• An evaluation of the company’s brief recent history and
financial performance
over time and also include peer group analysis.
• Conduct ROE for the company following the DuPont ROE
approach and
include peer group comparison.
• An analysis of the current issues facing the company, the
industry it operates
in, and explain the impact of the issues on the company’s future
earning.
Part 2: Estimate Valuation Models (15%)
The second part/section of the assignment should contain the
estimation of the value
of the company’s share using:
You are expected to use the Capital Asset Pricing Model
(CAPM) - discussed in topic
3 - to estimate the required rate of return or discount rate
needed for each model. For
CAPM estimation, you are required to calculate the following:

3. 1. Beta: You cannot pick a beta value estimated elsewhere (e.g.,
Bloomberg) and use it in your report. Follow topic 3 lecture
notes and
relevant chapter (chapter 3) of the prescribed textbook to
estimate the
beta of the company and attach details of your work as an
appendix.
Also adjust the raw beta using appropriate methodology (refer
to topic
3 lecture notes).
http://www.primaryhealthcare.com.au/
2
2. Risk-Free Rate: Use 10 years Govt. Bond Yield as a proxy for
the
risk-free rate. Indicate any advantages or disadvantages if there
are
any.
3. Market Risk Premium: The estimation of the expected market
risk
premium is crucial. You must carefully explain what you do and
any
assumption you make while estimating market risk premium.
• Risk Premium Estimation
To estimate the risk premium, first, you have to estimate the
expected
market return (ASX200 is your market portfolio). Then,

4. subtract the
RFR from the expected market return and arrive at your market
risk
premium.
Once you estimate these three figures (1-3) you will be able to
estimate the
required rate of return or discount rate following CAPM that
can be used in
valuation models.
Important points to be covered in Part 2:
• Explain any assumptions made in implementing the models.
• Where appropriate, explain how you arrived at the variables
you are using. E.g., it is not enough to say you are assuming a 2
percent growth rate. You would be expected to provide
justification/motivation of how you arrive at 2 per cent growth
rate.
Part 3: Evaluate/Discuss the value/price of the company (5%)
Comment on your valuations from part 2, including a discussion
of possible
explanations of why your valuations differ from the
current/recent share price. If
appropriate, discuss why some of the above models may be
unsuitable for valuing the
company.
Maximum word limit for the Company Valuation Assignment is
6,000 words

5. excluding executive summary and appendices.
Note:
Every single member of the syndicate is expected to do a part of
implementing the
valuation models. That is to say, there should not be the
situation where a member
only does the history and financial performance of the company
without any input in
the actual implementation of valuation model.
The focus of this assignment is on the valuation, specifically
generating the inputs
into the valuation process and applying valuation models to
these inputs to arrive at a
range of share price estimates. The requirements outlined above
have been designed
to aid this process. For the discounted cash flow valuation
models the primary
requirement is to produce the appropriate expected return
measures and discount rates
to use in the models.
3
It is important that forecasts of expected returns reflect the
impact of the factors
identified as current issues facing by the company. A common
mistake is to identify a
range of issues which will impact on the company’s future
earnings or cash flows, but
then produce a set of return forecasts which are simply
extrapolations of historical

6. returns, ignoring the impact of the factors identified as current
issues. The
development of return estimates requires judgement; it is not
simply a statistical or
mathematical forecasting exercise.
References/Resources for group assignment
Islam, S.Z., Fundamental of Investment, Corpus Education
(2016).
Reilly, Frank K. and Keith C, Brown, Investment Analysis and
Portfolio Management
(10th Edition), Thomson South-Western (2012): Chapters 10,
11, 12, 13, and 14.
[Much of the material in these chapters is covered in earlier
courses and these
chapters should be used for revision purposes].
Search Bloomberg, Yahoo! Finance, Google Finance site for
business and financial
market news. These deliver world economic news, stock futures,
stock quotes, &
personal finance advice.
Damodaran, Aswath, Investment Valuation [3nd Edition],
available online at:
http://people.stern.nyu.edu/adamodar/New_Home_Page/Inv3ed.
htm
Assignment submission procedure
All assignments must be submitted online through the course
Blackboard as well as in
a hard copy. They must be accompanied by an assignments
cover sheet and

7. submitted through Turnitin on the blackboard, a plagiarism
checking tool. For
information on Turnitin see:
Student FAQ,
http://www.rmit.edu.au/academicintegrity/studentfaq
Student procedures and account setup (pdf),
http://www.rmit.edu.au/academicintegrity/studentprocedures
Turnitin student information page,
Student Quick Guide - How to submit an assignment through
Turnitin available from
the ADG webpage; http://www.rmit.edu.au/bus/adq
Turnitin will assess your work in approximately one minute, and
return a colour
coded response for the originality of the text.
Penalties for late submission
All assignments will be marked as if submitted on time then the
mark awarded will be
reduced by 10% each day (or part of a day) it is late.
Assignments that are late by 7
days or more will not be marked and will be awarded zero
marks.
http://people.stern.nyu.edu/adamodar/New_Home_Page/Inv3ed.
htm
http://www.rmit.edu.au/academicintegrity/studentfaq
http://www.rmit.edu.au/academicintegrity/studentprocedures
http://mams.rmit.edu.au/scs6qq1t7vd0z.pdf
http://www.rmit.edu.au/bus/adq

8. 4
Presentation of Report
The report is to be presented in the form of a business report. It
should have an
executive summary, outlining the main findings, at the
beginning. The remainder can
be structured in line with the above points. Calculations should
be included in
appendices.
Reports are to be typed in Arial/Times new roman with a font
size 12 in single or one
and one-half space on A4 paper. Reports are to be stapled with
two staples down the
left-hand side, or secured with a fold-back clip. Do not attach
information you have
used in compiling the report, i.e. annual reports, newspaper
articles etc., to the report.
Group Composition
Group members are strictly limited to three (3) students.
Experience has shown that
numbers either smaller or larger than these are dysfunctional.
Group composition is to
be formed within week 2.
Contribution Statement
All groups are expected to include a CONTRIBUTION
STATEMENT detailing
(the form can be found in the Blackboard), in exact terms, what
each person in the
group has done, when you submit the assignment.

9. Please note marks of the group assignment will be allocated to
each members
based on their contribution percentage. That is all students are
expected to
participate and contribute to the group assignment. Free riding
would not be
rewarded. As such students would be given a zero mark if it is
shown that s/he did not
contribute enough to the final output.
Note:References/Resources for group assignmentPresentation of
ReportGroup CompositionContribution Statement
Investment Assignment
Silvia Zia Islam
[email protected]
RMIT University©2017 2
Executive Summary
risk/return/earnings

10. your analysis
[outside of the word limit]
BAFI1042 Investment
RMIT University©2017 BAFI1042 Investment 3
Part 1 [10%]
Part 1 contains 4 questions:
Q1) Evaluate the company’s recent and overtime financial
performance by analysing the companies
share price performance, financial statements and other relevant
news during the last five years.
• Focus points:
1. Recent financial performance [past 2 years]
- choose a time frame (Look for any major public
announcements)
2. Overtime financial performance [past 5 years]
- choose a time frame
Q2) Peer group comparison/industry analysis [only choose 5
major competitors from the list for
discussion]

11. Q3) Analyse the company’s/industry current issues and explain
the impact of these issues on the
company’s future earnings
1. At Macro Level
- general factors that apply for the industry (income, growth of
the industry, govt. regulation etc.)
2. At Micro Level
- the company specific requirements (operation, level of debt,
directions/goals, competition etc.)
RMIT University©2017 4
Part 1 (cont.)
Q4) Estimate the ROE of the company for last five years [for
example; 2010-2015] using the
DuPont ROE approach.
– DuPont Analysis can be done using either of the following
steps
- 3 steps: Profit Margin, Total Asset Turnover and Financial
Leverage
- 5 steps: In addition, Interest Expense rate and Tax Retention
Ratio
Refer to chapter 4 or Topic 4 Lecture slides for formulas

12. – Compare the financial performances of the company with its
peer groups
• Choose 2 peer (competitor) companies for comparison
[Approximately 2500 words!]
BAFI1042 Investment
RMIT University©2017 5
Part 2 – Valuation [15%]
Part 2 contains 2 questions:
Q1) Start your valuation analysis with the CAPM estimation
You need 3 variables to calculate the CAPM:
–
regression analysis Or by manual
calculation
the company and ASX/S&P200 to estimate return for
five years
– Risk-Free Rate of Return: Take the 10 year Govt. bond yield
rate as a proxy for RFR
– Risk Premium: It is the difference between expected market
return E(Rm) and RFR

13. Once you estimate the CAPM required rate of return denoted as
E(Re) following the steps
above, you can use this return (also known as cost of equity, ke)
in the valuation model
BAFI1042 Investment
Part 2 (cont.)
Q2) Estimate the valuation model using two different techniques
to estimate the intrinsic value
of the company discussed in topic 6 (chapter 6):
– Estimate dividend discount model or dividend valuation model
(DDM)
– Estimate free cash flow to equity model (FCFE)
discussed in chapter 6
- Use CAPM return
- Estimate the growth rate (g = Retention ratio x DuPont ROE)
- Use assumptions if necessary
- Forecast dividends (if applicable)
discussed in chapter 6
- Growth rate of FCFE (you can take changes in FCFE values

14. over the past five years to
predict the growth rate)
- Use assumptions if necessary
- Forecast FCFE (if applicable)
[Approximately 2000 words!]
RMIT University©2017
BAFI1042 Investment
6
RMIT University©2017 7
Part 3 [5%]
Part 3 contains the evaluation of the value/price of the company
Write this part answering the following questions:
differs from the
current/recent share price?
valuation models?

15. based on your
evaluation?
[Approximately 1500 words!]
BAFI1042 Investment
RMIT University©2017 8
Last Notes
• The report is to be presented in a form of a business report
• Reference
• No copy and paste
• Keep it short, but logical and concrete!!
BAFI1042 Investment
Investment AssignmentExecutive SummaryPart 1 [10%]Part 1
(cont.)Part 2 – Valuation [15%]Part 2 (cont.)Part 3 [5%]Last
Notes