Corporate Finance: Capital Structure and Capital Investment Analysis

Academic projects, Management (MBA) questions, assignments on Corporate Finance.

Corporate finance, is about raising capital, making investment decisions, having appropriate capital structure, accounting, taxation. It involves financial planning and implementing various strategies to maximizing shareholder value. Corporate finance looks at ways to fund operations to maximize profits and minimize costs. It deals with preparing financial statements and taxation, and more.

Capital Structure

Firms typically utilize a mix of equity finance, debt finance, and retained earnings to access funds for their operations and growth. Each of these sources have their own advantages and disadvantages.

Equity Finance does not require repayment like debt, but dilutes ownership.

Debt finance involves borrowing money that must be repaid over time, usually with interest. While higher debt can be a burden during downturns, Debt financing can be attractive as interest payments are tax-deductible which reduces overall cost of capital.

Retained Earnings is the portion of a company’s profits that is reinvested in the business; this is a cost-effective source of funding since they do not incur interest or dilute ownership.

Assignments and Projects on CORPORATE FINANCE

Question: For an organisation evaluate what would be the most appropriate investment appraisal techniques to use in reaching a decision as to whether to invest in a significant 30-year life project. Critically discuss how the financing of this project will affect your decision.

Question:

In this assignment, you will describe and appraise capital structure policy and undertake a capital investment analysis.

Task 1: a) Describe the company’s capital structure. b) Evaluate the company’s capital structure using factors to be considered in setting such policy as they apply to the company’s context.

Task 2: Based on the hypothetical scenario information, provide the Investment Review Committee with your evaluation and recommendations on the proposed project.

Guidance points: Analyse base case (expected) cash flows and their potential uncertainty. For your base case analysis, calculate the five investment decision criteria focused upon in the Module 4 PERCI content. Recommendations should address the decision suggested by your base case, along with further follow up or other matters that the company should consider prior to making a final decision. These additional recommendations should be based on an aspect of your analysis and/or the case information. The main body of your evaluation should provide summary metrics only, with detailed cash flows shown in an Appendix (a readable screenshot from your spreadsheet down to and including the net cash flows line). Within the main body, you are advised to use tables and/or figures to assist decision makers in quickly seeing main points and to visualise your analysis results. However, ensure the key point of each table or figure is self-evident or discussed/explained in the text.

Question: For an organisation evaluate what would be the most appropriate investment appraisal techniques to use in reaching a decision as to whether to invest in a significant 30-year life project. Critically discuss how the financing of this project will affect your decision.

Question: The following three companies have recently been the subject of events that will have an impact on their share price over the short-to-medium term; Amazon Inc, Ford Motor Company and Walmart Inc. The task of this assignment is to write a brief research report on one of the three companies, with a recommendation to BUY or SELL the share of the chosen company.

• I) Students should write a brief description of the chosen company’s key activities, target market and strategy. (150 words)
• 2) Each student will identify the key drivers of the company’s future sales and profits, these should be company specific and where relevant include potential impacts from the global economy, such as economic conditions and market trends. Students should give reasons for their forecasts and quantify the impact. (1,000 words)
• 3) Each student should produce an individual 5 year share price performance chart including the share price of a competitor and the market performance with comments on their future expectations.
• 4) Each student will value the company using a two-stage discounted cash flow formula to arrive at their conclusion on whether to buy or sell the chosen company’s shares. (350 words)
• Word count —Total 2,000 words.

The Annual Report is the authoritative document for any numerical data. Any analysis tool such as Porter’s 5-Forces or a SWOT Analysis (NOT PESTLE) can be used as a basis for analysis and determining the future sales and cash-flow forecasts, but should only be applied where the criteria is expected to have a significant impact on the company’s share price or industry performance.

Charts and tables should be used as often as possible for numerical data, with test supporting the data.

Q. The risk free Rate of return is 6 %, Return on market is 11% and the Beta of Michelllo Private limited is 1.1. Estimate the cost of Equity and also mention the steps to calculate the opportunity cost of capital as per the CAPM Model.

Q. Mehta & Mehta constructing company wants to make an investment worth 500 crores in certain real estate projects. As a financial advisor to the company discuss the capital budgeting process with them, covering suitable points. (10 Marks)

Q. Anna dude Enterprises has Rs 5lacs in assets that are financed with 100% equity. Fixed cost are Rs1.2lacs. The EBIT of Anna dude Enterprises for the year is Rs80000. The applicable tax rate is 40%. In case its EBIT increases by 10%and reduces by 10% Define, calculate & interpret the
a. Net income (5 Marks)
b. Return on equity (5 Marks)

Q. Select a company for Corporate Finance assignment and do ratio analysis of that company. The company which you are selecting can be same with others but the years shouldn’t match. So for the same you have to post the company and the year on the official group so that there’s no repetition. There are around 24 ratios, first write the profit and loss ratios, then balance sheet ratios, and then mixed/combined ratios. In the end write about ‘Findings’.

Question: Finance for Strategic Managers: Sample Assignment

Pietro Yon, a local businessman, owns and manages a number of retail stores that sell a range of homewares.

Pietro is a member of the local business Chamber of Commerce and has been asked to chair a committee to research and study the success of Samsung PLC. The Chamber believes that there may be some useful learning from this study which members of the Chamber could use. You have been asked to provide specialist support to the committee and you are required to produce a range of materials for members of the committee to use.

You have been provided with the following link to view Samsung PLC’s annual reports and investor information.
https://www.samsung.com/global/ir/financial-information/audited-financial-statements/

Task 1 – Financial Data and Strategic Decision Making

You must produce a presentation for Pietro Yon to use at the next meeting of the Chamber of Commerce. The presentation should be based on your research of Samsung PLC and other relevant information. It must be accompanied by supporting notes.
Your presentation must include the following:

• An evaluation of the sources of financial data which can be used to inform business strategy.
• An assessment of the need for financial data and information in relation to the formulation of business strategy.
• An analysis of the risks related to financial business decisions.
• A review of methods that can be used for appraising strategic capital expenditure projects and strategic direction.

Task 2 – Discussion Paper

A meeting has been arranged with Pietro Yon and other members of the committee and you have been asked to produce a paper for discussion which provides:

• An interpretation of the financial statements of Samsung PLC to assess the current viability of the organisation.
• A comparative analysis of financial data using ratio analysis for Samsung PLC. You are advised to download consecutive year’s accounts from the Samsung PLC website.
• Makes recommendations to Samsung PLC based on your analysis and interpretation of the financial position.

Task 3 – Information Leaflet

Produce an information leaflet for the Chamber of Commerce to distribute to the members. The leaflet should assess the following:

• The impact of ‘creative accounting’ techniques when making strategic decisions.
• The limitations of ratio analysis as a tool for strategic decision making.
• The importance of cash flow management when evaluating proposals for capital expenditure.
• Recommend, with justifications, methods and tools that allow businesses to analyse financial data for strategic decision making purposes.

Task 4 – Capital Expenditure Appraisal

Pietro Yon has been supplied with information from a component manufacturer who has asked for advice on the best project to accept for the purchase / replacement of a piece of machinery.

The company are considering selling their old machine that has a capital cost of £260 000 and replacing it with an up to date model costing £220 000. For immediate purchase the company will receive £120 000-part exchange allowance.

Both the current and new machines are able to meet the expected company demand, estimated at: Year 1 -> 90000 Units, Year 2 -> 50000, Year 3 -> 30000.

After three years, it is predicted that demand will be zero due to the technological developments in the industry.

The following data has been provided for the existing and new machine: Current Machine (£ per unit), New Machine (£ per unit):

• Direct Materials, 1.80, 1.80
• Direct Labour, 0.75, 0.60
• Variable Overheads, 0.45, 0.30
• Depreciation, 0.35, 0.55

Additional information:

• (1) The selling price for each component is £5.00 and this will remain constant for the next three years.
• (2) The company expect the cost of direct materials and direct labour to increase by 5% each year.
• (3) The company predicts that repair and maintenance costs for the current machine will be £7000 per annum.
• (4) The current machine is expected to have a zero-residual value at the end of year 3.
• (5) The company predicts that repair and maintenance costs for the new machine will be £1000 per annum.
• (6) The new machine is expected to have a £75 000 residual value at the end of year 3.

The company’s cost of capital is 15%.

Extract from the present value table for £1 at 15%

• Year, Units
• 1, 0.870
• 2, 0.756
• 3, 0.658
• 4, 0.572

Pietro would like you to produce a business report that can be given to the company offering advice on the best course of action for the purchase / replacement machine.

REQUIRED

Prepare a report that evaluates the capital expenditure proposals using appropriate financial techniques.
You must include an assessment of the impact of the business proposal on the strategic direction of the organisation.

Provide an evaluation of the sources of financial data which can be used to inform business strategy and an assessment of the need for financial data and information in relation to business strategy. Continue with an analysis of the risks related to financial business decisions.

Carefully interpret the financial statements, make assessment and judgements on current viability of the business and prepare a comparative analysis of financial data using ratio analysis.

Provide a detailed assessment of the impact of ‘creative accounting’ techniques when making strategic decisions. Use appropriate examples to demonstrate their understanding of the importance of accurate financial data in formulating and delivering business strategy. Assess the limitations of ratio analysis as a tool for strategic decision making leading to balanced judgements. Assessment of the importance of cash flow management when evaluating proposals for capital expenditure.

Evaluate the business proposals for capital expenditure identifying benefits and issues and reaching conclusions. Use appropriate financial techniques including payback, accounting rate of return, net present value and internal rate of return. Evaluate the business proposals for capital expenditure using appropriate financial techniques. Consider non-financial factors, cost benefit analysis and value for money. Provide an assessment, with appropriate justifications of the impact of a business proposal on the strategic direction of a business organisation.

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