Quoted companies have various alternative long-term sources of finance open to them in the form of share capital and debt. From a company’s perspective, debt is cheaper than shareholders’ funds. It follows from this that companies can minimise their weighted average cost of capital (WACC) by integrating a sensible level of gearing into their capital structure.
Select a quoted company (preferably geared) from within any of the following sectors: Chemicals, Food producers, General retailers, Health care equipment and services and Software & computer services.
Critically discuss the following using the quoted company selected:
1. The various external sources of finance available to the company. These sources of finance must be clearly identified, carefully explained and distinguished.
2. The possible considerations that may have been taken into account by the management when choosing the type of finance. All the relevant considerations explained and placed clearly in the context of the particular circumstances of the chosen quoted company.
3. The calculation of the WACC appears to be straightforward in theory but difficult in practice. Using all available information calculate the WACC of the chosen company. Evaluate the information available to calculate the WACC and the practical problems/difficulties that may be encountered for the chosen company.
4. What are your conclusions and recommendations on the capital structure of the chosen company?
Your individual assignment:
• Must be based on your own work and on your chosen quoted company. The company chosen should preferably be one that has several sources of long-term finance besides equity such as preference share capital, debentures and long-term loans.
• Gives you an opportunity to apply some of learning from the module to your chosen company.
• May use and depend on external sources of information for the chosen quoted company.
• The submission of your work should be organized and clearly structured.
• Maximum word limit is 3000 words.
• Indicate the sources of information and literature review by including all the necessary citations and references adopting the Harvard Referencing system.
• Please note that this is an individual assignment and the policy of the University on Plagiarism and Academic Misconduct applies.
• Students who have been found to have committed acts of Plagiarism are automatically have considered to have failed the entire module.
• Plagiarism involves taking someone else’s words, thoughts, ideas or essays from online essay banks and trying to pass them off as your own. It is a form of cheating which is taken very seriously.
• Table of contents.
• The context of your chosen quoted company.
• Main body – attempts at questions 1,2 and 3 as above.
• Conclusion and recommendations on the company’s capital structure.
• References and bibliography
• Appendix – this may include extracts of the relevant financial statements/information of the chosen quoted company.
CRITERIA CONTENT MARK
Introduction Objectives of the assignment identified and clarified. (200 words) 5%
Context of the chosen company Brief description & rationale for the choice of the company. (200 words) 5%
Main body Question 1-The various external sources of finance clearly identified, carefully explained and distinguished. (600 words)
Question 2-The possible considerations that may have been taken into account by the management when choosing the type of finance. Remember that all financing decisions are not taken on purely financial/quantitative considerations. Are there other factors that may have influenced capital structure decisions? (600 words)
Question 3 – An attempt at the calculation of the WACC of the company within the published information available. Students should be demonstrating the ability to obtain data and use these to support their calculations. The main emphasis of the numerical analysis will be the ability to interpret and apply the results. A critical awareness of the financial models used is required along with their limitations and underlying assumptions. (600 words)
There may be no ‘right’ answer to all three questions, especially for any calculations presented. The ability to analyse real life situations reflecting on your own experiences through appropriate theories, models, techniques and frameworks. The assignment allows for several assumptions to be made. This is an attempt to duplicate the reality of management decision-making where information is never complete. It is essential that you document all assumptions underlying your analysis. In marking the calculation elements credit will be given provided the approach adopted is reasonable and is justified. 20%
Conclusion and recommendations Ensure your conclusions and recommendations are justified and supported by facts. They should follow logically the evidence contained in the main body of the assignment. (800 words)
This should be coherent, logically organised, and clearly expressed. They should be accurate in terms of spelling, grammar and punctuation.
Appendices should contain material relevant to supporting the assignment.
Referencing & Citation 10%
Total word count & mark
Module learning outcomes to be assessed: –
Upon successful completion of this module students will be able to:
Critically evaluate the most appropriate sources for financing, how to raise it, and what are the conditioning factors within localised and global market contexts, which need to be considered when taking decisions on these matters