In this assignment I have to meet the following learning outcomes;
1. Summarise key principles, trends and tools in accounting and managerial finance. 2. Demonstrate effective approaches to the analysis of managerial finance structure 3. Assess the practical application of models and theories to decisions on corporate financing. 4. Critically evaluate the economic benefits of various types of financing. 5. Use internal and external financial information to appraise business performance.
The assignment consists of two questions both worth 50%. The assignment will be based on a real life company called Henkel AG.
The assignment will use 1. financial information from Henkel AG Annual report /Website and, 2. a excel work sheet called “selected market data”.
Key concepts assignment writer should know; Capital asset pricing model, unlever, relever, ordinary least squares, SLOPE formula (in excel), debt-to-equity ratio, tax rates e.t.c.
I will add the assignment brief and other key information.
Added on 13.04.2016 18:04
MODULE: Accounting and Managerial Finance
ASSIGNMENT TITLE: AMF Written Coursework Assignment (100%)
WORD LIMIT: 3500
SUBMISSION DATE: 18/04/16
HARVARD REFRENCING: The Harvard Referencing System must be used. The Wikipedia website must not be referenced in your work.
LEARNING OUTCOMES: On successful completion of this assignment you will be able to: 1. Summarise key principles, trends and tools in accounting and managerial finance. 2. Demonstrate effective approaches to the analysis of managerial finance structure 3. Assess the practical application of models and theories to decisions on corporate financing. 4. Critically evaluate the economic benefits of various types of financing. 5. Use internal and external financial information to appraise business performance.
Please read all questions and information provided carefully. Answer should be made in appropriate length keeping in view the requirement of each question and total word counts allowed.
In addition, your assignment should demonstrate the following qualities:
– A critical appreciation of relevant literature and its use to support argument, substantiate calculations and other aspects of the assignment.
– Taking ownership of the content, being prepared to debate and argue a personal position, and providing evidence of evaluative skills. A submission made up of extracts from published sources, which is descriptive or simply just theoretical regurgitation, is not acceptable. Your submission must have interpretation and consideration of the challenges and issues of taking theory into practice.
– Logical flow of ideas and treatment; appropriate selection of real world factors related to the companies under scrutiny.
– Evidence of additional personal research, and the ability to analyse material from a variety of appropriate relevant perspectives.
-Presentation, structure, appropriateness of methodology, breaking into section headings/subheadings, tidiness.
-Marks will be awarded for proper referencing and originality of work. Also note that plagiarism is a serious offence and your submission will be electronically checked.
-Your report must be handed in electronically no later than given date of submission.
To value a company using enterprise discounted cash flow (DCF), we discount free cash flow by the weighted average cost of capital (WACC). The weighted average cost of capital represents the opportunity cost that investors face for investing their funds in one particular business instead of others with similar risk. To determine the weighted average cost of capital, calculate its three components: the cost of equity, the after-tax cost of debt, and the companys target capital structure. Since none of the variables is directly observable, we employ various models, assumptions, and approximations to estimate each component. In this assignment you will be using financial information from Henkel AG and selected market data (in Excel) to assist in answering the questions given below
QUESTION 1: 50%
The cost of equity is built on the three factors: the risk-free rate, the market risk premium, and a company-specific risk adjustment. The most commonly used model for this estimate is the capital asset pricing model (CAPM). To determine the CAPM, we need to estimate a risk-free rate, the market risk premium, and the market beta.
a. To determine the risk-free rate, please use Treasury data from the Select Market Data spreadsheet. On the Yields tab, you will find yields to maturities for U.S. and German Treasury rates. For Henkel AG, which Treasury rate at which maturity is most appropriate to use in valuing the company?
b. To determine Henkels corporate beta, unlever (and relever) the ordinary least squares (OLS) market betas for each company in the European Household and Personal Care segment. Prices can be found on the Prices tab of the Select Market Data spreadsheet. To determine the OLS market beta, regress 10-year monthly returns against the MSCI World index denominated in the same currency. In Excel, this can be done using the SLOPE formula.
Next, unlever the market beta using each companys year-end debt-to-equity ratio and the formula: bu = be/(1 + D/E). To determine Henkels corporate beta, re-lever the average industry beta using Henkels year-end debt-to-equity ratio. Repeat this process for each of Henkels divisions.
c. Assume the market risk premium equals 5 percent.
QUESTION 2: 50%
Henkel does not carry debt beyond five years. To determine the cost of debt:
a. For Henkel AG, which Treasury rate at which maturity is most appropriate to use in valuing the cost of debt of the company?
b. Add a default premium based on the companys debt rating by Standard & Poors. Yields by credit rating can be found on the Yields worksheet of the Select Market Data spread sheet . Henkel reports its debt rating on its investor relations web site at www.henkel.com/investor-relations/credit-ratings-11952.htm. If the companys rating is between reported portfolios, interpolate between the nearest ratings.
c. Determine Henkels marginal tax rate, use the tax reconciliation table in the annual report. Set the marginal tax rate equal to the Tax rate on income.
Helpful Page Locations, Henkel 2009 Annual Report
Taxes on income (the tax reconciliation table) can be found in note 9 starting on page 92.
d. To complete the cost of capital, weight the after-tax cost of debt and cost of equity using the companys year-end capital structure (found in the Select Market Data spread sheet).