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Group and Individual Work

This document provides instructions for a group project and individual project assignment on accounting and financial decision making. For the individual portion, students must analyze the annual reports of a chosen company over three years and evaluate its corporate governance and financial ratios. This includes examining the CEO, board of directors, share structure, stockholders, insider holdings, and return and risk. For the group portion, students must assess the company's capital structure and whether it has an appropriate debt-to-equity ratio, considering the benefits and costs of debt and calculating its weighted average cost of capital.

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Mohd Firdaus
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120 views4 pages

Group and Individual Work

This document provides instructions for a group project and individual project assignment on accounting and financial decision making. For the individual portion, students must analyze the annual reports of a chosen company over three years and evaluate its corporate governance and financial ratios. This includes examining the CEO, board of directors, share structure, stockholders, insider holdings, and return and risk. For the group portion, students must assess the company's capital structure and whether it has an appropriate debt-to-equity ratio, considering the benefits and costs of debt and calculating its weighted average cost of capital.

Uploaded by

Mohd Firdaus
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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FACULTY OF BUSINESS AND ACCOUNTANCY/UNIVERSITY OF MALAYA

GROUP PROJECT AND INDIVIDUAL PROJECT


CFGM6102 ACCOUNTING AND FINANICAL DECISION MAKING
SEMESTER 2, 2015/2016
In order to do this assignment, you need to locate the annual balance sheets and income statements for the
company that you have chosen over a three-year period (e.g. 2013, 2014 and 2015) from the companys
website.
In addition, you are strongly encouraged to use BLOOMBERG in our computer lab to obtain the financial
data of your chosen company. BLOOMBERG covers Malaysia and the rest of the world. Other advantages
of Bloomberg are you get all the latest market information such as the stock and bond prices of the
company as well as the past historical accounting and market data of the company since its incorporation.
You are asked to submit PART 1 as INDIVIDUAL WORK (10 %) and PART 2 as GROUP WORK
(20%). Each assignment earns total marks of 100.
Note that you may not have the information to answer every question, but try to keep your focus on the big
questions.
Warning: You will get zero for the assignment if there is a clear evidence of copying or plagiarism.
PART ONE: CORPORATE GOVERNANCE AND FINANCIAL RATIO ANALYSIS (Individual
Report)
DUE DATE: May 8, 2016
Important note: The maximum number of pages for individual assignment is 5 pages only.
Objectives:
o
o
o

To understand the relationship between managers and stockholders.


To understand who the average and marginal investors in the firm are.
To analyze the quality of the firm's existing projects and get a sense of the quality of
future projects.

1.

The Chief Executive Officer (5 marks)


Who is the CEO of the chosen company? How long has he or she been CEO?
If it is a family run company, is the CEO part of the family? If not, what career
path did the CEO take to get to the top? (Did he or she come from within the
organization or from outside?)
How much did the CEO make last year? What form did the compensation take?
(Break down by salary, bonus and option components)
How much stock and options in the company does the CEO own?
The Board of Directors (10 marks)
Who is on the board of directors of the company? How long have they served as
directors?
How many of the directors are inside directors? (i.e. employees or managers of
the company)
How many of the directors have other connections to the firm (as suppliers,
clients, customers)?
How many of the directors are CEOs of other companies?
Do any of the directors have large stockholdings or represent those who do?
Share Voting Structure (5 Marks)
Are there differences in voting rights across shares?
If so, do incumbent managers own a disproportionate share of the voting shares?

2.

3.

Who holds stock in this company? (10 marks)

o
o
o

How many stockholders does the company have?


What percent of the stock is held by institutional investors?
Does the company have listings in foreign markets? (If you can, estimate the percent of
the stock held by non-domestic investors)

5.

Insider Holdings (10 marks)

Who are the insiders in this company? (Besides the managers and directors, anyone with
more than 5% is treated as an insider)
What role do the insiders play in running the company?
What percent of the stock is held by insiders in the company?
What percent of the stock is held by employees overall? (Include the holdings by
employee pension plans)
Have insiders been buying or selling stock in this company in the most recent year?

o
o
o
o

6.

Return and Risk Analysis (60 Marks)

Compare the companys business, financial and market risk measures over the three year
period i.e. 2013 until 2015. What are the implications of any significant differences?
What recommendations would you make to adjust the FIRMs risk and return profile to
improve its performance?

PART TWO: CAPITAL STRUCTURE CHOICE (GROUP WORK)


DUE DATE: MAY 21, 2016
Important Note: You can choose your own group and only 2 students per group. It has to be a group
assignment. Individual assignment is not acceptable for this project
Objective:
1.

2.

To analyze the existing financial mix of the firm and to assess, from a qualitative
trade off between the benefits and the costs of debt, whether the firm has too
much or too little debt.
Benefits of Debt (15 Marks)
o What marginal tax rate does this firm face and are there other tax deductions that this
company has (like depreciation) to reduce the tax bite?
o Does this company have high free cash flows (for e.g. EBITDA/Firm Value)? Has it
taken and does it continue to have good investment projects?
Costs of Debt (15 marks)
o How high are the current cash flows of the firm (to service the debt) and how stable are
these cash flows? (Look at the variability in the operating income over time)
o How easy is it for bondholders to observe what equity investors are doing? Are the assets
tangible or intangible? If not, what are the costs in terms of monitoring stockholders or in
terms of bond covenants?
o How well can this firm forecast its future investment opportunities and needs? How much
does it value flexibility?

3. Weighted Cost of Capital (70 marks)


o
o
o
o
o

Calculate the long-term debt-to-equity ratio for the three years.


Did the company issue any new shares or rights over the last three years?
Did the company increase its borrowing over the last three years?
Did the company issue any long-term bonds? If yes, describe the attributes of these
bonds.
Try to estimate the weighted cost of capital for the chosen firm. Provide suggestions on
how the firm can lower their cost of capital.

NOTE: To estimate cost of capital, you have to calculate:


o

o
o

Weights for Debt and Equity


What is the market value of equity?
Estimate a market value for debt. (To do this you might have to collect
information on the average maturity of the debt, the interest expenses in the
most recent period and the book value of the debt)
What are the weights of debt and equity?
Estimate cost of equity
Using the published beta or data to help you estimate the companys cost of
capital.
Estimate cost of debt
If your company is rated,

What is the most recent rating for the firm?

What is the default spread1 and interest rate associated with this rating?

Default spread refers to either the difference between yields on securities of the same quality but different
maturities or difference between yields on securities of the same maturity but different quality/rating. For
instance, the spread between a 10% long-term MGS and a 14% long-term bond of a B-rated corporation is
4 percentage points,

If your company is not rated, does it have any recent borrowings? If yes, what
interest rate did the company pay on these borrowing?

http://www.uniassignment.com/essay-samples/finance/chief-executive-officer-ofsprint-nextel-finance-essay.php

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