FIN205 Group based Assignment

FIN205
Data Technologies for Financial Modelling

Group-based Assignment January 2021 Presentation

FIN205 Group-based Assignment

GROUP-BASED ASSIGNMENT

This assignment is worth 20% of the final mark for FIN205 Data Technologies for Financial Modelling.

The cut-off date for this assignment is 28 February 2021, 2355 hrs.

This is a group-based assignment. You should form a group of 4 members from your seminar group. Each group is required to upload a single report via your respective seminar group site in Canvas. Please elect a group leader. The responsibility of the group leader is to upload the report on behalf of the group.

It is important for each group member to contribute substantially to the final submitted work. All group members are equally responsible for the entire submitted assignment. If you feel that the work distribution is inequitable to either yourself or your group mates, please highlight this to your instructor as soon as possible. Your instructor will then investigate and decide on any action that needs to be taken. It is not necessary for all group members to be awarded the same mark.

Note to Students:

You are to include the following particulars in your submission: Course Code, Title of the GBA, SUSS PI No., Your Name, and Submission Date.

You must answer ALL questions. (Total 100 marks)
Unless specified, all future cashflows are at end of period. If there are inconsistencies

between given financial statements and data in question, the data in the question is preferred.

FIN205 Group based Assignment

Question 1

You just joined a fund management company as a financial analyst. You are assigned to work in the US-based and US-dollar Tech-Fund Management Team. Your first assignment is to conduct research on two publicly listed companies: one technology company and one fintech company. The main objective is to explore the possibility of including one or both stock(s) into the current Tech-Fund portfolio. The Tech-Fund portfolio consists of cash and equities only, without any financial derivatives.

You are given the Balance Sheet and Income Statement of Company N. Company N is a leading computer hardware manufacturer focusing on selling computer graphic cards. To expand operation facility, Company N declared that they are going to borrow more money from banks. You are asked to carry-out an analysis on their new capital structure, especially their new cost of debt.

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FIN205 Group-based Assignment

Figure 1.1: Company N’s Balance Sheet

Figure 1.2: Company N’s Income Statement

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FIN205 Group-based Assignment

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Based on historical daily price time series data, your financial model revealed these data: Covariance of the excess Company N’s stock returns and excess Tech Market Index returns,

Cov(RN , RM ) = 0.071%
Variance of the excess Tech Market Index returns over the risk-free rate of returns,

Var(RM ) = 0.05% annualised expected Return for Tech Market Index RM,

RM = 2.86%
annualised yield for 10 year Treasury Bond Rf, the fund management company uses the 10 year

Treasury Bond yield as the risk free rate or cost of borrowing, Rf =0.76%

Show your workings for the calculations below:

1. (a)  Calculate the Beta coefficient, which is the measure of sensitivity of Company N’s common stock to the movements in the Tech Market Index. Round-off to two (2)

   decimal places.

2. (b)  State the financial model you are using and calculate the expected return for common

   stock of Company N in %. Round-off to two (2) decimal places.

3. (c)  Based on the data on 2019 alone, you observed that Company N funded their operation merely with fixed rate bonds and common stocks issuance. Given the Corporate Tax rate is 21%, N’s bond coupon yield of 3.2% and a ratio of debt D/equity E of 0.25. Calculate Weighted Average Cost of Carry, WACC of Company N for the year 2019 in %. Round-off the answer to one (1) decimal place.

   (5 marks)

4. (d)  As mentioned, Company N wants to fund their future operation with more new fixed- rate bond issuance, to a new ratio of debt D/equity E of 1. The Company N wants to maintain the same Weighted Cost of Capital as that of 2019. Given the Corporate Tax rate and cost of equity remained unchanged. Calculate the new overall cost of debt in %. Round-off the answer to two (2) decimal places.

   (5 marks)

5. (e)  Apart from calculating the expected return for common stock of Company N, the financial model you recommended in (b) is used extensively by financial analysts (not

employed in Company N) for cost analysis. Discuss one (1) reason.

(5 marks)

FIN205 Group based Assignment

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(5 marks) (5 marks)

FIN205 Group-based Assignment

Question 2

You are given the Balance Sheet and Income Statement of Company S. Company S is a leading fintech company focusing on eCommerce, digital wallet and mobile payment.

Figure 2.1: Company S’s Balance Sheet

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FIN205

Group-based Assignment

Figure 2.2: Company S’s Income Statement
The Fund Manager wants you to carry-out a DuPont Analysis for Company S.

1. (a)  Calculate the Net Profit Margin (NPM) for year 2019 in %. Show the working. Round-

   off to one (1) decimal place.

2. (b)  Calculate Return on Assets (ROA) for year 2019 in %. Show the working. Round-off

to one (1) decimal place.
(c) Determine the Return on Equity (ROE) for year 2019 in %. Show the working. Round-

off to one (1) decimal place.
(d) Illustrate two (2) strengths and two (2) drawbacks for using DuPont Analysis.

Question 3

(a) Show your common-size Balance Sheet and Income Statement, for companies N and S, respectively, by doing a screen-shot of your Excel tables and paste them in your report. Ensure good clarity and resolution of your screen shots.

A sample:

(16 marks)

(5 marks) (5 marks)

(5 marks) (10 marks)

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FIN205 Group-based Assignment

2. (b)  Calculate the current ratio, for both companies, in 2019. Show the working. Round-off

   to two (2) decimal places.

3. (c)  Calculate the inventory turnover for both companies, in year 2019. Show the working.

   Round-off to zero (0) decimal place.

4. (d)  State one (1) benefit of knowing and understanding the impact of the current ratio and likewise, one (1) benefit of knowing inventory turnover, for management of the

companies of concern.

Question 4

(5 marks)

To facilitate the investment decision making process of the Tech-Fund manager, determine if stock-inclusion should take place by preparing an investment proposal. The investment proposal should provide a logical flow that leads to a recommendation for stock-inclusion or otherwise. The logical flow is comprised of a detailed financial analysis of both companies, especially with the help of common-size financial statements. Include at least four (4) different aspects in your financial analysis. The recommendation is about whether to include either one or both companies’ stocks in the current Tech Fund portfolio.

The report should be around 600-700 words.
You will be evaluated based on the presentation (formatting, layout, diagram etc.) and logical

flow of your analysis that leads to your conclusion.

—- END OF ASSIGNMENT —-

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(2 marks) (2 marks)

(20 marks) (5 marks)