4000 words limit
This assignment has two parts: Part 1 (Group Report) is to be completed in a group of 3 students. There is a limit of 4000 words for this part. Part 2 (Individual Presentation) is to be completed individually by each group member, who has to perform an individual presentation about one of three topics given in the assignment.
Your Task Part 1: Group Report You were successfully confirmed as a full-time financial analyst at the family office of Jones family – an ultra-high net worth family in Australia. Mrs Jones was impressed by the financial reports you prepared for her so far. Mrs Jones holds a sizeable number of Caltex Australia (ASX ticker: CTX) shares. After the recent family board meeting, she was thinking of investing more in Caltex Australia due to its persistent good performance. She would like you to work together with two other analysts to complete a financial report on Caltex Australia. She is interested in Caltex’s valuation, financing and payout policies, risk management, and other corporate finance issues. You are required to address the following: MAF302 CORPORATE FINANCE 6 1. Caltex’s capital structure, payout ratio, and capital management policies & trends in earnings and dividends Describe and discuss Caltex’s (a) capital structure, payout ratio, and capital management policies, in general and (b) the trend in (i) capital structure, (ii) earnings per share (EPS), (iii) payout policy, and (iv) dividend per share (DPS) in 2016 and in the past five years. You may plot graphs or use tables to illustrate your points. (7 marks) 2. Caltex’s share buy-back Caltex completed a share buy-back in the first half of 2016. As an Australian resident, Mrs Jones would like to know (a) how much was raised in the share buy-back and how long it was open, (b) briefly how she could have participated in the share buy-back, (c) the important dates she should be aware of, (d) why she should or should not have participated, (e) the share price reaction to the announcement of the share buy-back (if any). (7 marks) 3. Caltex’s risk management Caltex faces the following risks: (a) interest rate risk (b) foreign exchange risk (c) commodity price risk (d) credit risk, and (e) environmental risk Explain Caltex’s exposure to these risks and how Caltex manage them. (7 marks) 4. (a) Calculate the Caltex’s weighted average cost of capital (WACC). Use the Capital Asset Pricing Model (CAPM) to find the cost of equity. Show the Excel spreadsheet and state all the reasons and/or assumptions you made in your calculations. (b) Compare your estimates of Caltex’s Beta and WACC with other financial analysts’ estimates. (9 marks) 5. (a) Calculate the intrinsic value of Caltex using the discounted cash-flow (DCF) model. State all the reasons and/or assumptions you made in your calculations. You need to: i. determine the period that Caltex will experience high growth and justify it, ii. prepare a pro forma financial statement to forecast the free cash flows (FCFs) during the high growth period, iii. forecast the horizon/terminal value, iv. determine and justify the short-term and long-term growth rates. v. provide an estimate value per share for Caltex. (b) Compare your valuation with the valuations by other analysts and Caltex’s current share price? Is Caltex fairly priced, overpriced or underpriced based on your calculation? (c) Show some sensitivity analysis. What if the economy is booming and the oil price is high? What if the economy is gloomy and the oil price is low? (15 marks) MAF302 CORPORATE FINANCE 7 Mrs Jones is quite well educated in finance and prefers reader-friendly financial articles written in a professionally manner. She expects your analysis to be rich in information and well structured. It should contain main points with the relevant descriptions and evidence from reliable sources or references. She also appreciates tables and/or graphs if they help to illustrate the main points. Part 2: Individual Presentation A. Each of your team member will be required to make a brief presentation of 3 minutes (maximum) about one of the following topics from Part 1 (Group Report): 1. Caltex’s capital structure, payout ratio, and capital management policies & trends in earnings and dividends. 2. Caltex’s share buy-back 3. Caltex’s risk management The time limit will be strictly enforced, so you must stop at the 3 minute mark. You are strongly encouraged to rehearse your presentation to ensure that it does not go over time. B. You need to submit: a brief summary (maximum 150 words) of the topic you chose (either 1., 2. or 3.) your presentation slides The purpose is to train you to effectively convey important information within a short time. (15 marks) Helpful resources Caltex’s (i) annual reports, (ii) annual reviews, and (iii) other financial statements. Data sources: (i) DatAnalysis from Deakin Library (ii) The Reserve Bank of Australia (RBA): www.rba.gov.au (iii) Yahoo! Finance: au.finance.yahoo.com (iv) The Australian Securities Exchange (ASX): www.asx.com.au Lectures & Seminars on financing, payout policy, risk management and other relevant topics. Reports or opinion pieces written by financial analysts and/or portfolio managers. Newspaper articles (e.g. The Age) and financial press (e.g. The Australian Financial Review) Online search engines, such as Google and Yahoo. Word limit The word limit for the whole assignment is 4000, but students are not expected to reach the limit, given that words in the tables and graphs are not included in the word count. Please use the marks allocated to each question as a guide to the words you should use to maximize your marks for each question.