Perform a scenario analysis with data provided

QUESTIONS

You are an investment adviser, working to build a foundation of wealth for your clients. One of your wealthiest clients already has a diversified portfolio, which includes managed funds, property; cash/fixed interest and a few direct share investments in Australia and around the world. The investor wishes to expand his/her portfolio and is considering your company’s share to add to the portfolio. (The investor has an extra $10 million that wishes to invest into your company). The company which you will examine is allocated by your lecturer. The assignment is a written comprehensive report and analysis of the firms’ financial performance (including referencing).

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You are required to do the following tasks:

  1. Prepare a brief description of the company, outlining the core activities, the market(s) in which it operates within and any factors in the companies’ history which you consider help present a “picture” of your company.
  2. Specify ownership-governance structure of the company: i) Name the main substantial shareholders: ii) Name the main people involved in the firm governance: The Chairman, Board members, CEO
  • > Whether any of these people have the same surname as any of substantial shareholders (>20% share capital). If yes- you could use this as an argument for the presence of an owner or family member(s) in the firm’s governance.
  • > Whether any of shareholders with more than 5% share capital are involved in firm governance.
  1. Using the information from the ASX website: www.asx.com.au you must complete the following tasks:
  2. i) Prepare a graph / chart for movements in the monthly share price over the last two years for the company that you are investigating. Plot them against movements in the All Ordinaries Index.
  3. ii) Write a report which compares movements in the companies’ share price index to the All Ords Index. For instance, how closely correlated is the line with the All Ords Index. Above or below? More or less volatile?
  4. Research via the internet or financial/business publications:

From research via the internet (using credible sources) or financial/business publications, note any significant announcements which may have influenced the share price of your company. These factors could include merger activities, divestitures, changes in management’s earnings forecasts, changes in analysts’ forecasts, unusual write-offs or abnormal items, macroeconomic factors, industry wide factors, significant management changes, changes in the focus of the company, impact of competitors or lawsuits etc. (Restrict the number of announcements to 5).

  1. Perform a scenario analysis with data provided

Assume that your selected company is considering a potential project with a new product that is expected to sell for an average price of $250 per unit and the company expects it can sell 500,000 unit per year at this price for a period of five years. Launching this project will require purchase of a $5,500,000 equipment that has residual value in five years of $500,000 and adding $ 80,000 in working capital which is expected to be fully retrieved at the end of the project. Other information is available below:

Depreciation method: straight line (n = 5 years)

Variable cost per unit: $150

Cash fixed costs per year $550 000

Discount rate: 9%

Tax Rate: 25%

Do a scenario analysis with cash flows of the assumed project to determine the sensitivity of the project’s NPV to different scenarios that are defined in terms of the estimated values for each of the project’s value drivers. Please work on two scenarios corresponding to the worst and best-case outcomes for the project. You need to provide your results in (a) relevant tables:

  • Worst case: Unit sales decrease by 25%; price per unit decreases by 20%; variable cost per unit increases by 25 %; cash fixed cost per year increases by $90 000
  • Best case: Unit sales increase by 25%; price per unit increases by 20%; variable cost per unit decreases by 25%; cash fixed cost per year decreases by $90 000
  • Based on the scenario analysis outcome, draw relevant conclusion about project NPV’s sensitivity.
  1. Based on your analysis above, write a letter of recommendation to your client, providing an explanation as why you would like to include this company in his/her investment portfolio. Please refer to the trends or factors based on your research that you believe to be important.
  2. Formal structure
  3. Power Point Presentation

Number of slides: 15-20 slides of PowerPoint

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