Internal Code : MAS487
Ratings agency Standard & Poor’s (S&P) downgraded BHP Biliton’s credit rating for the second time within a month (January-February 2016) due to its progressive dividend policy. Write a report to address the following issues:
1. How does credit rating affect an investor’s required rate of return? What actions could a firm take to receive a more favourable rating?
2. How reliable do you find rating agencies’ ratings in general? Also discuss credit ratings from the point of view of social responsibility.
3. Impact of credit rating downgrading on the value per share of company’s stock
4. At this point in time would you consider buying or selling the BHP stock? Give your reasons.
Question 2 :
Blackmores’ stock has risen a staggering 1268 per cent over the past ten years (2005-2015). For eight of those years, the stock went practically nowhere, and then rose tenfold in the space of two.
1. Examine the share price history and history of traded volumes over the past five years, identifying the main causes of changes in the share price during this period. Based on its stock price, do you think Blackmores has performed well over the past ten years?
2. Calculate the market capitalisation of Blackmores. Do you think Blackmores’ stock is under- priced or over-priced? Answer this question with reference to capital asset pricing model(CAPM), and justify your answer. How do you estimate the future price of Blackmores’ stock? Is this the best time to buy or sell Blackmores’ shares? Why?
3. What is Blackmores’ cost of capital? What does cost of capital mean for Blackmores?
4. Describe and comment on the working capital strategy of Blackmores for the past 5 years? What major factors would they have considered in determining their working capital strategy?
5. Examine the dividends paid by Blackmores over the past five years and describe the firm’s dividend policy. Does their dividend policy make sense? Discuss.
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