Country : Australia
Assignment Task:

Question 1:

a.Elaborate on the significance of weighted average cost of capital (WACC) in Corporate Finance. Why is WACC used as hurdle rate for investment appraisal projects? (8 marks)

b.Consider the following financial statements of NSE India listed Bharti Airtel Ltd. (NSE Ticker: BHARTIARTL) for FY2018-19.

20200507141211PM-372878969-1469583757.png

20200507141211PM-830436867-542780673.png

Using the information provided in the financial statements,

i. Compute the cost of debt, Kd. (2 marks)

ii. Compute the cost of equity, Ke if the beta of the company is 0.91, Rf in India is 6% and market risk premium in India is 4%. (2 marks)

iii.Compute the capital structure of the company. (2 marks)

iv.Compute the overall WACC of the business. (4 marks)

v.What can you comment about the health of the business using your computations? If say the average industry WACC is 10%, how would you interpret this company’s WACC based on your computation? (7 marks)

PART B: Attempt any 3 out of the following 4 questions

Q2. For Bharti Airtel Ltd. (financial data mentioned above), also compute the following market multiples.

i.P/Book ratio (3 marks)

ii.P/E ratio (3 marks)

iii.EV/EBITDA (3 marks)

iv.EV/Sales (3 marks)

Additional data for computing multiples:

20200507141211PM-624135047-2133306606.png

Also answer the following.

v. Why do we use market multiples for business valuation? How are they different from accounting ratios you have studied in a previous subject? (5 marks)

vi. Would P/E ratio be a meaningful estimate of the market multiple in case of Bharti Airtel? Why/why not? (4 marks)

vii.What is the significance of EV/EBITDA multiple for company valuation? (4 marks)

Q3. Compute the Enterprise Value of a business using the discounted cash flow (DCF) model with the following financials.

a.Forecast period for projecting the financials: 5 years with FY2019 being the current year.

b.Revenues for FY2019: ?50m, growing at 10% p.a. for the forecast period.

c.Expenses to be taken as 50% of revenues.

d.Company has ?80m of fixed assets which depreciate at 25% p.a. Assume depreciation to remain the same during the forecast period.

e.Change in Working capital during FY2019 is ?10m. Additional working capital required during forecast period for each year to be same as FY2019 working capital.

f. WACC for the business: 15%, terminal growth rate: 3% p.a.

g.Tax rate at 30%.

Compute the following (i to iii):

i.Operating cash flows for the forecast period. (7 marks)

ii. Terminal cash flows for the forecast period. (5 marks)

iii.Enterprise Value (EV) of the business using the DCF model. (8 marks)

iv.What does the EV that you have computed above represent? How would a finance manager interpret this value of EV if it is a case of valuing a business for a takeover by another business? (5 marks) 

Q4. A 10-year Government of India bond (G-Sec) with Face Value of ?1000 was issued at a coupon of 6.5%, paid semi-annually. The bond has been trading in the secondary market and seven years are left till maturity.

     i.Compute the price of the bond if the current yield-to-maturity (YTM) of the bond is 6%. (3 marks)

     ii.  Compute the price of the bond if the current yield-to-maturity (YTM) of the bond is 7%. (3 marks)

     iii. Compute the price of the bond if the current yield-to-maturity (YTM) of the bond is 6.5%. (3 marks)

     iv. Compute the price of the bond in the above three cases if only one year was left till maturity. (4 marks)

      v. What would be the price of the bond right before the final coupon payment? (2 marks)

     vi. What would be the price of the bond right after the final coupon payment? (2 marks)

   vii.  Draw the graph of the Bond Yields v. Price of the bond based on the above information. What do you observe about relation between Bond Yields and Price of the bond? Analyze the results you have obtained. (8 marks)

Q5. Explain the following concepts as they relate to corporate finance:

i. Explain the three forms of efficient markets as stated in the Efficient market hypothesis (EMH). What type of investment strategies would work best if the markets are actually efficient? (15 marks)

ii.Explain with suitable examples from the business world, the role of Corporate Governance inefficient working of a business. You may take reference from agency theory in drawing up your analysis. (10 marks)

This Finance Assignment has been solved by our Finance Experts at UniLearnO. Our Assignment Writing Experts are efficient to provide a fresh solution to this question. We are serving more than 10000+ Students in Australia, UK & US by helping them to score HD in their academics. Our experts are well trained to follow all marking rubrics & referencing style.

Be it a used or new solution, the quality of the work submitted by our assignment experts remains unhampered. You may continue to expect the same or even better quality with the used and new assignment solution files respectively. There’s one thing to be noticed that you could choose one between the two and acquire an HD either way. You could choose a new assignment solution file to get yourself an exclusive, plagiarism (with free Turnitin file), expert quality assignment or order an old solution file that was considered worthy of the highest distinction.

  • Uploaded By : Mia
  • Posted on : May 07th, 2019
  • Downloads : 280

Whatsapp Tap to ChatGet instant assistance