Assessment              Case Analysis Draft of Assessment 4 (Group)

Length                       (1500 words (+/- 10%)

Learning Outcomes The Subject Learning Outcomes demonstrated by successful completion of the tasks below include:

a) Apply the mathematics of finance to value financial securities, such as equities, bonds and money-market instruments.
(c) Evaluate and compare the various sources and costs of financing available to an organisation.
(d) Apply capital market theory.
(e) Analyse and justify how organisations make investment and distribution decisions in order to maximise shareholder value.
(f) Appraise financial risks and risk management concepts within the context of maximisation of shareholder value.

Assessment Task
The assessment is hinged on evaluating the student’s ability to calculate risk and return metrics of two listed companies, determine their capital structures and calculate their weighted average cost of capital (WACC). It also investigates the extent of the use of capital budgeting techniques in Sub Saharan African countries.

Please refer to the Instructions for details on how to complete this task.

You are expected to apply yourself fully on this assessment in order to produce a draft that should be handed in for marking at the end of Week 9. It is viewed necessary to have this assessment in order to encourage students to commence early on Assessment 4 since the requirements of these two assessments are the same. The students will receive feedback from the Facilitator and should incorporate this in Assessment 4 if it applies.

Context
“We are not there yet. But the end is in sight,” WHO Director-General Tedros Adhanom Ghebreyesus told reporters at a virtual press conference. This was the statement made with respect to COVID-19, projecting optimism after global economies had been lambasted and
forced into recession due to disruption in economic activities. With economies not yet fully recovered, the Russian Ukraine war which began on 24 February 2022 has resulted in a sharp increase in oil prices and inflation in many countries. A number of central banks have
responded to inflationary pressures with an increase in interest rates. The World Bank and other economists are projecting that global economies will experience a significant slowing down in the near future – possibly another recession following on the heels of the COVID-19 induced recession of 2020/2021.

Against the above background, it is necessary to examine the financial and stock market performance of two listed companies – one on the Australian Securities Exchange (ASX) and the other on the London Stock Exchange (LSE). This assessment focuses on:

• Assessing the students’ ability to compare financial and stock market performance of two companies
• Testing the students’ ability to perform risk and return calculations based on historical stock prices of listed companies
• Identifying industry and company factors that could have contributed to good performance of the companies
• Determining the weighted average cost of capital (WACC) of the two companies and evaluating whether industry characteristics explain similarities or differences between them
• Assessing the students’ ability to perform a comparative evaluation of the use of capital budgeting techniques (discounted and non – discounted) in any two Sub-Saharan African countries

Context
“We are not there yet. But the end is in sight,” WHO Director-General Tedros Adhanom Ghebreyesus told reporters at a virtual press conference. This was the statement made with respect to COVID-19, projecting optimism after global economies had been lambasted and
forced into recession due to disruption in economic activities. With economies not yet fully recovered, the Russian Ukraine war which began on 24 February 2022 has resulted in a sharp increase in oil prices and inflation in many countries. A number of central banks have
responded to inflationary pressures with an increase in interest rates. The World Bank and other economists are projecting that global economies will experience a significant slowing down in the near future – possibly another recession following on the heels of the COVID-19 induced recession of 2020/2021.
Against the above background, it is necessary to examine the financial and stock market performance of two listed companies – one on the Australian Securities Exchange (ASX) and the other on the London Stock Exchange (LSE). This assessment focuses on:

• Assessing the students’ ability to compare financial and stock market performance of two companies
• Testing the students’ ability to perform risk and return calculations based on historical stock prices of listed companies
• Identifying industry and company factors that could have contributed to good performance of the companies
• Determining the weighted average cost of capital (WACC) of the two companies and evaluating whether industry characteristics explain similarities or differences between them
• Assessing the students’ ability to perform a comparative evaluation of the use of capital budgeting techniques (discounted and non – discounted) in any two Sub-Saharan African countries.

Instructions
You are assigned a pair of companies – one listed on the Australian Securities Exchange (ASX) and another on the London Stock Exchange (LSE) to analyse in order to address parts (a) to (f) below. The table of companies is in the Appendix.

(a) Compare the financial performance of the two companies using the two latest annual reports that you need to access from the company websites. You are required to use the following profitability ratios: Net Profit Margin, Return on Assets (ROA), Return on Equity (ROE) and the two investment ratios: Earnings per share (EPS) and Dividend yield. (5 marks)

(b) Using daily stock market prices and relevant stock market index values e.g. S&PASX300 for the companies listed on the Australian Stock Exchange (ASX), and the FTSE100 index for those listed on the London Stock Exchange (LSE), determine the daily stock returns, daily market index returns, arithmetic mean and geometric mean of the daily stock returns and index returns using data for the period 23 February 2022 to 22 February 2023. Please ensure that your chosen indexes are not what are called “accumulation indexes” as these
include dividends. (10 marks)

(c) Using the Capital Asset Pricing Model (CAPM), determine the cost of equity of the two companies allocated to you. (10 marks)

(d) Using the latest Balance Sheets of the two companies, determine the capital structures of the companies and make a well-reasoned argument for similarities or differences in their capital structures. In your discussion you are expected to refer to the industries that they belong to and also to other factors that influence capital structures. (10 marks)

(e) Having determined the capital structure of the two companies and using other relevant information, calculate the weighted average cost of capital (WACC) of the two companies and explain why the two companies have different WACCs. (10 marks)

(f) Based on the calculations in Part (a) and Part (b), provide reasons why there could have been differences in financial and stock market performance between the two companies. You are expected to refer to company and industry factors. (5 marks)

(g) Using four articles from peer reviewed journals, published in the last 10 years, perform a comparative analysis of the use of capital budgeting techniques (discounted and non-discounted in any two Sub-Saharan African countries). Highlight similarities and differences. You should be careful in identifying countries that in Sub-Saharan Africa. (10 marks)

Consider the following as you work on this assignment:

• Data sources are annual reports, yahoo finance (au.finance.yahoo.com) especially for companies listed on the ASX, uk.finance.yahoo.com for companies on the LSE. You may use www.investing.com should you fail to get the required financial markets data from yahoo finance.
• You are expected to do calculations on an EXCEL Spreadsheet but the Assessment will be presented in a report format in a Word document. (See instructions below of how to embed an EXCEL file into a WORD document). Should you fail to embed the EXCEL
  document into the WORD document, you can upload the EXCEL document separately.
• Remember to cite, inside the text, the sources of information used. Also put the list of references at the bottom of the report.
• You will be assessed on how well you address the key questions in the assessments and how well you write the report.
• Ensure you strictly follow the Report Format and ensure you include an Executive Summary, Introduction and Conclusion that are properly written

INSTRUCTIONS TO EMBED AN EXCEL FILE INTO A WORD DOCUMENT

1. Open your Assignment in Word and Click the “Insert” tab.
2. Click the “Object” button on the Text section of the ribbon. Click “Object” from the small dropdown menu.
3. When the Object window opens, click the “Create from File” tab. Browse to the Excel file containing your analysis in the directory where it is located and double-click it to embed it into the Word document.

Ensure that you have ticked the box that allows you to embed the Excel file as an icon. By the way, below is a Dummy file that I have embedded.