Final Assessment Written assignment (report) Activity brief BCO212 – Business Finance Online campus Professor: Dr. Kanika Gupta | kanika.gupta@euruni.edu Description Students will answer the two questions detailed below. Format This activity must meet the following formatting requirements: • • • • • Goal(s) • • Learning outcomes Understand the bonds and stocks valuation inside business enterprises Improve analytical and quantitative skills 3. analyze series of future cash flows and recommend choices for investment; 4. categorize the value of bonds as per risk, maturity, rate of return; 5. assess bonds yields within the current financial markets’ conditions; 6. analyze the different types of stocks (preferred and common), asses their value and rate of return. Font size 12 Double-spaced 2000 words Harvard Referencing System pdf only Due date Date: 18th September 2021 at 14.00h CEST Weight towards final grade This activity has a weight of 50% towards the final grade. Assessment criteria The students can base their replies on wider research, even from the internet sources, however, all information should be appropriately referred using Business School’s referencing style. Though student’s quantitative analysis will be same, however, justification, use of theory, paper structure and background for recommendation is to be explained in detail for which you will get higher awards. Questions 1 & 2 Question 1 Assume it is 1 January 2017. An investor has researched two possible bond investments, but an intermittent printer fault has caused some important information to be missing from the printout. The latest coupon on each bond has just been paid. Each bond has a face, or par, value of £1000. The investor assumes that each bond pays coupons annually. Bond Coupon rate Maturity Current price Yield to maturity ABC 6.50% 31 December 2022 ? 5.50% XYZ 4.45% 31 December 2024 £838.45 ? · i. Complete the table by calculating the current price of bond ABC and yield to maturity of bond XYZ (10 marks). · ii. The investor subsequently realizes that the printer had not detailed the fact that the ABC bond makes semi-annual coupon payments. Recalculate the current price of the ABC bond. (10 marks) iii. Analyze the answers in (i) and (ii) above as an investor. Which coupon option would you choose and why? (10 Marks). iv. Assume for ABC corporation only, market interest rate increases, which results in increase YTM to 6.50%. What will be the revised current price of the Bond? What will you deduce about the relationship between market interest rate and bond prices? (10 Marks) Question 2 In this question you are required to extract financial information on Texas Instruments which can be found in its annual report. You should refer in particular to Texas Instruments’ 2019 consolidated financial statements. The notes to these statements may also be relevant. You are required to: a. use two appropriate methods to calculate the cost of equity for Texas Instruments (20 marks) b. use two methods to calculate a cost of debt for Texas Instruments (20 marks) c. If you have to select one of the methods from above, which one would you choose and why? (10 Marks) d. If you would be prospective investor, would you invest in Texas shares or bonds? Specify the reason. (10 Marks) Make sure you clearly describe and reference the source of the information used in your calculations. If you would like to use an additional approach that requires external information, you should provide details of these additional sources and your reasons for using them. Note the following: · the risk-free rate is 1.64% p.a. · the equity risk premium is 3% p.a. In addition to your numerical work, you should provide an explanation of your methodology and justify your choice of inputs in the formula. Remember to show all your calculations in detail. Note: this question is not just testing your ability to derive calculations; it is also looking at your understanding of which financial information is relevant for the calculations and how to deploy it. Rubric: written assignment Criteria Accomplished (A) Proficient (B) Partially proficient (C) Borderline (D) Fail (F) Problem identification The business issue has been correctly identified, with a competent and comprehensive explanation of key driving forces and considerations. Impact on company operations has been correctly identified. Thorough analysis of the issue is presented. The student correctly identified the issue(s), taking into account a variety of environmental and contextual drivers. Key case information has been identified and analyzed. The student correctly identified the case (issues), considering obvious environmental/contextual drivers. There is evidence of analysis, but it lacks depth. The student correctly identified the issue(s) but analysis was weak. An absence of context – the work is basically descriptive with little analysis. The student failed to correctly identify the issue(s); analysis was incorrect or too superficial to be of use; information was misinterpreted. Information gathering The student showed skill in gathering information and analyzing it for the purposes of filling the information gaps identified. Comprehensive and relevant. Relevant information gaps were identified and additional relevant information was found to fill them. At least two different types of sources were used. The student demonstrates coherent criteria for selecting information but needs greater depth. The student correctly identified at least one information gap and found relevant information, but which was limited in scope. Some evidence of sound criteria for selecting information but not consistent throughout. Needs expansion. An information gap was identified and the student found additional information to fill it. However, this was limited in scope. Weak criteria for the selection of necessary information. Information was taken at face value with no questioning of its relevance or value. Gaps in the information were not identified or were incorrect. Conclusions The student evaluated, analyzed, synthesized all information provided to create a perceptive set of conclusions to support the decisions and solutions. The student evaluated, analyzed and synthesized to create a conclusion(s) which support decisions and solutions. The student reached conclusions, but they were limited and provided minimal direction for decision-making and solutions. The conclusion was reasonable but lacked depth and would not be a basis for suitable strategy development. The student formed a conclusion, but it was not reasonable. It was either unjustified, incorrect or unrelated to the case in hand. Solutions The student used problem solving techniques to make thoughtful, justified decisions about difficult and conflicting issues. A realistic solution was chosen which would provide maximum benefit to the company. Alternative solutions were explored and ruled out. The student used problem solving techniques to make appropriate decisions about complex issues. Relevant questions were asked and answered. A realistic solution was chosen. Alternatives were identified, explored and ruled out. The student used problemsolving techniques to make appropriate decisions about simpler issues. The solution has limited benefit but does show understanding of implications of the decision. Alternatives were mentioned but not explored. The student used problem solving techniques to make decisions about simpler issues but disregarded more complex issues. Implications of the decision were not considered. Alternatives were not offered. The student formed a conclusion, but it was not reasonable. It was either unjustified, incorrect or unrelated to the case in hand.
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