Corporate Financial Management (Solved Questions)

Part A (50%) 1000 words

Using monthly data of a stock market index of FTSE 100) over five most recent years (1^st July 2015 – (1^st July2020), test the Efficient Market Hypothesis. You are specifically required to perform the following tasks:

1. Choose a financial index and convert its performance into monthly logarithmic returns.

(5 marks)

1. Create an equally weighted portfolio of 5 companies from the chosen index and convert the performance of the portfolio into monthly logarithmic returns. The portfolio must comprise of companies with the highest beta value during the preceding 5-year period. You may choose any frequency of the data to estimate the beta.

2015-2020 as testing period

2010-2015 preceding period to test period on all the componeants of index 25 components are available for FTSE100

 

Beta screening for 25 components , when you regress the stock return (2010-2015) on the index return (2010-2015). It means that you need to download the excel file . You need to put all components and index into one spreadsheet

Regression should be done via data option in excel and then you need to find data analysis option in the menu among those , you will find the option for regression .

1.Excel file a spreadsheet where you have index and stock price for the period of 2010-2015 eg (stock 1 …….. stock 25)

 

2.Another spreadsheet with only index for testing periods which is 2015-2020

 

(15 marks)

 

1. Correctly specify the hypothesis for testing weak form market efficiency.

(5 marks)

 

1. Test the data representing logarithmic returns of the index and the portfolio for weak form efficiency by means of an independent samples T-test selecting an appropriate level of significance.

(15 marks)

 

1. Discuss your findings in terms of the results of the test, related theories and the characteristics of the chosen index.

(10 marks)

(50 Marks)

 

Please turn over

Part B (50%) 2,000 words

 

Select any one company from the index chosen in part A. Similarly, your analysis needs to cover the most recent 5-year period (01/01/2014 – 31/12/2018).

 

1. Provide an overview and comment on the key financial figures relating to that company.

(10 marks)

 

1. Download WACC data for the chosen company and analyse that data in terms of the Capital Asset Pricing Model and Gordon’s Growth model.

(15 marks)

 

1. Download Debt to Equity ratio (D/E) data for the corresponding period.

(3 marks)

 

1. Calculate correlation coefficient between the D/E and WACC variables.

(7 marks)

 

1. Relate the observed trends and statistics to the traditional and Modigliani and Miller theories on capital structure.

(15 marks)

(50 Marks)

Word limits and penalties for assignments

 

If the assignment is within +10% of the stated word limit no penalty will apply.

 

The word count is to be declared on the front page of your assignment and the assignment cover sheet.  The word count does not include:

 

·       Title and Contents page	·       Reference list	·       Appendices	·      Appropriate tables, figures and illustrations
·       Glossary	·       Bibliography	·       Quotes from interviews and focus groups.

 

Please note, in text citations [e.g. (Smith, 2011)] and direct secondary quotations [e.g. “dib-dab nonsense analysis” (Smith, 2011 p.123)] are INCLUDED in the word count.

 

If this word count is falsified, students are reminded that under ARNA page 30 Section 3.4 this will be regarded as academic misconduct.

 

If the word limit of the full assignment exceeds the +10% limit, 10% of the mark provisionally awarded to the assignment will be deducted.  For example: if the assignment is worth 70 marks but is above the word limit by more than 10%, a penalty of 7 marks will be imposed, giving a final mark of 63.

 

Students are advised that they may be asked to submit an electronic version of their assignment.

 

Time limits and penalties for presentations

 

The time allocated for the presentation must be adhered to.  At the end of this time, the presentation will be stopped and will be marked based on what has been delivered within the time limit.

 

Submission of Assessment:

 

All assignments must be submitted via the Postgraduate Programme Office.  Each assignment must be accompanied by an Assessed Work Form which must be completed in full.  The assignment will not be accepted by the Postgraduate Programme Office unless the form is completed correctly.

 

Marked assignments will be returned to students.  It is advisable to retain a copy of your assignment for you own records.  Your mark will be returned on the Assessed Work Form via the Postgraduate Programme Office.

 

Mapping to Programme Goals and Objectives:

 

This assessment will contribute directly to the following Postgraduate programme goals and objectives. 

 

Goal One: Be independent, reflective critical thinkers

 

	1.	Demonstrate awareness of their personal strengths and weaknesses through critical reflective practice.
	2.	Understand and challenge personal patterns of thinking and behaving.

 

Goal Two: Be culturally and ethically aware

 

	1.	Demonstrate their ability to work in diverse groups and teams.
	2.	Reflect on their own ethical values.

 

Goal Three: Have developed leadership and management capability

 

	1.	Demonstrate their personal contribution to team effectiveness.
3	2.	Communicate complex issues effectively.
3	3.	Demonstrate decision making and problem solving skills.
	4.	Carry out presentations and lead discussions.

 

Goal Four: Have developed and applied knowledge of international business and management theory

 

3

1.

Acquire, interpret and apply knowledge of international business, management and organisational functions.

 

Goal Five: Have developed a range of research skills and project capabilities

 

	1.	Plan and complete a major individual piece of research on a contemporary business, management or leadership topic of their choice.
	2.	Demonstrate skills of analysis and synthesis in the application of research methods to the exploration of contemporary business issues.

 

Goal Six: Have developed specialist knowledge about the theory and practice of your programme of study

 

3

1.

Demonstrate specialist functional knowledge in relation to your programme of study.

 

Assessment Criteria (NBS)

 

 

Module Specific Assessment Criteria

 

Trait	0 Fail	1 – 39 Fail	40 – 49 Fail	50 – 54 Pass	55 – 59 Pass	60 – 69 Commendation	70 – 100 Distinction
Critical Appraisal	Students work fails to demonstrate even the most basic levels of the ability to appraise.	Inarticulate and lacks coherence, students work lacks evidence of even a crude level of appraisal	Crude and lacking application to vignette, students work gives an overview of theory without demonstrating ability to appraise the issues in application.	Appraisal of the vignette demonstrates an ability to interpret the application of theory to a real world company, highlighting (in a perhaps superficial way) differences and divergences well.	Appraisal demonstrates a good ability to go beyond the obvious implications and conclusions.	Clear, coherent and importantly cohesive as an appraisal. Well-structured demonstrating the ability to form a well-considered argument.	Demonstrates independent thought and reflection, thinking around the issues, and going beyond a simple application of theory.
Coming to rational judgments, logic and strength of reasoning			Students work lacks evidence of a basic ability to form evidence based judgments.	Judgments made, but evidence and reasoning not always clear and/or coherent.	Judgments are based on evidence and clear reasoning with student demonstrating a clear linkage between logical lines of thought to come to their conclusions.		Outstanding evidence of a well-considered and weighted judgment with the students calibration of the evidence and reasoning being exceptional.

 

Note:    For those assessments or partial assessments based on calculation, multiple choice etc.  Marks will be gained on an accumulative basis.  In these cases, marks allocated to each section will be made clear.

 

Students must retain an electronic copy of this assignment and it must be made available within 24 hours of them requesting it be submitted.