FINM7401: Individual Assignment
• The individual assignment has a total marks of 100, which count towards 25% of your final grade
• Type: This is an individual assignment
客户：
小组已选公司与行业：
Industry
Tesla (汽车) Consumer Discretionary -Automobiles - Automobile Manufacturers
Estee Lauder Consumer staples - personal products
Mcdonald's Consumer Discretionary - consumer services - restaurants
Boeing（客机） Industrials - capital goods - aerospace and defense
Apple Information technology - technology hardware...
所选公司信息：
名称：Pfizer Inc （美国辉瑞制药）
行业：Health care – Pharmaceuticals
上市于：NYSE
连续3个财年EPS为正数，2020财年DPR为正数且小于100%。
选择这个公司的原因：符合条件的其它公司比较多，比如迪士尼，推特，等等。但是没选这些公司，因为Capital IQ上缺这些公司的部分近年的财务数字，比如这两年的dividend per share 为N/A
Marking Criteria:
To complete this assignment, You need to submit a PDF document and an excel spreadsheet:
• The PDF document is the main document that will be marked. This document should include
all of your working and solutions.
– For computation questions. Make sure you show the list of inputs and state your assumptions
clearly. You should attach a screenshot to show the data source (Capital IQ), unless
it is listed in the excel spreadsheet (see the excel spreadsheet instruction below).
To get a full mark, you need to demonstrate:
∗ your ability to analyses the information and make reasonable judgment on the inputs.
∗ your ability to apply the correct formulas with accurate computation and all workings
clearly shown.
– For discussion/short-essay questions. Make sure you use your own words and reference the
sources of your information. Make sure you include a word count (where applicable).
To get a full mark, you need to demonstrate:
∗ your ability to fully address the questions.
∗ your ability to identify key issues and interrogate them within the relevant context.
∗ your ability to synthesise your ideas with those of your researched sources to strengthen
your argument.
• The EXCEL spreadsheet should include the financial data downloaded from the capital IQ.
If you wish to use excel to do computation questions, you still need to show your calculation in
the PDF document to demonstrate your knowledge of using formulas. The Excel spreadsheet
serves a purpose for the marker to reconcile your answer with the provided data and access your
ability to collect relevant data. The workings in the excel spreadsheet will not be marked.
Preparation:
Before starting the individual assignment, you should have a team for your team project. Each team
member requires to select a company from a different industry. All the companies in your group
should be listed on the same stock exchange. Your options are: NASDAQ; New York Stock Exchange
(NYSE); Australian Stock Exchange (ASX).
Moreover, your company should satisfy all the following requirements:
• The company is from a non-Financial industry.
• The company has a positive Basic Earnings Per Share (EPS) for the past three fiscal years.
• The company’s dividend payout ratio (DPR) is a positive value smaller than 100% at the end
of the fiscal year 2020. You need to calculate the DPR using the Dividend Per Share on Basic
EPS.
Start of the Question
Note: “The Company” in the questions refers to your selected company for this assignment.
Part 1: Company Background (35 marks)
1. (5 marks) Provide a description of the business of your selected company. The description should
at least include the information that an investor would be interested to know (e.g. the industry;
firm’s daily operation; competitors).[word limit: 200]
2. (15 marks) Discuss the company’s corporate governance in managing the agency problem. You
can choose ONE of the following three options to answer this question. Make sure you reference
the sources properly. [Word limit: 300]
• Give an overview of at least three strategies the company uses to reduce agency cost. The
discussion should focus on how these strategies work together to minimise agency conflict
effectively.
• Choose ONE of the strategies the company uses to reduce the agency cost and do an in-depth
discussion. The discussion should focus on how this strategy is effective with references to
support your argument.
• Find a piece of the news article that reflects the agency problem of this company. Describe
the event and discuss how the agency problem is (or is not) being properly managed.
3. (15 marks) In modern days, companies no longer aim to maximize the shareholders’ wealth only.
You can choose ONE of the following options to discuss the company’s approach on this matter:
• Discuss how the company incorporates the Stakeholder Theory and the potential impact of
this approach on the firm and the stakeholders.
• Discuss how the company incorporates Corporate Social Responsibility (CSR) in operation,
and the potential impact of this approach on the environment, society and/or firm’s corporate
governance.
You can either find a relevant corporate governance policy on the company’s website or in the
media. Make sure you reference the sources properly. [word limit: 300]
Page 2 of 4
Part 2: Stock Valuation (50 marks)
4. (3 marks) In your excel spreadsheet, create separate tabs for the downloaded financial information
that is relevant to your calculations, such as income statement, ratios, etc. Highlight the column
for the end of the fiscal period of the year 2020 and highlight any other information you have used
in your calculation.
For questions in Part 2, “today” refers to the end of the fiscal period of the year 2020.
5. (8 marks) Assume the Dividend Discount Model (DDM) can be applied to the company. Estimate
the equity cost of capital:
(a) (3 marks) Assume there is no growth potential of the company.
(b) (3 marks) Assume the there is a growth potential of the company, and the growth rate is
equivalent to the capital gain rate.
(c) (2 marks) Use the capital asset pricing model (CAPM). Regardless of the stock exchange
market you have chosen, assume the risk-free rate is 2.5% and market portfolio return is 7%.
6. (20 marks) Assume the Dividend Discount Model (DDM) can be applied to the company. Complete
the following calculations:
(a) (5 marks) Assume the company is growing at the revenue growth rate, and it will grow at this
rate forever. Use the estimated equity cost of capital in question (5b) and (5c) respectively,
calculate today’s intrinsic values of the stock. State any assumption you have made on your
inputs and justify your choice.
(b) (10 marks) Assume for the next three years, the company expects the return on new investment
(RONI) would equal to the return on common equity (ROE) as of the end of the
fiscal year 2020. From the fourth year onward, it is expected that the sustainable growth
rate would be half of the third year’s growth rate. Estimate the growth rates and calculate
today’s intrinsic value of the stock. Choose one of the estimated equity cost of capital from
part (5a), (5b) or (5c) as your discount rate, justify your choice.
(c) (5 marks) Based on your calculations above, what recommendation would you make about
investing in this stock?
7. (4 marks) So far, we have been practising stock valuation using the dividend discount model
(DDM). However, there are many limitations associated with DDM. With reference to the company,
discuss the limitations of the DDM. [word limit: 200]
8. (10 marks) Provide an assessment of the company using at least 2 value multiples. Interpret the
multiples and discuss the company’s relative position in the industry. What recommendation
would you make about investing in this stock today? (For this question, you need to extend what
you have learnt in the class.)
9. (5 marks) Find the last time that the company changed its dividend policy. And discuss whether
the decision was made correctly or not. [word limit: 200]
Part 3: Bond Valuation (10 marks)
10. (10 marks) Look at the company’s credit rating history and identify the most recent change in
its credit rating. Discuss the potential cause(s) of this change. How would this change affect the
returns on the existing bondholder and the new bondholder at the time of the change? [word
limit: 300]
Note: If there is no actual change on the credit rating over the life of the company’s history, use
analyst projections.
Page 3 of 4
Part 4: Document formatting and presentation (5 marks)
• Document Presentation: Your document should be typed in Times New Roman font, size
12 with single space. The neat layout of the assignment with graph and discussion.
• Word Limits: For questions with word limit constraints, you must include the word count
at the end of your answer (e.g. (258 words)). Exceeding the word limit or not specifying
the word count will result in a loss of marks. Your reference list is not included in the word
count.
• Proper Submission: Follow submission instruction (correct file name, submit to the right
place, cover sheet attached)