Part A of the assessment is compulsory for all students with a marking allocation of
50% awarded within this element. Students will then select to attempt EITHER Part B or Part C of the assessment with this element of the work also being awarded a mark allocation of 50%.
The assignment has been designed to cover the following learning outcomes associated with successful completion of the module:
K1. Critical understanding of the key strategic decisions that a business may have to make and appreciated how accounting and finance can assist in making and evaluating those decisions.
K2. Critical understanding of specific analytical skills in key decision areas within strategy and finance at local and international level.
K3. Critical understanding of the limitations of the current state of financial theory in making strategic business decisions.
S1. Competence in applying the key valuation concepts and methodologies of financial decision making in order to contribute to the wider decision making of the organisation
Part A (compulsory)
You have recently joined the investment team as a financial analyst at Wisdom Wealth Consultancy Ltd., a financial advisory firm based within Hong Kong. As part of the initial duties you have been asked by the Board of Directors to investigate the five-year performance of a SINGLE company that is currently listed on the Hong Kong Stock Exchange and forms part of the Hang Seng Index with the view to potentially investing future company funds into the chosen company:
Select a SINGLE company that is listed on the Hang Seng Index and prepare a report for the Board of Directors of Wisdom Wealth Consultancy analysing and evaluating the five-year performance of the chosen company.
In this section students should demonstrate both knowledge and understanding of a range of topics, theories, and concepts covered within the UGB363 Strategic Corporate Finance module. A report format should be utilized that offers clear, concise analysis, resulting in the production of robust recommendations. Topics and concepts that can be considered for inclusion within the report include corporate governance policy, financing strategy, investment strategy, ratio analysis and interpretation, capital structure alterations, dividend policy, and merger and acquisition activity. This is not an exhaustive list and students should be prepared to investigate other key aspects from the module if they feel necessary.
Total for Part A – 50 marks
(a). Company A has 8 million shares in issue and Company B 10 million. On day 1 the market value per share is £20 for A and £8 for B. On day 2, the management of A decides, at a private meeting, to make cash takeover bid for B at a price of £12 per share. The takeover will produce large operating savings with a value of £60 million. On day 6, A publicly announces an unconditional offer to purchase all shares of B at a price of £12.00 per share with settlement on day 20. Details of the large savings are not announced and are not public knowledge. On day 12, A announces details of the savings, which will be derived from the takeover.
Ignoring tax and the time-value of money between days 1 and 20, and assuming the details given are the only factors having an impact on the share prices of A and B, determine the day 2, day 6, and day 12 share prices of A and B if the market is:
In each of the following circumstances:
(i) the purchase consideration is cash as specified above, and (5 marks)
(ii) the purchase consideration, decided upon on day 2, and publicly announced on day 6, is one newly issued share of A for each share of B. (5 marks)
(b). The Efficient Market Hypothesis states that “security prices fully reflect all available information” (Fama, 1991).
Critically evaluate the previous statement, ensuring the response is supported with relevant empirical evidence. (40 marks)
In this section students should demonstrate an understanding and knowledge of the theoretical aspects that underpin the differing strengths of market efficiency. The discussion / evaluation should be supported with relevant, contemporary, academic research that has been undertaken within this field and should be referenced accordingly. Ensure the response does not become overly descriptive within its approach, rather, attempt to incorporate a critical viewpoint throughout, allowing logical conclusions to be offered.
Total for Part B – 50 marks
The body of academic research provides conflicting evidence as to whether an optimal capital structure does indeed exist for individual companies and businesses. Demonstrating knowledge and understanding of the differing theoretical viewpoints associated with capital structure, and incorporating relevant empirical findings, critically evaluate and analyse whether financial managers can strive for an optimal capital structure.
In this section students should demonstrate knowledge, understanding, and an ability to critically evaluate and analyse the main capital structure relevance and irrelevance theoretical viewpoints. The response should be developed through use of a wide range of relevant academic literature, referenced as per Harvard referencing requirements.
Total for Part C – 50 marks