Strategic Corporate Finance Assignment | Get Homework Help

Requirements:

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:

Knowledge

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.

Skills

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:

Required:

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

Part B

(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.

Required:

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:

1. Semi-strong form efficient, and
2. Strong form efficient

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).

Required:

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

Part C

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