InterActive MBA Global Module Accounting and Managerial Finance Assignment Title AMF Written Coursework Assignment Assignment Type Individual Assignment Word Limit 3,500 (+500 words max allowed) Weighting 100% Student Cohort Issue Date 6th February 2017 Submission Date 13th March 2017 Issued by (Assessor) Internal Verifier Plagiarism When submitting work for assessment, students should be aware of the InterActive guidance and regulations in concerning plagiarism. All submissions should be your own, original work. You must submit an electronic copy of your work. Your submission will be electronically checked. Harvard Referencing The Harvard Referencing System must be used. The Wikipedia website must not be referenced in your work. Learning Outcomes On successful completion of this assignment you will be able to: 1. Summarise key principles, trends and tools in accounting and corporate finance. 2. Demonstrate effective approaches to the analysis of corporate finance structure and analysis of corporate financial statements. 3. Assess the value of practical value of models and theories on making decisions on corporate financing in context. 4. Critically evaluate the benefits of various types of financing for different kinds of organisations. 5. Utilize internal and external financial information to appraise business performance.Grading Criteria Postgraduate Grading Criteria for this assignment is available at the end of this document. Your Task To value a company using enterprise discounted cash flow (DCF), we discount free cash flow by the weighted average cost of capital (WACC). The weighted average cost of capital represents the opportunity cost that investors face for investing their funds in one particular business instead of others with similar risk. To determine the weighted average cost of capital, calculate its three components: the cost of equity, the after-tax cost of debt, and the company's target capital structure. Since none of the variables is directly observable, we employ various models, assumptions, and approximations to estimate each component. In this assignment you will be using financial information from Henkel AG and selected market data (in Excel) to assist in answering the questions given below. Question 1 – 50% The cost of equity is built on the three factors: the risk-free rate, the market risk premium, and a company-specific risk adjustment. The most commonly used model for this estimate is the capital asset pricing model (CAPM). To determine the CAPM, we need to estimate a risk-free rate, the market risk premium, and the market beta. a. To determine the risk-free rate, please use Treasury data from the "Select Market Data" spreadsheet. On the "Yields" tab, you will find yields to maturities for U.S. and German Treasury rates. For Henkel AG, which Treasury rate at which maturity is most appropriate to use in valuing the company? b. To determine Henkel's corporate beta, unlever (and relever) the ordinary least squares (OLS) market betas for each company in the European Household and Personal Care segment. Prices can be found on the "Prices" tab of the "Select Market Data" spreadsheet. To determine the OLS market beta, regress 10-year monthly returns against the MSCI World index denominated in the same currency. In Excel, this can be done using the "SLOPE" formula. Next, unlever the market beta using each company'syear-end debt-to-equity ratio and the formula: bu = be/(1 + D/E). To determine Henkel's corporate beta, re-lever the average industry beta using Henkel's year-end debt-to-equity ratio. Repeat this process for each of Henkel's divisions. c. Assume the market risk premium equals 5 percent. Question 2 – 50% Henkel does not carry debt beyond five years. To determine the cost of debt: a. For Henkel AG, which Treasury rate at which maturity is most appropriate to use in valuing the cost of debt of the company? b. Add a default premium based on the company's debt rating by Standard & Poor's. Yields by credit rating can be found on the "Yields" worksheet of the "Select Market Data" spreadsheet. Henkel reports its debt rating on its investor relations web site at www.henkel.com/investor-relations/credit-ratings-11952.htm. If the company's rating is between reported portfolios, interpolate between the nearest ratings. c. Determine Henkel's marginal tax rate, use the tax reconciliation table in the annual report. Set the marginal tax rate equal to the "Tax rate on income." d. To complete the cost of capital, weight the after-tax cost of debt and cost of equity using the company's year-end capital structure (found in the "Select Market Data" spreadsheet). Guidelines Please read all questions and information provided carefully. Answer should be made in appropriate length keeping in view the requirement of each question and total word counts allowed. In addition, your assignment should demonstrate the following qualities: A critical appreciation of relevant literature and its use to support argument, substantiate calculations and other aspects of the assignment. Taking ownership of the content, being prepared to debate and argue a personal position, and providing evidence of evaluative skills. A submissionmade up of extracts from published sources which is descriptive or simply just theoretical regurgitation is not acceptable. Your submission must have interpretation and consideration of the challenges and issues of taking theory into practice. Logical flow of ideas and treatment; appropriate selection of real world factors related to the companies under scrutiny. Evidence of additional personal research, and the ability to analyse material from a variety of appropriate relevant perspectives. Presentation, structure, appropriateness of methodology, breaking into section headings/subheadings, tidiness. Marks will be awarded for proper referencing and originality of work. Also note that plagiarism is a serious offence and your submission will be electronically checked. Your report must be handed in electronically no later than given date of submission.Grading Criteria Grading Criteria 70%+100 60-69% 50-59% 0 -49% Fail Generic skills: communication and presentation. Comprehensive and correctly structured assessment. Style of writing is very fluent and develops a coherent and logical argument. Excellent referencing. Well structured report which follows appropriate format but some aspects of layout and referencing could be improved. Style of writing is fairly fluent. Good referencing. Good report in most aspects but suffers from variations in quality and the layout contains some inadequacies. Style of writing is satisfactory. Referencing needs improving. Very poor report which is incorrectly structured and contains major errors and omissions. Style of writing lacks coherence and fluency. Poor referencing. Knowledge & Understanding Demonstrates excellent knowledge of theory and provides critical theoretical underpinning. Very good interpretations and summarising of main themes. Wide range of knowledge demonstrated and evidence of good understanding of the topic. Ability to interpret and summarise succinctly. Good range of knowledge demonstrated but weaknesses in key areas. Some understanding displayed of the topic. Summary and interpretation are satisfactory. Very poor range of knowledge demonstrated and there are major weaknesses evident in interpretation and understanding. No clear interpretation of main themes. Analysis Excellent use of theoretical and conceptual models to guide analysis linked with a critical discussion of main themes. Deconstructs the major themes used in the argument. Very good use of the theoretical and conceptual models with good critical discussion and application. Good evidence of deconstruction. Use of theory and concepts limited but relevant. Application could be improved and there is a tendency towards description. Must provide more evidence of deconstruction. Very poor use of theory and very little application of concepts. Very little description with not much evidence of analysis. Synthesis/ Creativity/ Application Logical presentation of themes with appropriate examples being demonstrated. Very good demonstration of synthesis. Models have been clearly applied to the argument. Very good account of main themes with sound application. Good attempt at applying models to the argument. .Fairly good attempt at synthesising the salient points. Good account of main themes with some attempt at application. Limited evidence of synthesis. Very poor account of main themes with little or no application. No links between models and argument. Evaluation Shows clear evidence of in-depth critical reflection and evaluation of the argument by providing a robust defence of the opinions presented in the assessment. Shows evidence of critical reflection and evaluation and a fairly cohesive defence of the argument Shows some evidence of critical reflection but could have been developed. Shows little or no evidence of critical reflection and needs to be much more developed. There is no defence of the opinions presented.