FINM7044 - Assignment 1 PDF

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ASSIGNMENT COVER SHEET

Research School of Finance, Actuarial Studies and Applied Statistics ANU College of Business and Economics Australian National University Canberra ACT 0200 Australia www.anu.edu.au +61 2 6125 0487

Submit your work using Turnitin in the course Wattle site, on Friday 23 August by 4pm. One submission only from each group. Your submission should include two files: a PDF file for your answers and an excel file for your supporting spreadsheets containing computational information. The files should be named as "FINM7044 Group # - Problem Set - Answer" and "FINM7044 Group # - Problem Set – Spreadsheets" respectively.

Group #

__________________

Student ID (List each student’s ID) Course Code and Name

FINM7044 Applied Valuation

Lecturer

Xianming Zhou

Due Date

Friday 23 August 2019, by 4pm

I declare that this work:  upholds the principles of academic integrity, as defined in the ANU Policy: Code of Practice for Student Academic Integrity;  is original, except where collaboration (for example group work) has been authorised in writing by the course convener in the course outline and/or Wattle site;  is produced for the purposes of this assessment task and has not been submitted for assessment in any other context, except where authorised in writing by the course convener;  gives appropriate acknowledgement of the ideas, scholarship and intellectual property of others insofar as these have been used;  in no part involves copying, cheating, collusion, fabrication, plagiarism or recycling.

Initials For group assignments, each student must initial.

This is a minicase of financial forecast. Analyse this minicase and answer all three questions. The company’s financial statements information is provided in the excel file entitled “Supporting Spreadsheet for Assignment 1”, posted on the course wattle.

Background: On 3 September 2008, the Coca-Cola Company offered to buy China Huiyuan Juice Group, the nation’s largest juice maker (which was listed on Hong Kong Stock Exchange), for h. The acquisition was halted by the Chinese regulator; on 18 March 2009, China’s Ministry of Commerce (MOC) announced that Coca-Cola’s bid to acquire Huiyuan failed to meet the country’s anti-monopoly law. ’s stock price Cola’s announcement, which then quickly disappeared upon MOC’s disapproval.

Questions: In early 2008,

financial statements for the period of 2008-2012. The firm’s balance sheets and income statements of the years 2005-2007 are given. Corporate income was expected to be taxed at the marginal tax rate of 25%. 1. Huiyuan’s sales growth during the forecast years was respectively, for the remaining years. C Forecast depreciation as a percentage of the prior year’s net fixed assets. Huiyuan planned to by issuing corporate bonds, throughout the forecast period. year’s current p 4.5% of the previous year’s long The company planned to maintain its dividend payout policy, raise no equity, and use either overdrafts (new short-term borrowings) or excess cash as the funding plug to balance the balance sheet. The interest rate was 7.5% on Huiyuan’s long-term debt, 2.5% on excess cash (as deposit), and 13.0% on overdrafts (including bank fees). previous year’s (4 points) 2. Suppose that Huiyuan’s operating net working capital as a whole would change in proportion to sales, following its average percentage of sales over the period of 2005-2007. Compute Huiyuan’s . and the adequate discount rate for Huiyuan’s cash flow was 12% company’s Compare this value with the acquisition offer price by Coca-Cola and, in no more than 50 words, explain the difference. (2.5 points) 3. By assessing Huiyuan’s financing strategy, discuss whether the forecast is reasonable. Due to an increasing concern over the worsening economic conditions in 2008, Huiyuan ruled out the possibility of raising new equity in the future years. The juice industry had shown the following average ratios: return on invested capital of 7.5%, interest coverage (EBIT/Interest) of 3.7, and debt-to-value ratio (based on the book values) of 40%. You can use a table to summarize necessary key ratios to support your discussion. Your discussion should be no more than 200 words. (3.5 points)

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