Assignments: Strategic Financial Management

 
Lectures: Strategic Financial Management
Assignments: Strategic Financial Management
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Assignment 1: Capital Structure and Firm Value


Marks = 7
Due on = Jan 21, 2014
Email: ims.assign@gmail.com
Note: Subject of email and file name should be in this format : Your_Name_Assignment_Name

Instructions
  1.  This is a group assignment. Student groups and assigned companies can be found here [Download ]
  2. Collect 5 years data for the assigned companies from year 2007 to 2011.
  3.  Find the company's beta in the last 5 years on monthly share prices data
  4.  Find the annual market return for KSE 100, and average it.
  5.  Deduct the yearly t-bills rate from the market return to find average market risk premium (i.e. Rm -Rf)
  6. Find the cost of equity with CAPM equation [Beta calculations can be viewed in this VIDEO]
  7.  Find the company's financial expenses and divide it on the interest-paying liabilities (i.e. exclude accounts payable, wages payable etc). This will give you the interest rate that the firm is paying.
  8. Find the cost of debt after taxes (1-Tax)*interest rate
  9. Assume that interest rates increase by 5% with every 10% increase in debt . Your starting point should be the cost of debt which you would have calculated in step 8 above 
  10. Find the average net income and assume that this net income will remain constant for ever.
Required: 
(i)     Find the optimal capital structure where value of the firm is maximized. 
(ii)    Find the value of debt at this level 
(iii)    Should the company increase debt-level or reduce debt-level 
(iii)    What will be the share price after your proposed capital structure



Assignment 2: Cash Flow Estimation and Project Evaluation

Due Date = Feb 23, 2014
Email: ims.assign@gmail.com
Note: Subject of email and file name should be in this format : Your_Name_Assignment_Name
Marks =5

Mr. Jalal Abdullah has recently heard about the announcement by Peshawar Development Authority (PDA) to sell shops in a bidding process in Phase 6 of Hayat Abad, Peshawar. According to the expectations of Mr. Afridi, the prices  in the bidding process will be near 5500,000 rupees plus 350,000 government taxes. The shop will be given at a lease for 99 years. The shop can be used in any of the two alternatives: 

1. Give the shop on rent for 45000 rupees per month, with 10% increase per anum

2. Instead of renting, Mr. Abdullah can use the shop for starting his own grocery store. Since Abdullah is employed in a government organization, he will have to hire another person on profit sharing ratio of 75% (Abdullah ):25% (the other partner). The profit will be determined as follows. 
    a. 8% gross profit margin on total sells of grocery
    b. Utility and wages are usually 1% of the total sells
    c. Monthly sales will be 800,000 rupees, with 10% annual increase.
 
Mr. Abdullah will have to contribute another 1100,000 as a working capital in the shop if he opts for option 2. 
The discount rate for option 1 is 13.5%, whereas it is 14% for option 2. Income from the shop is taxable under taxation rules for individuals businesses (You can find taxation slabs in the table given below)
Requirements: 
1. Show with the help of calculations (NPV, IRR, PI, and Payback) whether Mr. Abdullah should buy the shop with regard to each option
2. Which of the two option should be opted for. 

INCOME TAX SLAB RATES FOR BUSINESSMEN IN PAKISTAN FOR YEAR 2013-14
S.No. Taxable income Rate of tax
1Where the taxable income does not exceed  Rs.400,000 0%
2Where the taxable income  exceeds  Rs.400,000 but does not exceed Rs.750,000 10% of the amount  exceeding Rs.400,000 
3Where the taxable income  exceeds  Rs.750,000 but does not exceed Rs.1,500,000 Rs.35,000 + 15% of the amount  exceeding  Rs.750,000
4Where the taxable income  exceeds  Rs.1,500,000 but does not exceed Rs.2,500,000 Rs.147,500 + 20% of the amount exceeding Rs.1,500,000 
5Where the taxable income  exceeds  Rs.2,500,000 but does not exceed Rs.4,000,000Rs.347,500 + 25% of the amountexceeding  Rs.2,500,000 
6Where the taxable income  exceeds  Rs.4,000,000 but does not exceed Rs.6,000,000Rs. 722,500 + 30% of the amount exceeding Rs.4,000,000 
7Where the taxable income  exceeds  Rs.6,000,000  Rs. 1,322,500 + 35% of the amount exceeding Rs.6,000,000”;
    



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Assignment 3: Short Essays


Marks = 8
Due on = May 11, 2014
Nature: Individual

Instructions

The assignment can only and only be submitted to the www.turnitin.com, which will not accept your submission after the due time. Details for creating your account on www.turnitin.com are given below:


1.          Click on this link https://www.turnitin.com/ >> Create a new account >> New students start here>>>

2.          In the class ID space, give these digits 8004739

3.          In the password, write= mbaims

4.          Complete the rest of the registration process

5.          Once the registration process is complete, then login into your account

6.          After login, click on the class " MBA 1.5 Evening"

7.          And then click on "Short Essays"

8.          Click on submit button and upload your assignment


Details of Assignment

Write detailed notes on the following:
1. Discuss why WACC is important for firms? How WACC can influence the financing decisions of firms?
2. Explain the irrelevance theory of capital structure of Miller and Modigiliani?
3.  What are the different methods of valuation of assets? Explain each method.
4. Discuss in detail the concept of EVA and MVA, why these measure are used and for what purpose?
5. Explain the different criteria for project evaluation, i.e. NPV, IRR, PI, Payback methods
6. Write short notes on the following:
    a. Theories of capital structure
    b. Theories of dividend policy