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Business Valuation(FIN205)

Assignment

Assignment marks: 94 | Presentation marks: 6Total marks: 100

Personal ID: 10376412

I have read the Assignment Guide in the ‘General assessment information’ and have applied the word count principles to my work.

My word count for this assignment is: [Enter your word count] words

Your assignment should be loaded into KapLearn by 11.30 pm on the due date.All times are based on AEDT/AEST time zones.

Refer to ‘Time remaining’ on the ‘Assignment’ page in KapLearn to ensure you submit your assignment by the specified due date and time.

Checklist I have completed my assignment using Word and Excel. I have completed my assignment using Calibri, Arial, Times New Roman or Verdana fonts. I have added my Personal ID on this page. I have added my word count on this page. I have added my Personal ID in front of the filename in the footer on the second page. I have saved the file to be uploaded as PersonalID_FIN205_AS_v3. Each question of my assignment is within the word limit guidelines for that question as per the

‘General assessment information’ (Assessment Assignment General assessment information). My assignment file size is no larger than 2 MB. If tables were required, they are visible as text, not as links or images. I have not removed the marking grid from the footer. I have submitted my assignment as per the instructions in KapLearn.

Marker feedbackComment on overall performance:

For marker use only.

For office use only

# 1a 1b 1c 1d 1e(i) 1e(ii) 1e(iii) 1e(iv) 1f(i) 1f(ii) 2a(i) 2a(ii) 2bStructure and

referencing TOTAL

Max 30 6 4 4 1 1 1 1 8 4 7 3 24 6 100

Awarded x x x x x x x x x x x x x x 0

10376412_FIN205_AS_v3 2 © Kaplan Higher Education

Instructions to students

• This assignment covers Topics 1 to 6 and accounts for 40% of your final grade.• There are two (2) questions in this assignment. You should answer all questions.• Marks are awarded for assignment structure and referencing.• The overall word limit for the assignment is 2,250 words. Marks will only be awarded for answers up

to the word limit (plus 10%) for each question. Any material written after this will not be counted towards your mark for that question. Headings, quotes and references within the body of the answer are included in the word count. Numerical tables, calculations, and reference lists are not included. For more information on word counts and their rationale, go to Assessment Assignment General assessment information.

• Refer to the Criteria-based Marking Guide for guidelines on what is expected for each question.• The ‘General assessment information’ section in KapLearn contains information about format and

presentation, word limits, citations and referencing, collusion, plagiarism and other policies, useful resources, submitting your assignment and accessing your results.

• Full workings must be shown for all calculations. Show all calculations in the text of your assignment and NOT attached as an appendix. Appendices to assignments will not be read.

• Answers are to be in your own words. Reference and cite all your sources (within the text of your answer) when quoting or using material from external sources. Include a reference list at the end of your assignment. Refer to the ‘Referencing and Citations Guide’ available from the ‘Library and Resource Centre’ in KapLearn for further information on referencing.

• Indicative weightings are noted beside each question. Use these weightings to assist you with your allocation of time and resources. The weightings indicate the relative importance of each question.

• State all assumptions used in providing your answer.• Requests for special consideration or information pertaining to special consideration written in the body

of the assignment will not be considered by the marker. Refer to the ‘special consideration’ section of the Assessment Policy on Kaplan’s website for more information.

Learning outcomes (LO) mapping Marks

1. Evaluate the qualitative factors that impact a business and its industry. 20

2. Apply earnings capitalization multiples and other methodologies to value businesses and securities. 16

3. Analyse the results of a valuation of a business or equity securities. 58

4. Compare the differences between corporate valuations and portfolio interest valuations. 6

Total marks 100

For office use only


referencing TOTAL

Max 30 6 4 4 1 1 1 1 8 4 7 3 24 6 100



Assignment presentation and referencing (6 marks)You are required to research beyond the subject notes in answering the questions in this assignment. Reference and cite all your sources when quoting or using material from external sources. Include a reference list at the end of your assignment.

You are required to:• use appropriate presentation and format for your assignment• demonstrate independent research and analysis• demonstrate appropriate use of relevant references• follow the Harvard referencing style as recommended in the ‘Referencing and Citations Guide’

available from the ‘Library and Resource Centre’ in KapLearn• include a reference list at the end of your assignment following the recommended referencing style• adhere with the assignment word limit.

Criteria-based Marking Guide for presentation and referencing

The Criteria-based Marking Guide provided at the end of each question is designed to assist students to understand what is expected of them in each question and to let them know how their performance will be judged. It provides advice about the criteria used in the marking of the question and what discriminates between an excellent, satisfactory and unsatisfactory answer.

Excellent (Mark range: 4.5–6 marks) Satisfactory (Mark range: 3–4 marks) Unsatisfactory (Mark range: 0–2.5 marks)

• clear and appropriate assignment layout and structure

• adheres to assignment and question word limits

• clear evidence of independent research and analysis incorporated throughout assignment

• appropriate use of referencing• accurate use of Harvard referencing style• comprehensive reference list provided at

end of assignment

• adequate assignment layout and structure

• adheres to assignment and question word limits

• some evidence of independent research and analysis

• appropriate use of referencing• use of Harvard referencing style• reference list provided at end of

assignment

• poor assignment layout and/or structure• assignment is significantly under or over

the word limit• no demonstrated independent research

or analysis• no use of references• referencing does not use Harvard

referencing style• no or inadequate reference list provided

at end of assignment

For office use only


referencing TOTAL

Max 30 6 4 4 1 1 1 1 8 4 7 3 24 6 100



Instructions to students

There are two (2) questions in this assignment. Answer all questions

Case studyYou are an equity analyst working for Big Mac’s, which provides independent research and stock recommendations to institutional investors. One of the companies you have been following with great interest is ASX-listed Aurizon (formerly QR National).

Aurizon (AZJ) has made several announcements to the market in the past six months and you are due to provide an update to the market about your perception of value and recommendation.

Key announcements of relevance have been:• 2016 annual report• 2017 half year report• Queensland Competition Authority (QCA) UT4 access undertaking relating to regulated revenues for the

below rail network up until 30 June 2017• update on impairment and transformation costs• UT5 submission to QCA• cancellation of company share buy-back• executive management changes.

Based on the above, your team have prepared the forecasts on the Excel template provided with this assignment.

The analysts have also adopted the following information:• government bond 10-year rate 3.21%• corporate tax rate 30%• asset beta 0.55• gamma (dividend imputation) 25%• market risk premium 7.00%• debt premium 2.75%• target debt to asset ratio 25%• long term growth rate 2.5%• net debt as at 31 December 2016 $3,388m• shares on issued as at 31 December 2016 2,051.7m• share price as at 31 December 2016 $5.33• dividend payout ratio 100%• mid period discounting applies• imputation adjusted in the cost of equity.

For office use only


referencing TOTAL

Max 30 6 4 4 1 1 1 1 8 4 7 3 24 6 100



Question 1 (60 marks | Word limit: 1,000 words)

Note: You need to construct a spreadsheet for your answers using the basic template provided. It should be clearly marked for each part of the question and all workings need to be shown.

The Excel spreadsheet needs to be uploaded separately to the Word document that contains your report when submitting your assignment. Be sure to cross reference your material clearly.(a) Based on the information prepared by your team, undertake a discounted cash flow valuation of the

issued capital of AZJ as at 31 December 2016. You should prepare a low, medium and high value. (30 marks)Marks will be awarded as follows:• calculation of discount rate (9 marks)• calculation of enterprise value for all three scenarios (15 marks)• calculation of equity value for all three scenarios (6 marks)

(b) Calculate the share price (based on your answers to part a) and discuss the key differences from the share price of AZJ as at 31 December 2016. (6 marks)

(c) You have decided to undertake a high level sensitivity analysis to test the reasonableness of your DCF. Other than earnings (revenue, EBITDA, profit, etc), identify two factors (assumptions, cash flow inputs) that would be important to include in your sensitivity analysis and why? (4 marks)

(d) One of your institutional investors has noticed that the underlying EBIT in FY2016 of $871 million differs from the statutory EBIT of $343 million? The investor has asked you to explain the concept of underlying and statutory and the significant differences between the two for the FY2016 period as explained by AZJ Management. (4 marks)

(e) Calculate the following for AZJ based on the share price as at 31 December 2016 and the FY2016 information provided: (i) the implied EBITDA multiple (1 mark)(ii) the implied EBIT multiple (1 mark)(ii) the implied PE multiple (1 mark)(iv) the dividend yield. (1 mark)

(f) Your team have compiled the following information for two ASX listed companies which are assumed to be comparable to Aurizon.

Qube Holdings Transurban Group

EBITDA multiple 14.2 21.8

EBIT multiple 24.2 35.7

PE multiple 31.9 60.6

Dividend yield 2.3% 4.6%

Based on the above information:(i) Explain four (4) reasons for differences between the implied multiples for AZJ and the

comparable companies. Be specific (i.e. relate to the companies) in your differences. (8 marks)(ii) What do the multiples (all three companies) indicate with respect to the value of AZJ?

(4 marks)

For office use only


referencing TOTAL

Max 30 6 4 4 1 1 1 1 8 4 7 3 24 6 100



Criteria-based Marking Guide for Question 1(a)–(f)

Excellent (Mark range: 47.5–60 marks) Satisfactory (Mark range: 30–47 marks) Unsatisfactory (Mark range: 0–30 marks)

• full and skilful application of valuation methodologies to value AZJ shares

• full and skilful integration of financial information provided

• full and skilful discussion of the differences between share price and value

• full and skilful discussion of the differences between statutory and underling EBIT

• substantial evidence of research to support the comparable company analysis within the word limit

• adequate application of valuation methodologies to value AZJ shares

• adequate integration of financial information provided

• adequate discussion of the differences between share price and value

• adequate discussion of the differences between statutory and underlying EBIT

• some evidence of wider research to support the comparable company analysis

• poor application of valuation methodologies to value AZJ shares

• poor integration of financial information provided

• poor discussion of the differences between share price and value

• poor discussion of the differences between underlying and statutory EBIT

• little or no evidence of research to support the comparable company analysis within the word limit

Insert your answers to Question 1(a)–(f) below this line

End of answers to Question 1(a)–(f)

For office use only


referencing TOTAL

Max 30 6 4 4 1 1 1 1 8 4 7 3 24 6 100



Question 2 (34 marks | Word limit: 1,250 words)

In November 2014, Aurizon announced the intention to buy back five percent of its shares on the market. This buy-back was extended in November 2015 for a further 12 months.

In August 2016, Aurizon announced the closure of its share buy-back program.(a) With respect to the share buy-back:

(i) explain the rationale to commence and subsequently cancel the AZJ share buy-back program (7 marks)

(ii) how would a share buy-back be expected to impact the share price of AZJ. (3 marks)

Based on your analysis and research with respect to AZJ, you have decided it is time to update institutional investors (your clients) on the recent announcements made by AZJ, your view of value and an investment recommendation (buy, sell, hold). (b) Provide a written report and recommendation for AZJ including the following:

• an overview of major announcements in 2016, in particular the QCA undertaking• a summary and brief discussion of FY2016 financial performance• an update on the competitive position of AZJ (not a comprehensive industry analysis)• a brief discussion of the key risks facing the company in the short term• your view of the value per share of AZJ (based on the work undertaken in question 1)• a clear recommendation for investors. (24 marks)

Note to students: Wherever possible your report should be presented in a professional manner including headings, tables and graphs.

Criteria-based Marking Guide for Question 2(a)–(b)

Excellent (Mark range: 25–34 marks) Satisfactory (Mark range: 25–17 marks) Unsatisfactory (Mark range: 0–17 marks)

• well supported view (within tight range) of value of share price

• full and clear discussion of recent announcement

• full and clear analysis of competitive position and risks

• full and clear discussion of financial performance

• full and clear reasons given for recommendation and value

• substantial evidence of wider research to support analysis within the word limit

• adequate (within acceptable range) view of value of share price

• some supporting calculations provided• some cross referencing from spreadsheet• some forecasts/comparables prepared or

provided• adequate discussion of recent

announcements• adequate analysis of competitive position

and risks• reasonable discussion of financial

performance• some reasons given for recommendation

and value• some evidence of wider research to

support analysis within the word limit

• no view of value of share price• poor or no supporting calculations

provided• little or unclear cross referencing from

spreadsheet• little or no forecasts/comparables

prepared and provided• little or no discussion of recent

announcements• little or no analysis of competitive position

and risks• no or vague discussion of financial

performance• no or insufficient reasons given for

recommendation and value• no evidence of research• may exceed the word limit

For office use only


referencing TOTAL

Max 30 6 4 4 1 1 1 1 8 4 7 3 24 6 100



Insert your answers to Question 2(a)–(b) below this line

End of answers to Question 2(a)–(b)

END OF ASSIGNMENT

For office use only


referencing TOTAL

Max 30 6 4 4 1 1 1 1 8 4 7 3 24 6 100



files. Web viewI have completed my assignment using Word and Excel. I have completed my assignment using Calibri, ... •calculation of enterprise value for all three scenarios

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