It MUST include three companies of the tobacco industries (example : Marlboro, Camel, Parlements)
Here’s what the professor asked in his paper (please taker care of his requirements and follow it carefully) :
This project is aimed at providing you an opportunity to apply your knowledge of corporate finance to real firms.
This is an individual project. Each student will select an industry to analyze (See the attached list of industries). No two students will select the same industry. You will need to choose at least 3 companies from the same industry. Select the most recent fiscal year for the companies.
While preparing the project, you need to be very careful about the format. This is an industry analysis. As a result, you should not just describe one company at a time. Rather, you should discuss all the companies as a whole – especially discuss the firm’s place in the overall industry. You need to prepare an “integrated report” – not simply present a bunch of information on the firms without presenting the overall picture.
As part of this project, you will need to learn how to access financial data. One very useful source is www.SEC.gov. Go to the following webpage:
https://www.sec.gov/edgar/searchedgar/companysearch.html
There you can enter the name of the company to conduct a search. You want to find the most recent 10-K statement.
You are strongly encouraged to prepare tables and graphs to present your finding. In your project, discuss the following topics:
1. Risk and Return
Provide a discussion of the risk-return relationship of the firms in the industry. What are the risk profiles of the firms? Are the firms too risky? Are the firms more or less risky than the overall market?
If you had invested in the firm on November 1, 2007, would you have made any money (as of November 2, 2015)? What percentage (do not forget dividends – Yahoo Finance provides dividend adjusted price under the heading “Adj. Closing”)? Would you have made more or less than the S&P 500? Present the following:
a. Beta (use Yahoo estimates)
b. Expected Returns, Market Model (CAPM) (use a market risk-premium of 6%)
2. Investment Returns
Provide an idea of the profitability of the firms. In essence, evaluate the quality of the projects that the company has on its books. Select the most recent fiscal year for the companies. In the process, calculate and compare the following:
a. Cost of Equity = Net Income / Book Value of Equity
b. Cost of Capital = EBIT (1 – t) / Book Value of Debt + Book Value of Equity
c. ROE
d. ROA
3. Capital Structure
What are the different types of financing that this company has used to raise funds – stocks, long-term bonds, short-term bonds, etc.? Does this firm look like it has too much or too little debt compared to the sector? Calculate the debt ratios of the firms.
4. Dividend Policy
Does the firm pay any dividend? Do they have excessive cash on hand? (Compare the dividend to the industry.) If so, do you think the firm should pay more or less dividend?
5. Firm Growth Rates and assessment for the Future
Evaluate the future prospects of the firm. Is the firm growing faster or slower than its peers? Why? Would you invest in the firm?
In the process of evaluating the future prospects of the firms, consider the following:
a. Analyst Growth estimates for next year (Yahoo Finance)
b. Growth rate from the Dividend Discount Model with constant growth (utilize your expected return numbers from part 1 to enter in the formula)
c. Calculate the sustainable and internal growth rates of the firms.
The project is due on the last day of classes.
Helpful websites:
Yahoo Finance
SEC
Bloomberg
Google Finance
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