LU 456 Cost of Equity and Debt Worksheet

LU 456 Cost of Equity and Debt Worksheet

Table of Contents

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Instructions

LU 456 Cost of Equity and Debt Worksheet

Photovoltaics, Solar

1) Assessment

The paper (report) will make up 100% of the coursework assignment. The following aspects will be taken into consideration:

Application of theory and critical analysis

Empirical analysis (statistical, econometric analysis is appreciated but not mandatory)

Use of source materials (e.g. EUROSTAT, OECD statistics, World Bank statistics)

Structure (see below)

Spelling and grammar, academic style

Paper has to include (for selected company):

Calculation of cost of (own) equity capital (CAPM or other model)

Calculation of cost of borrowed capital

Calculation of WACC (in the context of optimal capital structure of a business)

Forecasts of revenues for next 5 coming years (in the context of contributions made by investment projects, mergers and acquisitions to corporate growth)

Simplified forecasts of financial statements (balance, income statement, ). “Simplified” means: you can present only most important and needed, in your opinion, fragments of balance, income statement. Forecast method that you can you in this point can be based on “ratio/proportion to” (e.g. percentage of sales method) analysis. E,g. if you observed that the ratio of sales/assets or ratio of sales/current asset or any other you need is more or less stable for historical data, you can use this historical ratio to produce forecast for calculation of future assets or current assets or any other part of the statement that you can need. Of course it is more welcome to produce more detailed analysis, but lack of it will not have negative effects.

Forecast of the rate of growth of FCFF of the company (“g”) (in the context of corporate life cycle theory)

Estimation of the company’s share price by discounted cash flow method (DCF of FCFF)

Analysis of the sector in global (world) scale

Elements that report has to include:

Rf- risk free rate (short and long term),

Rm- rate of return from market index or risk premium (long term),

B- beta parameter,

Capital structure (short and long term)

Forecasts of revenues (short and long term)

Forecasts of investment projects (short and long term)

Should be calculated as (weigted) average of following methods:

Expert method/ Delphi method – reports/recommendations of stock market analyst, sector reports, forecasts of finance expert e.g. A. Damodaran, forecasts of company’s executive board, forecasts of IMF, OECD, ECB, MF, WB

Own calculations – “standard” methods of the calculations (regression, average of historical growth, fixed proportion of base value, e.g. revenues, assets), give the reasoning for assumptions and information of:

Own calculations – non-standard methods (based on long term interest based on inflation targeting; usage of data of competitors or whole industry; data from national statistical offices, like: tendencies of consumption of particular goods, demographics trends, etc), give the reasoning for assumptions and information of:

– chosen period,

– sources,

– used equations

– chosen period,

– sources,

– used equations

Project structure requirements

1. Project will be undertaken by 1student

b.The student need to deliver electronic copy of only his/her work (without bibliography) in the .doc file that is named: Surname_Name_IDnumber_ IFS. Hereinafter referred to as “individual electronic version”.

1. Student need to deliver whole report hereinafter referred to as “individual report” (with bibliography) in the .doc file that is named: ..
2. Paper should have following structure:
3. INTRODUCTION (about 10% of the essay):

(Your interpretation of the title, what issues you are exploring, the importance of the issues)

1. MAIN BODY (about 80% of the essay):

Has to include underlined headlines and structure:

Short characteristics of the company

Short characteristics of the sector

Calculation of cost of (own) equity capital (CAPM or other model)

Calculation of cost of borrowed capital

Calculation of WACC (in the context of optimal capital structure of a business)

Forecasts of revenues for next 5 coming years (in the context of contributions made by investment projects, mergers and acquisitions to corporate growth)

Simplified forecasts of financial statements (balance, income statement)

Forecast of the rate of growth of FCFF of the company (“g”) (in the context of corporate life cycle theory)

Estimation of the company’s share price by discounted cash flow method (DCF of FCFF)

Analysis of the sector

 

RUBRIC
Excellent Quality 95-100%	Introduction 45-41 points The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.		Literature Support 91-84  points The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.			Methodology 58-53 points Content is well-organized with headings for each slide and bulleted lists to group related material as needed. Use of font, color, graphics, effects, etc. to enhance readability and presentation content is excellent. Length requirements of 10 slides/pages or less is met.
Average Score 50-85%	40-38 points More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided.		83-76  points Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration.			52-49  points Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met.
Poor Quality 0-45%	37-1 points The background and/or significance are missing. No search history information is provided.		75-1 points Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration.			48-1 points There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met
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