Finance group project

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Company: Fiat

Competitors: Toyota and Volkswagen

My part : 6. Payout Policy: Describe the company and its two peer firms’ payout policies, including cash dividends and share repurchases, if applicable.1

  • Explore the potential patterns in cash dividends over the most recent 5 years.
  • Describe the company’s share repurchases.

7. Capital structure: Calculate leverage ratios and identify the credit ratings for the company and the two peer firms. Discuss the potential differences and similarities.

Instruction

Project Description

The purpose of this project is to apply class concepts and techniques on a real company while integrating the Bloomberg information technology system.

Assume the role of a consulting firm when preparing the report to be addressed to the management of the company. The report should be maximum 10 pages (single-spaced), not including any appendices. While you can use your creativity and judgment in deciding on the exact format, the report should look professional (you should feel comfortable presenting it to the CEO of the company!) and be based on the following steps:

1. Select the company that your group is interested in. a. This should be a publicly traded non-financial company with at least 3 years of trading history and 3 sets of annual financial statements, and with international activities (suppliers and customers). Avoid money losing companies and REITS. If in doubt about your company choice, please clear it with your instructors. b. Obtain the company’s three most recent Annual Reports. c. Identify 2 peer firms from the same industry.

2. Calculate the firm’s Free Cash Flow for the most recent 3 fiscal years. Then calculate the annual growth rates of these FCFs, and figure out the average annual growth rate.

3. Find the weighted average cost of capital (WACC) provided by Bloomberg for the company and its two peers. Identify the components of WACC calculation and report the information in a table. Compare the information across these three firms and provide some brief comments. The Company Peer Firm 1 Peer Firm 2 Comments WACC Cost of equity Cost of debt Cost of preferred stock Weights For each component, please provide some detailed information from Bloomberg

4. Assume that the average growth rate of FCF in part 2 will be the constant growth rate for the future (the constant “g”). Estimate the firm’s total value.

5. Provide some sensitivity analysis of your valuation results in part 4 (e.g. How can a change in “g” affect your results?).

6. Payout Policy: Describe the company and its two peer firms’ payout policies, including cash dividends and share repurchases, if applicable.1 a. Explore the potential patterns in cash dividends over the most recent 5 years. b. Describe the company’s share repurchases.

7. Capital structure: Calculate leverage ratios and identify the credit ratings for the company and the two peer firms. Discuss the potential differences and similarities.

8. Check whether the company has acquired any other companies over the most recent 3 years. a. If yes, please describe the M&A deal (price paid, method of payment, stock market response, performance after acquisition, horizontal/vertical/conglomerate acquisition, etc.) b. If no, please briefly discuss the company’s business, strategy, or industry. Try to understand why the firm did not engage in M&As

9. Currency risk and Risk Management: Please identify your company’s main market (with the biggest share of customers). To accelerate your growth, you decide to manufacture directly in that country (DFI). The project will cost $400Mil and you plan to borrow 60% of the amount through a 20-year bond issue. By the time you issue the bonds, the market rate will increase by 2% and the Canadian dollar will depreciate by 5%. a. What kind of risk is the company exposed to? b. What is the strategy would you propose to the company to hedge itself against those risks? c. How much will it cost for each strategy if you need to act on July 19th, 2017.

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