Finance and Accounting Strategic Corporate Finance,

Project description
Introduction
You work in the corporate finance department of a major investment bank. One of your clients has expressed an interest in making an investment in Morrison’s supermarket. As an investment advisor you wish to value the company so have collected the following information:

Balance sheet as at: 2 Feb 2014 3 Feb 2013
Non-current assets £m £m
Tangible assets 8,625 8,616
Intangible assets 458 415
Investments 216 154
9,299
9,185

Current assets
Inventories 852 781
Trade and other receivables 316 291
Cash and cash equivalents 261 265
Other 1 5
1,430
1,342

Current liabilities
Creditors 2,272 2,130
Short term loans and overdrafts 553 52
Other current liabilities 48 152
2,873
2,334
Net current assets 1,443 (992)
Non-current liabilities
Borrowings 3,164 2,963
Net assets 4,692 5,230

2 Feb 2014 3 Feb 2013
Equity £m £m
Share capital (nominal value 10p) 234 235
Share premium account 127 107
Profit and loss account 1,714 2,273
Other reserves 2,617 2,615
Total equity 4,692
5,230
Other information:

Share price Div/share1 EPS2
3 Feb 2013 252p 11p 27p
2 Feb 2014 240p 12p 10p
1 This includes the dividends actually paid to shareholders and consists of the final dividend for the year to 3 Feb 2013 and interim dividend for the year to 2 Feb 2014
2 This is the fully diluted EPS and takes into account any new shares that have been issued during the year.
Notes on the above information
Asset valuations
• The intangible assets have recently valued and it is thought that they are overstated by £40m.
• The property plant and equipment have recently been valued and it is thought they are understated by £30m
• There may be £7m of debtors (trade receivables) that cannot be collected.

The Capital Asset Pricing Model
Assume the risk free rate of return is 3% and the average return on the market is 5% per cent.
Beta for Morrison’s can been calculated variously at 0.28* or 0.74** For this assignment please use 0.5 as a rough average.
*Financial times WM Morrison supermarkets [internet] available from http://markets.ft.com/research/Markets/Tearsheets/Summary?s=MRW:LSE [accessed 15 January 2014]
** Digital look Morrison (Wm) Supermarkets [internet] available from http://www.digitallook.com/dlmedia/security.cgi?csi=10248&username=&ac= [accessed 15 January 2014]
Non Current liabilities
Assume the non-current liabilities pay a coupon of 5%. They are currently being traded at £100 per £100. You should consider these ‘irredeemable’ They are shown in the balance sheet at their par value.
The share price over the last 12 months is shown overleaf: (courtesy of London stock exchange)

3BM070 Strategic Corporate Finance ASSIGNMENT 2
Type of Assessment: Case Study: 2500 words
Submission deadline: Friday 9 May 2014 14:00 uploaded to Moodle
Weighting: 50% of module mark
Learning outcomes
3. Synthesize and apply both theory and empirical information to the solution of to a range of investment-decision problems.
4. Reconcile conflict between DCF models for decision-making and using accounting income for evaluating project performance.

Introduction
You work in the corporate finance department of a major investment bank. One of your clients has expressed an interest in making an investment in Morrison’s supermarket. As an investment advisor you wish to value the company so have collected the following information:

Balance sheet as at: 2 Feb 2014 3 Feb 2013
Non-current assets £m £m
Tangible assets 8,625 8,616
Intangible assets 458 415
Investments 216 154
9,299
9,185Current assets
Inventories 852 781
Trade and other receivables 316 291
Cash and cash equivalents 261 265
Other 1 5
1,430
1,342Current liabilities
Creditors 2,272 2,130
Short term loans and overdrafts 553 52
Other current liabilities 48 152
2,873
2,334
Net current assets 1,443 (992)
Non-current liabilities
Borrowings 3,164 2,963
Net assets 4,692 5,230

Required:
Task 1 Valuation of Morrison plc. (20 marks)
(Use only the information contained in the assignment for task 1)
a) Net asset value
Calculate and comment briefly on the Net asset value per share for Morrison’s.
b) Cost of capital
i. Calculate the cost of equity capital for Morrison’s plc. using the Capital Asset Pricing Model.
ii. Calculate the cost of debt capital (ignore tax)
iii. Calculate the weighted average cost of capital (WACC).
(use the share price as at 2 Feb 2014 for the value of equity)
iv. Comment briefly on your results
c) Dividend growth model
Use the dividend growth model to calculate the theoretical price of a share under the following assumptions:
(i) g = 0%
(ii) g = 2%
(iii) Comment briefly on your results
d) Value per share using the price earnings (p/e) ratio
Calculate the price earnings ratio using the share prices as at 2 Feb 2104 (240p) and 20 March 2014 (208p) using the EPS figure for 2014.
Comment on your answers if the retail industry sector containing Morrison’s has an average p/e ratio of 15.0.
Task 2 (60 marks)
Calculate the value of a Morrison’s share and advise your client
a) Use the information from your calculations to arrive at the valuation of a Morrison’ share. In doing so you should critically evaluate the models used in your calculations and relate your calculations to the current and historic share price information as appropriate.
b) Discuss whether you would advise your client to make an investment in this company
Task 3 Share price tracking (20 marks)
Critically analyse the movement of your chosen share during the period it was being tracked, Choose the length of time you feel most appropriate.
Refer to relevant theories and academic literature to explain why and to what extent the share moved in response to new information.

3BM070 Strategic Corporate Finance: Assignment 2
Criteria 80-89 70-79 60-69 50-59 40-49 30-39 20-29
Task 1 Calculations related to Morrison’s Excellent calculations clearly laid out Excellent calculations and presentation Very good calculations and presentation Mostly correct calculations and well presented Some errors in calculations and some confusion in presentation Inadequate calculations with poor presentation Very few calculations and very poor presentation
Task 2 Advise client on value of Morrison’s Excellent analysis integrated with relevant theories and a wide range of academic literature Excellent analysis integrated with relevant theories and a wide range of academic literature Very good analysis using a range of theories, and a good range of academic literature Good analysis using a range of theories, with reference to relevant theories and academic literature Some analysis, partly descriptive, some reference to theories and academic literature Inadequate analysis, largely descriptive, some reference to theories and academic literature No analysis, descriptive only, little or no reference to theories or academic literature
Task 3 Analysis of share movements Excellent analysis integrated with relevant theories and a wide range of academic literature Excellent analysis integrated with relevant theories and a wide range of academic literature Very good analysis using a range of theories, and a good range of academic literature Good analysis using a range of theories, with reference to relevant theories and academic literature Some analysis, partly descriptive, some reference to theories and academic literature Inadequate analysis, largely descriptive, some reference to theories and academic literature No analysis, descriptive only, little or no reference to theories or academic literature

PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET AN AMAZING DISCOUNT 🙂