Objective:

This assignment is designed to improve students' ability to:

1.Develop a thorough understanding of financial statement analyses, working capital management, capital structure, dividend policy and capital budgeting approaches.

2.Be able to collect relevant data from Thomson Reuters Eikon and other public domains.

3.Critically analyse and interpret the data collected.

4.Write the report and present their findings.

Project Guide:

This project will account for 60% of your overall grade for the Corporate Finance paper.

Each student is randomly assigned to a specific firm listed on the NZX. Your assigned company is MAINFREIGHT LIMITED.

For your allocated company collect the relevant information and produce a report which will address All Questions specified in five parts.

Make sure that you do all the analysis for the company that has been allocated to you. Otherwise, you will get ZERO points for this assignment.

The report should not exceed 10 pages (excluding the cover pages and appendices). Use Times New Roman 12pt font, double Spaces and APA citation style providing all source material information.

Your report will be marked on the basis of the accuracy of the calculations, and the clarity of the analysis. Additionally, marks will be deducted for work that is not of a suitably professional standard.

Part 1: Financial Statement Analysis

a)For the company that is assigned to you, collect data from Thomson Reuters Eikon and perform financial analysis over the past five years statements. Specifically, you should calculate the:

Short-term solvency

Long-term solvency

Asset management

Profitability

Market value indicators

For each of the above, pick 2 items which best describe that particular subject (e.g. current and quick ratios to represent the short-term solvency).

b)Discuss the pattern you observe from the above ratios and explain them with relevant information (e.g. Did the company open a new product line? Have they tried to cut costs? Did the company issue more shares?). Hint: the more comprehensive and accurate your explanation is, the better your mark will be. Do not just describe the trends and/or changes observed, discuss the factors driving them with appropriate referencing to your sources.

c)Using Thomson Reuters Eikon, identify 2-3 'peer' companies for your firm. These should be firms in the same industry, ideally based in the same country. For each peer firm, calculate the same ratios as above for the most recent financial year. Compare the values with those for your firm, what does it tell us about your firm?

Part 2: Working Capital Management

a)Using the information provided in your company's most recent financial statements, calculate the Average Age of Inventory (AAI), Average Collection Period (ARP) and Average Payment Period (APP).

b)Calculate the Operating Period (OP) and Cash Conversion Cycle (CCC).

c)Calculate the Operating Period and Cash Conversion Cycle for the peer companies identified in Part 1 and comment on any similarities or differences.

d)Identify different working capital management strategies companies may use to minimise their cash conversion cycle. Which one of these strategies do you think would work for the company you are analysing? Why? Explain your answer.

Part 3: Capital Structure & Dividends

a)Identify the company's debts by populating a table which lists each debt, the amount of that debt, and the interest rate (there should be detail on debt in the notes to the financial statements, floating debts may only state that it is floating).

b)What is the book value and the market value of equity?

c)Determine the debt/equity ratio and compare it against the company's industry peers.

d)Based on your answer to c), what do the similarities or differences from the company's industry peers tell us?

Part 4: Dividend Policy

a)Examine your firm's dividend policy and identify if there have been any major changes over the past five years (You may want to look at your company's annual reports for more information on this.)

b)Based on the different theories discussed in class, assess the appropriateness of the observed dividend policy.

Part 5: Capital Budgeting Analysis

The company you picked is starting a new project. The initial cost of the project ( CF₀ ) is 10% of the most recent year's capital expenditure of the company (refer to Capital Expenditure from the Cash Flow Statement). With this new project, the company is going to receive a cash flow of 1% of the most recent year's revenue for each of the next five years ( CF₁ ,...,CF₅ ). The discount rate (WACC) to use can be found from Thomson Reuters Eikon.

a)Calculate the Net Present Value, Payback Period, and Internal Rate of Return of this project.

b)Interpret the values you calculated. Should the company proceed with the project or not?