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FNCE90060 Financial Management
Semester 1, 2018
Group Assignment 2
Instructions
This assignment is due by 5pm Tuesday, 1 May 2018. Please submit a PDF file only (no Word, Excel, or anything else) via the LMS. If your computer is not set up to make PDFs, search the web for CutePDF, which allows you to create them from any program.
Please note that this is a group assignment. The maximum group size is 4 students and groups can be formed with students across the different streams (Wednesday, Thursday, and Friday) of the class. To join a group please go to the Assignments tab on the LMS and then go to the Assignment 2 folder. In the folder, click on “Assignment 2 Groups”. You will then see a list of groups. Choose a group to enrol in.
This assignment is part of your assessment and should only reflect the work of your own group. Plagiarism is a serious offense and will be penalised. Please visit
if you have questions about what constitutes plagiarism.
Please also be sure to write clearly and concisely. Unnecessarily long, meandering answers will be marked down. Along these lines, you will want to proofread your submission, as unclear answers will be penalised. You will not, however, be evaluated on visual presentation. A simple, typed document will be good enough. Please note that your assignment should be typed and any handwritten assignment, scanned assignment or anything with screenshots/photos will not be accepted. To receive full credit, show all of your work. Though you will not be evaluated on visual presentation, please make sure your figure in Question 2 is easily interpreted by a reader.
For each 24-hour period that you fail to submit your assignment after the due date (that is after 5pm Monday, 14 May 2018), 1 mark will we deducted from your assignment mark (for example, if your assignment mark is 7 and you submit your assignment at 5:01pm on the due date, your mark will be reduced to 6) and assignments submitted later than five days after the due date will not be marked and will automatically receive a mark of 0. So, if you submit your assignment after 5pm on Saturday, 19 May 2018, you will receive a mark of 0. Please note any penalty for late submissions will be applied the marks of all students of a group.
Please make sure that the name of your PDF file has the following format: GroupGroupNumber.pdf (for example, Group150.pdf). Also, please add the student numbers of your group members to the top of your PDF file.
Your assignment should be submitted by only one member of your group, but it needs to be submitted twice by the same group member. To submit your assignment, please go to the Assignments tab on the LMS and then go to the Assignment 2 folder. In the folder, click on “Assignment 2 Groups”. On your group page use the link “Step 1: First Submit Your Assignment Here” to submit your assignment. After submitting your assignment, go back to the
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Assignment 2 folder and this time use “Step 2: Then Submit Your Assignment Here Again” to submit your assignment a second time. The second submission is a Turnitin submission and will check your assignment for plagiarism. Note that both submissions must be received by the due date (that is by 5pm Monday, 14 May 2018); otherwise, your submission will be deemed to be a late submission.
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Background
The purpose of this exercise is to show you that by using public information we are able to analyse asset prices.
At the end of every financial year, publicly listed companies provide (among other things) detailed accounting numbers on their operations over the past year in the form of an annual report. One can compile a year-by-year table of key performance metrics by cutting and pasting from archived annual reports.
Our company of interest is Australian Pharmaceutical Industries (API).
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Question 1 [2 + 2 + 2 = 6 marks]
API provides annual reports on its website ( Download the annual reports from the last five years (2013-2017). Your goal is to generate a stock price estimate for API at the time the 2017 report was published (19 October 2017).
a) Create a table of total payouts for API over the five years of reports. From this table, forecast the growth (this could be positive, negative, or zero) over the next three years and try to get a reasonable terminal condition from the end of this period. State your assumptions clearly.
b) Find the cost of equity. To determine the cost of equity, go to the Yahoo Finance website: and get the monthly price and dividend information for API over the five years ending in September 2017.
c) Based on your numbers from (a) and (b), estimate the value of API’s equity and its price per share. How sensitive is your price estimate to the discount and growth rates you used? How does your share price estimate compare to the actual (market) price on 19 October 2017? What might account for any discrepancy between your price and the market price?
Question 2 [4 marks]
Create a football field (see Figure 9.2 in the textbook for an example) for API’s share price using data from Yahoo Finance. For a given stock, Yahoo provides an overview of the most current financial data (“Statistics”). Use these statistics in combination with data from similar firms to construct a football field with Trailing P/E and at least four other multiples. Briefly explain both the intuition behind each of the multiples you have used and the calculations you made for each multiple. Be sure to justify your assumptions for each range of multiples used in constructing the football field.